# Adaptation and Resilience: A New Investment Imperative

An episode of [Switched On](https://invisiblenetwork.ai/podcast/1469286286), 22 Nov 2025, 20 min.

Audio: https://podtrac.com/pts/redirect.mp3/traffic.omny.fm/d/clips/e73c998e-6e60-432f-8610-ae210140c5b1/01a10738-3608-4dec-883c-ae3c00026b36/e4c09c1e-b034-499f-9bce-b39c0103a934/audio.mp3?utm_source=Podcast&in_playlist=6d114f63-833d-4b78-bbf5-ae3c00026b44

How well prepared are we for a warming world? Climate adaptation is quickly moving from theory to strategy, reshaping investment priorities and exposing new risks and opportunities. On this bonus episode, Kobad Bhavnagri reads his note “Adaptation and Resilience: The New Investment Imperative” to explore how businesses, policymakers and financiers are adapting to a changing climate, and where the biggest gaps in knowledge and action remain. Complementary BNEF research on the trends driving the transition to a lower-carbon economy can be found at BNEF<GO> on the Bloomberg Terminal or on bnef.com Links to research notes from this episode: Adaptation and Resilience: The New Investment Imperative - https://www.bnef.com/insights/37701 See omnystudio.com/listener for privacy information.

## Transcript

[0:00] Speaker 1: This is Tom rowlans Reese and you're listening to Switched On,
[0:03] Speaker 1: the podcast brought to you by BNF. We often think
[0:06] Speaker 1: about climate action in terms of cutting emissions, but adaptation
[0:09] Speaker 1: is also an important part of the story for investors, businesses,
[0:12] Speaker 1: and governments. Building resilience is becoming central to long term strategy.
[0:16] Speaker 1: It's about understanding risk, responding to change, and finding opportunity
[0:20] Speaker 1: in how the world around us evolves. On today's show,
[0:22] Speaker 1: we're going to bring you something different from our usual
[0:24] Speaker 1: BNF analyst interview. Coby bavna Agri, BNF's head of strategy
[0:28] Speaker 1: and Switched On host, is going to read his recent
[0:30] Speaker 1: note titled Adaptation and Resilience the New Investment Imperative. In it,
[0:35] Speaker 1: it explores how climate adaptation is shaping decisions across finance,
[0:39] Speaker 1: policy and industry, and what building resilience means for future economies.
[0:42] Speaker 1: BNAF clients can find this note, along with other climate
[0:45] Speaker 1: and adaptation research, by heading to BNF go on the
[0:48] Speaker 1: Bloomberg Terminal, or visiting BNF dot com to learn more
[0:52] Speaker 1: about how BNF approaches strategy. Research on the energy transition,
[0:55] Speaker 1: including developments in commodity markets, sector trends, and the technology
[0:58] Speaker 1: shaping the future. Find more information at bienf dot com.
[1:02] Speaker 1: So let's see how adaptation is moving from concept to
[1:05] Speaker 1: action with.
[1:05] Speaker 2: Cobalt adaptation and resilience the new investment imperative. Of all
[1:22] Speaker 2: the things a power system operator, worries about jellyfish are
[1:26] Speaker 2: probably not one of them. But in August, a swarm
[1:29] Speaker 2: of barrel jellyfish were sucked into the cooling system of
[1:32] Speaker 2: Western Europe's largest nuclear power station, shutting down the plant
[1:36] Speaker 2: for ten days. A marine heat wave had triggered a
[1:39] Speaker 2: bloom of the jellyfish, who today have far fewer natural
[1:42] Speaker 2: predators to keep their numbers in check. This curious example
[1:46] Speaker 2: demonstrates how exposed human systems are to the physical impacts
[1:50] Speaker 2: of climate change and nature loss, which are mounting rapidly.
[1:54] Speaker 2: Climate damages from fire, flood, and storms cost the world's
[1:57] Speaker 2: economies one point four trillion dollars in twenty twenty four,
[2:01] Speaker 2: up from one hundred and fifty billion in the year
[2:03] Speaker 2: two thousand. In twenty twenty four alone, the damage bill
[2:07] Speaker 2: in the US hit nine hundred and twenty four billion dollars,
[2:10] Speaker 2: which equates to three point five percent of its national GDP,
[2:14] Speaker 2: with virtually every year breaking the temperature record, These financial
[2:18] Speaker 2: impacts are only going to get worse. How much worse?
