Purpose of this paper

This paper is designed for the institutional investor community, including organisational strategy teams, investment professionals, and training staff. It examines how investors can generate value by prioritising climate adaptation and resilience as an investment thematic. Since 2024, a growing number of asset managers and banks have developed physical-risk capabilities. Currently, 70% of Investor Group on Climate Change (IGCC) members assess their portfolios for physical risk, and 56% are implementing a response. However, capital is not yet flowing at the pace required to protect economic growth and long-term returns.

Current climate resilience investment

Investors are currently directing capital towards climate adaptation across the Asia Pacific and globally, though the specific amount is difficult to gauge. This investment flows through three main levels: asset resilience, network resilience, and economy resilience. Asset resilience focuses on an individual business’s ability to maintain performance. Leading investors now embed physical risk analysis into due diligence and use scenario analysis to stress-test revenue and maintenance costs. For instance, IFM’s portfolio includes extreme weather protections for NSW ports, and Ausgrid has implemented maintenance regimes to identify bushfire risks. These projects are considered investible if the protected value exceeds costs over the assessment period and the investor can access the financial benefit.

Beyond physical assets, investors are gaining exposure through companies selling adaptation goods and services. This includes flood protection systems, climate-resilient building materials, drought-tolerant crops, and nature-based solutions like wetland restoration. Furthermore, capital is being directed via resilience bonds. Notable examples include the European Bank for Reconstruction and Development’s US$700 million bond in 2019 and Tokyo’s €300 million Resilience Bond in 2025, which was 7x oversubscribed, indicating strong market demand.

Gaps and unmet demand for adaptation finance

Despite current activity, a significant global climate “adaptation financing gap” of $US284-339 bn p.a. exists. While not all of this is currently investible under institutional mandates, it represents a substantial opportunity for private capital. In Australia, systems at high risk include primary industries, food, trade, finance, infrastructure, and the built environment. These areas have high private sector involvement, suggesting that investors can directly finance adaptation with minimal government support. However, at-risk public-good systems such as health, social support, and the natural environment may require more government intervention through mechanisms like resilience bonds or co-funding.

The value of climate resilience expertise to investors

Prioritising adaptation expertise offers several business advantages. In terms of investment performance, it improves the risk-return profile of individual assets and the total portfolio. This is particularly relevant for “universal owners,” such as large superannuation funds, whose broad holdings rely on systemic stability. Expertise also enhances pipeline analysis and deal origination, allowing investors to identify resilient assets that competitors might overlook. Organisationally, this builds brand equity and social licence to operate, especially when projects provide widespread community benefits. Finally, increased capital flows improve overall system stability, protecting the operating environment in which investors function.

Recommendations for institutional investors

The report provides a structured path for investors based on their maturity level: foundational, developing, and leading. The first set of recommendations focuses on capability and engagement foundations. Investors are advised to build internal expertise through targeted hiring and training, collaborate with research institutions to build shared data sets, and engage with policymakers on the National Adaptation Plan.

To capture value at the asset level, foundational steps involve screening portfolios for physical risk, while leading actions include pricing resilience consistently across the portfolio and setting resilience targets. To build exposure to goods and services, investors should assess current portfolio exposure and move towards deliberate allocation via dedicated strategies. Finally, to help build network and economy resilience, investors should adopt a universal-owner lens and work with stakeholders on enabling mechanisms such as blended finance and co-funding models to turn currently uninvestible gaps into investible opportunities.