As the climate crisis intensifies, hazards such as urban flooding and anaemic harvests are becoming increasingly more frequent at a time when financial resources worldwide are getting scarcer. Despite that, there is now compelling evidence that boosting funding for climate adaptation and resilience is not just urgent but also one of the smartest investment avenues available today.
In India, an investor and business focus on mitigation, particularly in installing renewable energy capacity, has largely overshadowed the quieter but crucial domain of adaptation. These developmental projects are not merely a hedge against the climate crisis, but are increasingly yielding high returns on investment. From water resilience in cities to drought-proofing agriculture and protecting infrastructure from floods, adaptation in India is starting to yield quantifiable economic benefits.
A new study by the World Resources Institute, a Washington D.C.-based think tank, has shown that every $1 invested in adaptation and resilience generated more than $10 in benefits over 10 years, which translates to potential returns of over $1.4 trillion, with average returns of as much as 27 percent. The research arrived at this conclusion after analysing 320 adaptation and resilience investments across 12 countries amounting to a total of $133 billion, which included a few projects in India.
Adaptation essentially means adjusting natural or human systems in response to actual or expected climate change and its effects and impacts. These projects aim to mitigate harm or capitalise on beneficial opportunities. Unlike mitigation, which focuses on reducing or preventing the emission of greenhouse gases, such as using more renewable energy, adaptation is an acceptance that a certain degree of climate change is inevitable, and seeks to cope with or manage its consequences.
While adaptation funding has typically focused on reducing climate vulnerability and strengthening the resilience of investments, the WRI study found that over 50 percent of their documented benefits accrued even if climate-related disasters did not happen. Infrastructure built to better manage extreme weather events can provide round-the-year value. Irrigation systems can support diverse cropping patterns, evacuation centres can double as community hubs, and nature-based solutions such as watershed, wetland and coastal protections frequently provide added ecological and recreational benefits.
Adaptation projects are evaluated based on three key types of returns, commonly known as the triple dividend of resilience. These include avoided losses from climate disasters; induced economic gains like job creation and increased farm yields, and broader social and environmental benefits such as improved health systems and biodiversity. The WRI study found the benefits were evenly distributed across all three types. More often, investment appraisals only estimate the full monetised values of these dividends, indicating that actual rates of return are underestimated in economic assessments of most adaptation investments.
Adaptation finance as an investment class
It is now clear that investing in adaptation is not just a protective measure; it also helps advance broader developmental priorities and sustainable development goals of emerging economies like India. In a world facing rising climate losses, India’s adaptation finance cannot just be seen as disaster response. It’s an investment class in its own right. With the right instruments and incentives, adaptation can deliver not just resilience but returns.
Although adaptation funding in the country is still a fraction of the money that is being funnelled into renewable energy, the quantum is rising steadily. In India, such funding is predominantly led by public investments, although private sector involvement is increasing gradually. Financing now comes mainly from domestic budget allocations, international climate finance, bilateral and multilateral sources, and some private and philanthropic contributions.
A prime example of public funding is the rural jobs guarantee programme. While not explicitly an adaptation scheme, it funds water conservation, afforestation and drought-proofing efforts. In Bundelkhand, water conservation assets have increased cropping intensity by 40-50 percent. In Maharashtra, farm incomes have increased by Rs 20,000-40,000 per year, reduced distress migration and stabilised local economies.
There is a strong need for public-private partnerships in bolstering adaptation efforts in India, according to an analysis by PwC India. A survey of 100 major businesses by the consultancy found that physical climate risks had had financial impacts equal to about 10 percent of annual sales and 4 percent of their market value. But climate risks also offer an opportunity to innovate.
At least 31 of the businesses reviewed by PwC have identified adaptation-related opportunities. These include an insurer designing a new type of cover for adaptation, offering insurance solutions to help clients scale up nature-based solutions for adaptation. There are others that are developing alternative construction materials, risk modelling tools, climate risk insurance and improved seed varieties.
There are many such investment opportunities in the country. For instance, the urban water and wastewater infrastructure market in India has a projected expenditure of $122 billion between 2022 and 2030, according to Frost & Sullivan, another consultancy. It has identified key growth drivers that include government initiatives like the Atal Mission for Rejuvenation and Urban Transformation, Swachh Bharat Mission, and Smart Cities Mission that provide market opportunities while enhancing urban resilience.
Sensing the trendline, private funding is seeping in. Listed firms like VA Tech Wabag, Jain Irrigation and L&T are profiting from the surge in adaptation-linked contracts and government spending. Private equity and climate funds are also waking up to the opportunity. Acumen has pledged $300 million towards adaptation-focused farm investments in Asia and Africa, which include India. Eversource Capital’s Green Growth Equity Fund, India’s first dedicated climate change fund with a target investment of $940 million, is actively looking at sectors like clean transportation, water and waste management, and energy efficiency.
An investment boom in adaptation could be around the corner, but the costs remain high. Adaptation projects face high upfront costs, fragmented funding and long return timelines, but there are pathways to reduce costs and unlock scale. The options include blended finance models, aggregation platforms, climate finance taxonomy and ESG mandates, and outcome-based financing.
While climate adaptation investments are vital for India’s resilience against climate change, their direct influence on stock market performance is currently limited. As policy frameworks evolve and the importance of adaptation gains more recognition, there may be increased investor interest in companies contributing to these efforts. Early movers in adaptation financing would then have a clear edge over the competition.
(Soumya Sarkar is an independent expert based in New Delhi and Kolkata. Twitter: @scurve. Instagram: @soumya.scruve.)
Views are personal, and do not represent the stand of this publication.
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