[2:22] Speaker 2: In its latest update, the Network for Greening the Financial
[2:25] Speaker 2: System estimated that GDP would be reduced by fifteen percent
[2:29] Speaker 2: in twenty fifty under current policies, using a top down methodology,
[2:34] Speaker 2: which falls within the range of other sources which show
[2:37] Speaker 2: a one to nineteen percent reduction in GDP by twenty fifty.
[2:41] Speaker 2: While these estimation techniques face some criticism, bottom up methodologies
[2:45] Speaker 2: that usually produce much lower totals are intuitively under estimates.
[2:50] Speaker 2: How can they anticipate the many unexpected impacts of warming
[2:53] Speaker 2: Like the jellyfish. Even if you wish to be optimistic
[2:57] Speaker 2: and plan for the world hitting net zero by twenty fifty,
[3:00] Speaker 2: I'm afraid the impact is still stark a seven percent
[3:04] Speaker 2: GDP impairment by twenty fifty according to the NNGFS. None
[3:08] Speaker 2: of these estimates include the impacts of nature loss, which
[3:11] Speaker 2: would likely add trillions more to the damage bill. Shielding
[3:14] Speaker 2: the economy, businesses, and people from these damages is the
[3:18] Speaker 2: goal of climate adaptation. Adapting to climate change will require
[3:22] Speaker 2: hundreds of billions and possibly trillions of dollars of investment
[3:26] Speaker 2: in everything from sea walls to seed science. The best
[3:30] Speaker 2: estimate is that we are currently spending only about sixty
[3:33] Speaker 2: five billion dollars per year. The mounting damager's bill we
[3:37] Speaker 2: are already facing suggests that scaling this investment needs to
[3:41] Speaker 2: be an imperative now. The difficulty is that climate risk
[3:45] Speaker 2: is mispriced, the market signals for investing in adaptation are absent, underdeveloped,
[3:50] Speaker 2: or weak. Political focus on adaptation has also always lagged mitigation,
[3:56] Speaker 2: in part because focusing on adaptation can feel like an
[3:59] Speaker 2: admission of defa. But as the numbers I mentioned before show,
[4:02] Speaker 2: climate damages are already here and the need for adaptation
[4:06] Speaker 2: is not about giving up on reducing emissions. It is
[4:09] Speaker 2: prudent risk management. The key question is how do we
[4:12] Speaker 2: scale the necessary investment. The answer is by turning risk
[4:16] Speaker 2: into opportunity. Who and what will make the money flow.
[4:21] Speaker 2: Investment in adaptation currently comes from four main sources. Governments, corporations,
[4:27] Speaker 2: financials and individuals. Will unpack where each of them are
[4:32] Speaker 2: on the adaptation journey. Governments slowly getting into gear, but
[4:37] Speaker 2: don't expect trillions. Public sources like governments and development finance
[4:42] Speaker 2: bodies have so far contributed the lion's share of funding
[4:45] Speaker 2: for adaptation, accounting for ninety percent of the total, or
[4:49] Speaker 2: about fifty eight billion dollars in twenty twenty three. Yet
[4:52] Speaker 2: government's focus so far has mostly been on planning rather
[4:56] Speaker 2: than implementation. According to the UN, eighty seven percent of
[4:59] Speaker 2: govern have produced a national adaptation plan or some form
[5:03] Speaker 2: of planning instrument, as encouraged by the Paris Agreement. Leading
[5:07] Speaker 2: countries such as Canada and Singapore have gone further, legislating
[5:11] Speaker 2: national adaptation strategies and dedicating recurring budgets. However, many adaptation
[5:16] Speaker 2: plans are flimsy or outdated. This uneven progress should worry
[5:20] Speaker 2: business and investors because a country's preparedness for climate impacts
[5:25] Speaker 2: will shape the probability of loss for the assets, companies,
[5:28] Speaker 2: and societies located in it. Many of the financial impacts
[5:32] Speaker 2: of climate change are beyond any single entity sphere of control.
