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Adapt or die. Channeling Darwin at COP

Clim8 Investment Team

08 November 2021 Cop26

Climate-related events are growing more frequent and costly to the global economy. As well as finding ‘mitigation’ solutions that combat climate change, we also need to invest in technologies for ‘adaptation’ – or dealing with the consequences. And their evolution needs to be much faster than this Darwinian description would suggest.

Let’s start with the evidence for extreme weather events. The data over the last 50 years points to a damning conclusion: the frequency is increasing and the ferocity is worsening. On average, this period has seen a weather, climate or water related disaster happening every single day, resulting in 2.06 million deaths and $3.64 trillion in losses. Global temperature rises have made drier, hotter regions even more so, causing record beating wildfires, while cooler areas such as Central Europe have seen more intense flooding. Rising sea temperatures have also made hurricanes more powerful, and the list goes on. 

All this points to the need for investing heavily in adaptation, as mitigation alone can no longer realistically prevent extreme weather events. Unfortunately, in recent years various climate forums have failed to implement proper funding mechanisms and drive contributions from the private sector, despite knowing the severity of the issue. At the 2009 climate summit in Copenhagen, for instance, the wealthy nations of the world pledged to channel $100 bn a year to poorer nations for adaptation and mitigation measures, as they too often feel the worst effects of extreme weather. But in no year since that pledge was made have they met that target

What is more, the majority of the funds were spent on reducing greenhouse gas emissions and other mitigation efforts, rather than adaptation projects. In fact, of the total $80 bn given in loans and grants in 2019, just $20 billion went to adaptation measures. This despite the UN estimating that developing countries already need $70 billion per year to cover adaptation costs, rising to $140 billion–$300 billion in 2030 and $500 bn by 2050.  

So what explains the general hesitancy to invest in adaptation projects? In a nutshell, because it’s harder to demonstrate ROI. Climate finance is typically ‘given’ in loans, and in the case of mitigation projects, it is fairly easy to understand the economics of building solar and wind capacity. This is because the project will generate a return over its lifespan which therefore makes it interesting for private finance institutions. 

On the other hand, the case for financing future dams or new crops to adapt to climate-related challenges is far less attractive to private investors. But grant based funding is absolutely necessary for adaptation to take place, and most of this needs to go directly to developing countries. One rare success story in this field is the Adaptation Fund, which has allocated over $850 million through grants for 123 projects, resulting in 31 million beneficiaries in developing countries.

When we crunch the numbers, the picture gets even clearer. According to a recent study from the Swiss Re Institute, the cost of climate change could negatively impact global GDP in 2050 between 4% (if global temperature increases are below 2C) and 18% (if temperatures increase by 3.2C). For reference, 18% of 2020 GDP is roughly $15.2 trn. So we’re comparing adaptation costs that could reach up to $300 bn a year in 2030, with an estimated $4 trn in mitigation costs to transform our energy systems and infrastructure between now and 2030 (source: IEA). In a nutshell, by investing $4.3 trn in mitigation and adaptation between now and 2030, we could potentially avoid annual GDP losses greater than $15 trn from 2050 and beyond. If the purists among you will forgive us for not extrapolating world GDP to 2050 and discounting back the $15 trn of economic losses into today’s $ value, then the maths seems clear.

Needless to say, we are lagging behind in the fight to adapt to the changing climate, but it is not too late to change course. Humans, by nature, are an adaptable species. As Charles Darwin’s Origin of Species outlined, the theory of evolution is predicated on the idea that “all species of organisms arise and develop through the natural selection of small, inherited variations that increase the individual’s ability to compete, survive, and reproduce”. Humans have made it thus far based on our survival mechanism, but we cannot wait for natural selection to save us in our fight against climate change. 

Fortunately, technology can play a key role to help us adapt to this warming world. As far back as 2006, the UN outlined a series of adaptation solutions and technologies. More recently (and closer to home), large dams projects in Northern Europe are on the drawing board to protect shorelines from rising water levels. This call to action has also been followed by more positive developments, starting with the UK committing £200 million over the next five years to a Climate Innovation Facility to scale up technologies that help deal with the impacts of climate change, such as drought-resistant agriculture and sustainable forestry.

We certainly have the engineering and technology skills to make it, but do we collectively have the most powerful driver, namely the will to act?