The market for climate adaptation is growing fast, also thanks to AI. But it also faces a number of challenges.
Net zero. From policy to politics, the phrase has become unavoidable - and for good reason. To prevent a 1.5°C global temperature rise, humanity must eliminate its carbon emissions by mid-century.
What is often forgotten: Amid the rush to decarbonise, corporations are increasingly focusing on another word too: adaptation. While not denying the need to halt climate change altogether, this means adapting to a changing planet, first by making intelligent predictions about how the weather and climate is likely to alter, and then by adjusting how companies operate to take account of this.
Technology is having a major impact on the climate adaptation market. Armed with powerful algorithms, a range of companies are offering deep insights into what we can expect. And while this obviously allows businesses to take steps to avoid the worst effects of climate change, such as by shifting supply chains or preparing for forest fires, there are also financial advantages to be gained from climate adaptation.
But while the World Economic Forum predicts that the global climate adaptation market could be worth USD 2 trillion by as early as 2026, the reality of technology-powered climate adaptation is far from easy to achieve. Ensuring that predictions are accurate is tricky enough, crucial if companies are going to plan for a climate-transformed tomorrow. Translating crude environmental data into actionable insights is too – even as climate adaptation can never remove the need to keep aiming for net zero.
Climate change is already impacting corporations the world over. Consider, for instance, the question of agrifood. With crop failures expected to be 4.5 times higher by 2030 than in 2021, Adam Rice, VP business solutions at climate resilience tech platform ClimateAi, says that beverage companies may be unable to source enough barley for their beer from suppliers they trust and rely on. This, in turn, could force them to rely on the spot market, potentially exacerbating climatic problems as manufacturers lean on distant or unsustainable sources.
Agrifood isn’t the only sector to be affected by a volatile planet. When it comes to utilities, Shashin Mishra, VP Europe-Middle East at software services company AiDash, explains how a changing climate can elevate the chance of wildfires or storms, both of which can cause damage to utility infrastructures. “There is a real risk to the network,” he says, “which needs to be solved.” It’s a fair point. Work by the knowledge platform Prevention Web has found that flooding is increasingly disrupting power lines in Britain, while heatwaves could pile on more pressure.
Beyond the practical consequences of climate change to food or power supplies, there’s often a financial impact too. In the agrifood sector, Rice warns that extreme weather can affect every step of the supply chain, increasing prices and disproportionately hurting small farmers, even as larger players are forced to pay extra via the spot market. No wonder Ashish Puri, a partner at the Lightrock private equity platform, warns that companies that fail to adapt to climate change “may find themselves going out of business."
Nor, Mishra warns, are traditional solutions to this upheaval very efficient. To explain what he means, he returns to the issue of power lines. Utility companies have often deployed helicopters to inspect lines, flying low to spot potential dangers - either climate-induced invasive trees, or power lines vulnerable to damage from branches during storms. But when flying a mere 45 metres above the ground, accidents are obviously possible. Though safer, the alternative tactic of deploying staff to assess tree and power line conflicts on foot is slow and expensive.
It hardly helps, adds Professor Kevin Paine, director of the Centre for Climate Adaptation and Environment Research at the University of Bath, that many companies simply struggle to grasp the scale of the climate challenge. Given the need to analyse vast amounts of data to understand how temperature rises might affect the planet, let alone specific businesses, the director of the Centre for Climate Adaptation and Environment Research at the University of Bath stresses that “we don’t know” exactly how much the climate is going to change. “Climate adaptation is so incredibly complex, there’s so many parameters involved,” he explains. “There’s so much data that it’s very difficult to just do it manually.”
Given these issues, companies are rushing to embrace machine learning to glean information about what climate change might mean for their businesses, and how they should adapt. Once again, the numbers are revealing, with 87 per cent of leaders believing that AI is a useful tool in the arsenal against climate change.
That’s echoed by the rush of firms now offering AI climate change intelligence. Based in California, both ClimateAi and AiDash are among the more prominent. But there are others too, like ClimateX and Cervest, and they are enjoying increasing attention from investors. In April 2024, to give one example, Lightrock led a USD 58 million funding round for AiDash, with National Grid, Shell, and other multinationals contributing too.