[5:36] Speaker 2: A firm could build the best flood defense in the
[5:38] Speaker 2: world for its factory, but if the road leading to
[5:41] Speaker 2: it is underwater, it won't be doing much business or
[5:44] Speaker 2: moving much product. To help investors understand the preparedness or
[5:48] Speaker 2: lack thereof, of the countries they operate in or depend
[5:52] Speaker 2: on B and E. F has just released a climate
[5:54] Speaker 2: adaptation Preparedness framework and country scorecard. In our view, the
[5:59] Speaker 2: outlook for significantly higher public spending is weak. Budgets will
[6:03] Speaker 2: likely edge upward as a disasters mount, but don't expect
[6:06] Speaker 2: governments or the UN process to deliver the trillions required.
[6:10] Speaker 2: As a case in point, the parties to the Paris
[6:13] Speaker 2: Agreement haven't even been able to agree on what the
[6:16] Speaker 2: key goals of its global goal on adaptation actually are.
[6:20] Speaker 2: That said, some green shoots are emerging. City level spending
[6:25] Speaker 2: on nature based solutions has reached a cumulative total of
[6:28] Speaker 2: forty eight billion dollars by our account, and these local
[6:31] Speaker 2: interventions often achieved positive returns. A more significant step up
[6:36] Speaker 2: in government action could happen when rating agencies fully factor
[6:39] Speaker 2: physical climate and nature risks into sovereign credit ratings, or
[6:43] Speaker 2: when capital markets clearly treat climate resilience as a comparative
[6:47] Speaker 2: economic advantage. Perhaps more important than directly funding adaptation activities, however,
[6:53] Speaker 2: is government's role in catalyzing private finance. To date, their
[6:57] Speaker 2: efforts have centered on soft leaders like disclosure of requirements.
[7:00] Speaker 2: What's missing are hard, investible mechanisms akin to those in
[7:04] Speaker 2: mitigation that provide attractive risk adjusted returns to mobilize investment
[7:09] Speaker 2: from the private sector corporations quantifying risk but missing the
[7:14] Speaker 2: forest for the trees. Corporations disclosed only about four billion
[7:19] Speaker 2: dollars a year in adaptation spending. While some spending is
[7:22] Speaker 2: likely buried in wider budgets, it's unlikely to be orders
[7:25] Speaker 2: of magnitude more. Our observation is that companies are thinking
[7:29] Speaker 2: about climate risk, but not yet spending much on reducing it.
[7:32] Speaker 2: The alphabet soup of climate regulations has spurred a flurry
[7:36] Speaker 2: of physical risk analyses, but few real economy firms are
[7:40] Speaker 2: moving from risk assessment to significant action. In fiscal year
[7:44] Speaker 2: twenty twenty three, thirty seven percent of companies disclosed the
[7:48] Speaker 2: potential impact of climate risks and opportunities on their businesses.
[7:52] Speaker 2: To do this, companies usually hire consultants to downscale the
[7:55] Speaker 2: output of global climate models into site level forecasts of precipitation, wind,
[8:00] Speaker 2: and temperature. Estimates of the damage and disruption these hazards
[8:04] Speaker 2: would cause to a typical structure of that address are
[8:07] Speaker 2: then used to calculate the value at risk. Such analyzes
[8:11] Speaker 2: are a useful starting point, but they suffer major shortcomings.
[8:15] Speaker 2: The models are opaque results of a conflict between providers,
[8:19] Speaker 2: and most importantly, they tend to focus narrowly on first
[8:23] Speaker 2: order impacts in the built environment. These are the direct,
[8:27] Speaker 2: predictable risks inside of property's boundaries, such as an increase
[8:31] Speaker 2: in flood risk. These can seem like very manageable problems.
[8:35] Speaker 2: A larger repair budget can cover the risk of an
[8:37] Speaker 2: occasionally flooded foyer. However, that's like seeing only the tip
[8:42] Speaker 2: of the iceberg. The more serious threats are second order,
[8:46] Speaker 2: knock on impacts that ripple through societies and economies, such
[8:50] Speaker 2: as when a town floods repeatedly and falls into decline,
[8:54] Speaker 2: or when wildfire devastates tourism and halves the market capitalization
[8:58] Speaker 2: of in airline, which occurred recently in Hawaii. Or when
[9:02] Speaker 2: you thought warmer outlet pipes when nothing to worry about,
[9:05] Speaker 2: and then your nuclear plant is shut down by jellyfish.
