Demand for climate adaptation solutions will rise: GIC
Adaptation financing is insufficient as many climate adaptation projects are not bankable
[SINGAPORE] The demand for climate adaptation solutions will accelerate, as the effects of climate change becomes more pronounced, said Wong De Rui, senior vice-president for sustainability at Singapore’s sovereign wealth fund GIC.
For one thing, the economic damages brought about by climate disasters have increased by four times between the periods 1980-2000 and 2001-2024.
“That paradigm shift is already happening today under what some climate experts might consider fairly mild global warming conditions. So imagine what’s going to happen when we see global warming accelerate,” said Wong, who was speaking on a panel during the Milken Institute’s Asia Summit, which recently concluded.
He added that climate adaptation solutions, which include fire-resistant materials or flood-resilient materials, are not niche opportunity sets.
The enterprise value of companies producing these solutions will grow to US$9 trillion in the future from US$2 trillion currently.
“So it is enormous, and I think it’s something that even large institutional investors have to ascertain how to deploy capital potentially in this theme,” he said.
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“It’s not just the size of the investment opportunity. It’s the fact that a large proportion of value is not factored in by businesses. It’s not factored in by investors. It’s the second reason why we think this is an emerging investment theme.”
He added that several companies in this space are profitable. “These are companies that have a steady customer base, and their revenue are going to just accelerate with climate change in the future.”
He also said that investors have often made their investment decisions regarding climate-related opportunities based on the policy volatility in this space.
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However, he noted that climate adaptation is dependent on the laws of physics.
“Mother Nature has no political affiliation. If anything, physical risk is going to be a demand driver for climate adaptation solutions. It’s going to increase because of the stock of cumulative greenhouse gas emissions in our atmosphere. And as a result, this is going to lead to a rise in physical risk.”
He added: “This is not a ‘guesstimate’... this is based on the law of physics. So there’s actually a lot more certainty in this than we actually give this space... credit for.”
Also speaking on the panel, Ravi Menon, who is Singapore’s climate change ambassador, echoed Wong’s sentiments.
“Mitigation efforts depend in part on politics and economics – policies, carbon pricing and so on. Adaptation doesn’t depend on those things. Adaptation is driven by nature,” he said.
“And nature, it has its own timeline. We are contributing to that timeline, and so these are areas where there’s clearly going to be great demand.”
While companies in the business of producing climate-resilient materials or crops will see an increase in demand, he noted that there is still insufficient adaptation financing as many climate adaptation projects are not bankable.
“So you could have a lot of money going into investments, which address pockets of these adaptation needs... But the benefits accrue to many multiple parties. It is difficult for the financier to internalise those benefits, and so the project doesn’t get done,” he said.
“Unless you internalise the benefits, it’s very difficult for private capital to come in. And that’s why private capital doesn’t come in for many adaptation projects, because the revenue streams are dispersed. And so we’ve got to crack that. Even as we develop solutions, we need to crack the financing of adaptation quite a bit.”
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