A New Blueprint for Adaptation and Resilience Investing

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The climate adaptation investment universe just got a lot bigger.

Products and technologies offering protection from climate shocks — like hurricanes, wildfires, and floods — are sure to grow in demand as the world heats up. Tools and services to deal with long-term stressors like rising sea levels and higher temperatures are also guaranteed to find eager customers.

Building these products, tools, and services requires capital, though, and plenty of investors need help navigating this emerging adaptation and resilience (A&R) space. A coalition of financial and philanthropic groups thinks it has a solution.

They’ve developed a new framework that investors can use to identify A&R solutions companies. It’s already been used to build an investible universe of 827 publicly traded firms that climate-focused institutions can bankroll today. These aren’t just your boring-but-important infrastructure stocks, either, but investments from across regions, growth stages, asset classes, and sectors.

CRISP and Clear

The Climate Resilience Investments in Solutions Principles (CRISP) framework is the brainchild of Global Adaptation Resilience and Investment (GARI), an investor-led initiative that convenes private and public sector stakeholders to discuss A&R and finance. Bezos Earth Fund, ClimateWorks, The Lightsmith Group, and MSCI Sustainability Institute also contributed. 

The aim of CRISP is to catalyze the adaptation economy. “If we treat adaptation as an obscure topic for governments to worry about, we risk stifling the private sector innovation urgently needed to stimulate creative solutions for the world’s most vulnerable populations adjusting to weather volatility and heat,” says Paul Bodnar, director of sustainable finance, industry, and diplomacy at the Bezos Earth Fund. “Just as financial markets have become a vital force for channeling capital to decarbonization, they can do the same for companies developing resilience technologies and services.”

To this end, CRISP helps investors figure out whether a given company can make an “adaptation play” based on the products, services, and tech it offers. These “plays” can come in all shapes and sizes. Indeed, CRISP is built on the premise that A&R solutions are needed for a wild assortment of present and future climate impacts, says Jay Koh, managing director and co-founder at The Lightsmith Group and chair of GARI.

“Right now, most of these companies don’t call their tech ‘climate adaptation’ or ‘resilience’ or climate change anything, they’re like cooling technologies or supply chain management or digital mapping. But you, for the first time, could actually potentially invest in a pool of companies that will grow at an extranormal rate because demand for these technologies is not fully forecast and appreciated,” he says.

In a paper laying out the CRISP framework, GARI provides examples of adaptation solutions companies, ranging from a technology conglomerate that offers air purification systems and air quality monitoring devices to a pharmaceutical and biotech firm working on new vaccines and treatments to fight the spread of diseases. The idea is to get investors familiar with the idea that A&R solutions companies come in many different guises.

CRISP sets out three key steps for identifying a qualifying firm. First, an investor should assess whether it has a “significant business line” that either helps others prepare, prevent, respond to and/or recover from climate shocks, or helps remove informational, technological, or capacity-related obstacles to adaptation.

Description of an Adaptation Solution Company

Second, the investor should check to make sure the adaptation solution(s) “do no harm” to other climate objectives — like limiting warming to Paris Agreement thresholds and preventing maladaptation.

Third, the investor should judge the positive impacts already achieved by the adaptation solutions and evaluate the future expected impacts over the lifetime of the investment.

This screening – due diligence – monitoring approach may sound familiar to A&R finance advocates. That’s because the steps borrow and build on A&R taxonomy work pioneered by the Climate Bonds Initiative, the European Union, and the Adaptation SME Accelerator Project. However, the GARI paper says CRISP goes further. Existing classification efforts may have limitations that cause promising A&R investments to slip through the gaps. In contrast, CRISP is designed to be inclusive and flexible. It doesn’t prescribe a list of eligible A&R solutions or eligibility criteria. It’s also agnostic on where A&R solutions come from – all sectors, regions, and stages of growth are worthy of consideration.

A New Investing Frontier

This looser, principles-based approach allows a greater variety of solutions and companies to flow into the A&R theme. This is reflected in the “first cut” of 827 public companies identified using CRISP. MSCI Sustainability Institute constructed this universe by using a Large Language Model to pick out companies based on the descriptions of products and services provided in their annual reports.

Of these public companies, the largest group (42%) belong to the industrials sector. Materials companies are also well represented. This makes intuitive sense, as these corporates build the infrastructure and physical assets used to shield against climate shocks. However, 8% of companies come from the consumer discretionary sector, 7% from information technology, and 6% from financials, reflecting how A&R solutions include tech, analytics, and consumer goods, too.

A&R Companies by Sector

This application of CRISP is not perfect, however. The GARI paper admits that “pure play” adaptation investments are unlikely to be found in listed equity markets, because public companies are large, complex, and produce myriad products and services.

Still, it could be helpful for developing “broad tilt” strategies, in which companies with high A&R revenues or with significant potential to grow their A&R business lines are prioritized. The paper also argues that CRISP could complement fundamental analysis of investments, helping identify companies that are undervalued relative to the potential of their A&R solutions. “High conviction for investments in adaptation companies are more likely to be driven by assessment of the underlying business models and outlook for growth, rather than from current revenues,” the paper notes.

MSCI’s take on the CRISP framework is just one application, too. The GARI paper describes other ways investible universes could be constructed, for example by mining companies’ investor presentations, corporate websites, earnings call transcripts, and more for data on their contributions to A&R solutions. The paper also urges investors to engage with portfolio companies to enhance their understanding of their A&R potential. 

After all, CRISP is meant to be “dynamic and flexible” — a tool that can work with different kinds of data, and can evolve as A&R norms, standards, and frameworks develop. That’s the way to build widespread support for the framework, and turn investors onto A&R at scale, argues Lightsmith’s Koh.

He insists the fundamental rationale for buying into the A&R theme is already rock solid. Now it’s just a case of spreading the word.

“You have actually more certainty about the trajectory between now and 2030 of climate impact, then you do the path of interest rates, or inflation, or AI or who Taylor Swift will be dating. If you think about it temporally, your confidence level right now about what happens between now and 2030 in climate is probably higher than almost any other macro investment factor that you know,” he says.