Climate change shapes markets. Adaptation shapes winners.

If you like this article, sign up for early access to our ag-finance intelligence updates. Once every 2 weeks, we send our top customers in agriculture finance a biweekly climate-business intelligence briefing like this one. We are opening it up to a limited pool of public readers, so email us at media@climate.ai to sign up.

According to renowned University of Chicago environmental economist Michael Greenstone, there are four primary ways to respond to climate change:

  1. Funding basic R&D to lower the costs of alternative fuels and new forms of fuel
  2. Geo-engineering
  3. Mitigation by lowering the total use of the highest carbon-releasing fuels
  4. Adaptation

Greenstone argues that adaptation — humans finding innovative strategies to cope with the inevitabilities of climate change in new ways — is the single most impactful response to climate change because, among our four potential responses, adaptation is the most inevitable. That also makes it the most urgent, salient, and investable.

James Meketa — Founder and chairman of Meketa Investment Group — posits that over the coming decades, climate change will become one of the biggest drivers of investment returns. Those that think ahead and adapt early will capture an outsized return. Agriculture is a segment that is particularly instructive for this premise: due to the extreme sensitivity of crops to variations in the climate, we see countless cases today in which farmers and agribusinesses are finding massive success or facing bankruptcy depending on their ability to adapt quickly. The agriculture sector is the canary in the coal mine for business at large, in a climate-changing world.

Source: BloombergNEF

As the financial services sector turns its attention — and capital ($60B this year, up from $36B in 2020) — towards climate change, industry-leading Investors are looking to climate change adaptation as an investment theme.

ClimateAi’s tools help investors understand the resiliency of their portfolios to near and long-term climate impacts. ClimateAi’s Enterprise Climate Planning platform reveals the risks climate change poses to their existing assets (in terms of yield, crop quality, and dollars) and enables them to perform high-efficacy due diligence (climate, water availability, etc.) on new potential investments.

The image below shows an output of one such analysis delivered to a customer (anonymized). The graph shows how heat risk evolves over the next two decades for a selected specialty crop-location pair in the Northeastern U.S. As a result of the insights derived from the analysis, the customer canceled the investment, thus avoiding necessary and — without ClimateAi — unforeseen downside risk.

Instead, the customer utilized ClimateAi’s long-term strategic dashboard to identify and invest in regions positioned to benefit from future climatic conditions, thus reducing downside risk and increasing upside potential.

ClimateAi’s tools offer investors a way to guard their portfolios from the downside of climate change and, instead, intentionally capture upside.

Schedule time with our financial products team for an intro to our most recent tools + case studies, and to explore what climate resilience could mean for your bottom line by going to this link.

TL;DR: Climate change will be a defining megatrend behind investment returns over the coming decade. Its impact on agriculture is an early indicator of the magnitude of impact to be expected across all sectors — in agriculture today, changes in climate can be the tipping point between rags and riches.

Investors building resilience in their portfolios today stand to capture outsized returns, whereas those who fail to adapt their investment strategies will likely face increased volatility and unanticipated downside risk.

Accelerating climate resilience in food, water, and energy www.climate.ai