[9:08] Speaker 2: Given the lack of disclosure around adaptation activities, it's hard
[9:12] Speaker 2: to know what companies are doing to adapt and make
[9:15] Speaker 2: themselves more resilient, what good looks like, and what technologies
[9:18] Speaker 2: and activities are being employed to reduce risk. Another poorly
[9:23] Speaker 2: understood dimension of risk is how changes to the environment
[9:26] Speaker 2: will impact commodity markets, from disruptions to oil supply from
[9:30] Speaker 2: hurricanes to a decline in the supply of vulnerable agricultural goods.
[9:34] Speaker 2: The physical impacts of climate change and nature loss will
[9:37] Speaker 2: leave few industries unchanged. What could start to change things.
[9:42] Speaker 2: A better understanding of the risks can help to mobilize
[9:45] Speaker 2: more corporate capital, particularly if insurance is repriced and credit
[9:49] Speaker 2: ratings revised. But risks are never truly knowable, and fear
[9:53] Speaker 2: alone is an incomplete motivator for investment. To scale, adaptation
[9:57] Speaker 2: also needs to become an opportunity. Signs of this This
[10:00] Speaker 2: are emerging in the agricultural sector. The benefits of resilience
[10:03] Speaker 2: are already a major motivator for producers. US landowners have
[10:08] Speaker 2: converted over four million hectares of degraded pasture to regenerative farming,
[10:12] Speaker 2: improving soil health, sequestering carbon, and stabilizing yields in volatile weather.
[10:17] Speaker 2: In California, wildfire liability has driven utilities to commit billions
[10:22] Speaker 2: to undergrounding transmission lines and help utility PG and E
[10:26] Speaker 2: to achieve a credit rating upgrade. The Bloomberg Intelligence Prepare
[10:30] Speaker 2: and repair tracker, which follows one hundred and ten firms
[10:33] Speaker 2: in construction, building supplies, heating and cooling, and other adaptive industries,
[10:38] Speaker 2: has outperformed the S and P five hundred over the
[10:41] Speaker 2: past five years. More broadly, global warming is expected to
[10:45] Speaker 2: drive trillions in incremental demand for resilience related goods and services.
[10:50] Speaker 2: Uncovering these opportunities will be another focus of our work
[10:53] Speaker 2: on this topic. Financials curious and waiting to act. Financial
[10:59] Speaker 2: insta institutions have invested even less in adaptation than corporates
[11:03] Speaker 2: under one billion dollars in twenty twenty three, although as
[11:07] Speaker 2: with corporates, some activity is likely unreported. However, stakeholders have
[11:12] Speaker 2: told BNAF they are eager to invest when business models
[11:15] Speaker 2: become profitable, mostly motivated by evolving regulations. Many institutional investors
[11:21] Speaker 2: are also employing physical risk analysis to assess the exposure
[11:25] Speaker 2: of assets in their portfolio. For some, this is just
[11:28] Speaker 2: a box sticking exercise. Others use it to nudge exposed
[11:32] Speaker 2: companies in their portfolio. The more advanced use it as
[11:35] Speaker 2: a negative screen in due diligence, while the most sophisticated
[11:39] Speaker 2: also apply it as a positive screen to identify assets
[11:43] Speaker 2: well positioned for a warmer future. A few firms are
[11:46] Speaker 2: already developing opportunity based investment THECES, such as a real
[11:50] Speaker 2: estate company resilience investments, which expect property price growth from
[11:54] Speaker 2: internal migration towards climate havens in the US Great Lakes
[11:59] Speaker 2: and Northeast. The opportunity to increase the resilience and natural
[12:02] Speaker 2: capital value of farmland has also helped it achieve fourfold
[12:06] Speaker 2: growth as an asset class. Banks are also being pressed
[12:10] Speaker 2: by regulators and supervisors to evaluate climate risks, though no
[12:14] Speaker 2: binding global standards exist yet, mostly due to US resistance.
