When the World Meteorological Organization (WMO) released its State of the Global Climate 2023 report, it summarized the findings as “off the charts” in a very negative sense. It reinforces the conclusions of the 2021 IPCC that climate change will be catastrophic, no matter what we do. While we have seen the devastation caused by floods, droughts, wildfires and storms, climate change also has the potential to create value in the form of climate adaptation to manage increasingly scarce resources such as food, water, energy, and so on.
In 2023, climate records were broken for greenhouse gas levels, surface temperatures, ocean heat, sea level rise, Antarctic sea ice cover, and glacier retreat. People around the world experienced heat waves, floods, droughts, wildfires, and rapidly intensifying tropical cyclones that disrupted daily life.
According to the World Economic Forum, the global cost of damage to infrastructure, property, agriculture, and human health due to the climate crisis is estimated to be $1.7–3.1 trillion annually by 2050. These figures do not even take into account the investments needed to create climate-resilient systems to ensure a liveable and sustainable future. Financing this transition, however, will become increasingly difficult when we consider the challenging state of government finances (as discussed in last month’s Horizons article).
While the WMO report notes that climate-related financial flows nearly doubled in 2021/22 compared to 2019/20 (see chart), there is still a large financing gap. If we stay on track to stay within a 1.5 degree Celsius temperature increase, annual climate finance investments will still need to increase more than sixfold, reaching nearly $9 trillion by 2030 and a further $10 trillion by 2050.
Moreover, most of today’s climate finance flows are for clean energy investments in a handful of countries (US, Europe, Japan, China, India and Brazil), while some of the most climate-vulnerable regions and sectors (e.g. agriculture and industry) receive disproportionately little funding.
While the impact of climate change is most visible in the value destruction and uncertainty it causes, it also has the potential to create value in the form of climate adaptation to manage increasingly scarce resources such as food, water, energy, and so on. In his 2023 book The Earth Transformed, Peter Frankopan describes how climate change has dramatically shaped the development—and demise—of civilizations over time.
For example, during the Little Ice Age, a period of regional cooling between the 16th and 19th centuries, societies had to adapt as lower temperatures affected transportation and crops. Canals, rivers, and even the sea often froze over, while lower temperatures resulted in a shorter and less reliable growing season, leading to scarcity and famine. During this period, Iceland—then part of the Danish Empire—was in a privileged position because its natural food resource (fish) was more climate-resilient than (temperature-sensitive) grain.
Such strategic use of scarce resources could happen again today. Indonesia, for example, is becoming a key country in global battery and electric vehicle production based on its vast natural resources, particularly nickel. This gives Indonesia a stronger trading position with Chinese companies (such as BYD and CATL) and enables it to expand battery and EV production domestically.
Climate change could also open up alternative uses for difficult geographical areas, such as the Arctic. During the Dutch Golden Age (17th century), which also coincided with the Little Ice Age, the Dutch sought a faster route to Asia through the Arctic. While they never really exploited this route, it did lead to Dutch leadership in whaling. Today, the Arctic is again being explored for oil and gas, for trade routes, and perhaps even for food production as previously frozen land becomes fertile.
These examples show that adaptation and transition to more climate-resilient food and energy systems offer ongoing investment opportunities. However, geography and strength in natural resources will be important selection criteria.