Beyond the headline boom, what kinds of services do tech firms provide? Their platforms can be split into two types: those offering short-term insights, and those exploring climate change over the years ahead.
For the former, one example is ClimateLens Monitor. Developed by ClimateAi, it combines public and private environmental data, adapted by proprietary models, to make detailed predictions about where extreme weather events will strike.
To explain the tangible impact this can have, Rice highlights hurricanes. Armed with ClimateAi forecasts, he says, an American roofing shingles manufacturer organised its supply chains in advance, priming it to rapidly repair damaged homes in Florida after the storm finally hit - and ultimately leading to a better client experience and increased profits for the manufacturer.
Another platform promising more immediate insights is AiDash’s Intelligent Vegetation Management System. Leaning heavily on satellite imagery, it pinpoints which trees need to be pruned each year, reducing risk of breakage, promoting infrastructure safety and saving time and applying resources more effectively. Abhishek Vinod Singh, AiDash’s CEO, makes a similar point about wildfires. By using data on historical incidents, alongside weather forecasts, he says utility firms can “ensure that there isn’t too much dry grass below the power line, which can potentially cause an ignition. And if there are some dry grasses, you can develop logical fire boundaries.”
That’s shadowed by more long-term forecasting. One good example is ClimateAi’s ClimateLens Adapt platform. Providing regional climate forecasts – and a range of CO2 emission scenarios to experiment with – it gives users a decade-long sense of how things like groundwater levels could change with a warming planet.
As the case study of the US shingle manufacturer illustrates, meanwhile, being proactive doesn’t merely forestall disaster. It also allows companies to get ahead of climate change, sharpening their business model for the better.
Notwithstanding intense competition between providers, Rice sees opportunities for so-called "verticalisation" across business, with different companies focusing on particular industry niches. Considering adaptation insights are proving valuable everywhere from mining to banking, this point seems reasonable.
Even so, progress isn’t guaranteed.
The most obvious hurdles are technological. As Prof. Paine points out, we don’t know exactly how much the climate is going to change over the years ahead. In practice, that makes adaptation investments risky, even as new evidence could render algorithms out-of-date.
And even if that can be mitigated by constantly updating AIs and taking advantage of new datasets by reintegrating them back into the models, there are other technical challenges too. That’s particularly true when it comes to turning raw data outputs into something companies can actually work with.
The solution, insiders stress, is to develop intuitive dashboards, allowing busy companies to understand and use climate insights quickly. But while companies like AiDash have become adept at elegantly laying out the impact of climate change in charts and maps, there are arguably broader obstacles too.
One, Puri suggests, is financial. The recent bonanza notwithstanding, he notes that investment in climate adaptation is flagging. "In 2021," he notes, "the Climate Policy Initiative found that adaptation investments receive just seven per cent of climate-related investment. This is clearly not enough, and this adaptation finance gap is growing."
Whatever the immediate future of climate adaptation, meanwhile, experts like Paine have broader concerns. Think about it like this: by focusing on adapting to a warming planet, are companies implicitly admitting defeat in the wider fight against climate change? Paine certainly thinks that’s a possibility, emphasising “we need to stop climate change as much as possible” regardless of adaptation.
Yet as Paine himself concedes, the planet has changed already, and even if we hit net zero tomorrow, the planet wouldn’t recover overnight. Over at AiDash, Mishra concurs. "Whatever the logic of investments in carbon capture or wind turbines, people still need food, water and electricity. We can’t put that at risk while we try to solve a bigger problem." Given the increasingly dire predictions about the impact of a changing climate, from food security to flooding, it’s hard to disagree.
Lightrock invests direct growth capital in businesses that have product-market fit and scalability across Africa, Europe, India, and Latin America, and three investment themes: People, Planet and Productivity/Tech for Good. Each of their portfolio companies has its impact indicators directly linked to at least one main Sustainable Development Goal.