[12:19] Speaker 2: With balance sheets heavily exposed to real estate, lenders are
[12:22] Speaker 2: especially at risk from cascading climate impacts. Leading banks now
[12:26] Speaker 2: run quantitative analysis of climate risks across their mortgage portfolios,
[12:31] Speaker 2: and some are beginning to act on the findings, such
[12:33] Speaker 2: as through climate risk adjusted loan pricing, but progress is
[12:37] Speaker 2: uneven and many banks remain immature in their approach keing finances,
[12:42] Speaker 2: though are watching for the emergence of new business models
[12:45] Speaker 2: and shifts in demand that create lending opportunities. Insurers are
[12:49] Speaker 2: heavily exposed to physical risks, but also the most sophisticated
[12:53] Speaker 2: in understanding them. For decades, insurers have refined tools to
[12:57] Speaker 2: estimate climate damages, adjust pricing, and manage exposure. Yet as
[13:01] Speaker 2: risk aggregators and transferrrs, they will not fund adaptation directly. Instead,
[13:07] Speaker 2: their critical role is to send the price signals that
[13:09] Speaker 2: motivate others to invest. Rising premiums or the withdrawal of
[13:14] Speaker 2: coverage altogether are already reshaping markets and will increasingly help
[13:18] Speaker 2: make the business case for resilience. The challenges ensuring that
[13:22] Speaker 2: pricing engines reward adaptive actions with lower premiums and the
[13:26] Speaker 2: restoration of coverage. At present, the global insurance protection gap
[13:30] Speaker 2: is around sixty percent and widening as more regions become uninsurable.
[13:35] Speaker 2: Scaling up capital flows from financial institutions will mostly depend
[13:40] Speaker 2: on the incentives for governments and corporates described above working.
[13:44] Speaker 2: More exotic financial innovations are also being proposed. Catastrophe bonds
[13:48] Speaker 2: could hypothetically be modified to help finance preventative infrastructure resilience.
[13:54] Speaker 2: Bonds that explicitly monetize avoided losses from adaptation projects have
[13:58] Speaker 2: also been proposed, and adaptation linked debt swaps, such as
[14:02] Speaker 2: Barbados's twenty twenty two deal restructure sovereign debt and ear
[14:07] Speaker 2: mark savings for funding resilience projects. None of these instruments
[14:10] Speaker 2: and magic bullets. They remain complex, untested at scale, and
[14:14] Speaker 2: reliant on a clearer articulation of risks and benefits, but
[14:18] Speaker 2: they signal how adaptation and resilience could become new asset classes,
[14:23] Speaker 2: a topic we will follow closely. Individuals are ultimately the
[14:26] Speaker 2: group that will shoulder the final burden of both the
[14:29] Speaker 2: physical and financial impacts of climate change and nature loss.
[14:33] Speaker 2: Estimates of how much individuals are currently spending aren't available,
[14:37] Speaker 2: but sales figures of key appliances show that individuals are
[14:40] Speaker 2: already deploying capital to adapt. Backup generator sales have exceeded
[14:44] Speaker 2: macroeconomic growth in the US and spike following cold snaps
[14:48] Speaker 2: and hurricanes. Studies show that in China, air conditioning sales
[14:52] Speaker 2: increase sixteen percent for every additional thirty degree see day,
[14:56] Speaker 2: a trend that is set to accelerate as air conditioning
[14:59] Speaker 2: a LI electricity demand nearly doubles by twenty fifty in
[15:03] Speaker 2: BNF's economic transition scenario. These examples demonstrate how climate change
[15:07] Speaker 2: is likely to shift the sands on demand for many
[15:10] Speaker 2: consumer goods. Individuals are also heavily exposed to the price
[15:15] Speaker 2: signals coming from insurance. In the US, homeowners insurance has
[15:19] Speaker 2: increased eight point seven percent faster than inflation in most
[15:23] Speaker 2: states since twenty eighteen. Bloomberg Intelligence estimates that this has
[15:27] Speaker 2: caused a four point six percent average reduction in non
[15:31] Speaker 2: discretionary spending, particularly in low cost of living high insurance
[15:35] Speaker 2: cost states such as Oklahoma and Texas. Rising insurance costs
[15:40] Speaker 2: in places like Florida and California are also providing a
[15:44] Speaker 2: clear signal of the rising risks to real estate. This
[15:48] Speaker 2: is already driving adaptive responses, such as homeowners fortifying roofs
[15:53] Speaker 2: against hurricanes under Alabama's IBHS program, or retrofitting properties in
[15:58] Speaker 2: wildfire prone areas to meet wildfire prepared home standards. Spending
[16:03] Speaker 2: by individuals and adaptation would almost certainly keep rising and
[16:07] Speaker 2: may prove the moist organic source of the missing trillions.
[16:11] Speaker 2: Much of it will be hard to track since it
[16:13] Speaker 2: is fragmented and difficult to attribute. Moreover, while household's propensity
[16:18] Speaker 2: to respond is a sign that investment will eventually scale,
[16:21] Speaker 2: such actions are likely to happen only after they have
[16:24] Speaker 2: suffered damages. As such, it underscores the tragedy of climate
[16:29] Speaker 2: change and nature loss. It is families who will shoulder
[16:32] Speaker 2: the costs where they can, while the poorest are left behind.
[16:37] Speaker 2: Realizing the imperative. There are growing signs that momentum is
[16:41] Speaker 2: building in adaptation and that investment could begin to scale
[16:45] Speaker 2: the current state of play and emerging green shoots suggests
[16:48] Speaker 2: that this could happen through five main channels. The first
[16:52] Speaker 2: is a more accurate pricing of risk, for example, clearer
[16:55] Speaker 2: valuation of physical climate impacts from more comprehensive risk analysis
[17:00] Speaker 2: and recognition of second order effects to insurance pricing and
[17:03] Speaker 2: eventually corporate and sovereign credit ratings. The second are the
[17:08] Speaker 2: financial capture of benefits, for example via instruments that monetize
[17:13] Speaker 2: resilience outcomes such as insurance premium reductions, municipal nature based projects,
[17:18] Speaker 2: and resilience bonds. The third is arbitrage, for example, capital
[17:23] Speaker 2: reallocating away from poorly priced, high risk assets and towards
[17:28] Speaker 2: those positioned to outperform, such as regenerative agriculture or real
[17:32] Speaker 2: estate in climate havens. The fourth is demand shifts, for example,
[17:37] Speaker 2: households and businesses increasing spending on resilience goods. And services,
[17:42] Speaker 2: from air conditioning to early warning systems. And fifth is
[17:46] Speaker 2: liability and regulation, for example, government actions that set resilience
[17:51] Speaker 2: standards and create financial accountability via building codes or liability
[17:56] Speaker 2: for failures and disasters. Of course, black swan events or
[18:00] Speaker 2: Sharper shocks could accelerate these dynamics. A reinsurer collapse or
[18:05] Speaker 2: a mortgage crisis triggered by climate driven property devaluation could
[18:09] Speaker 2: reprice risk across markets and force more sweeping interventions. If
[18:14] Speaker 2: physical risks continue to be mispriced, invisible exposures concentrated on
[18:19] Speaker 2: insurer and bank balance sheets could eventually trigger instability. Whatever
[18:24] Speaker 2: the trigger, the business case for adaptation is coming into focus.
[18:28] Speaker 2: As it does. BNF will track the bell weathers that
[18:30] Speaker 2: matter at spotlight the models that work, helping clients navigate
[18:34] Speaker 2: the adaptation imperative and turn climate and nature risk into opportunity.
[18:48] Speaker 2: Today's episode of Switched On was produced by Cam Gray
[18:51] Speaker 2: with production assistance from Kamala Shelling. Bloomberg EF is a
[18:55] Speaker 2: service provided by Bloomberg Finance LP and its affiliates.
[18:58] Speaker 1: This recording does not constitute, or should it be construed,
[19:01] Speaker 1: as investment advice, investment recommendations, or a recommendation as to
[19:04] Speaker 1: an investment or other strategy.
[19:06] Speaker 2: Bloomberg ANNIAF should not be considered as information sufficient upon
[19:09] Speaker 2: which to base an investment decision. Neither Bloomberg Finance LP
[19:13] Speaker 2: nor any of its affiliates makes any representation or warranty
[19:16] Speaker 2: as to the accuracy or completeness of the information contained
[19:19] Speaker 2: in this recording, and any liability as a result of
[19:22] Speaker 2: this recording is expressly disclaimed

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