Climate Change Frequently Asked Questions

The first dedicated adaptation and climate resilience private investment fund, Lightsmith Climate Resilience Partners (also known as CRAFT, the Climate Resilience and Adaptation Finance and Technology-transfer facility), reached first close in 2019, and has been actively making growth equity investments in private companies that support climate resilience. Large financial institutions have identified adaptation strategies within their dedicated Climate or Impact funds, which together exceed a billion dollars. However, at present few easily investable public market products exist by which investors can gain targeted and systematic exposure to companies that produce solutions for adaptation and climate resilience.

Climate resilience investments are currently not well understood by investors, and therefore practical frameworks are needed to inform investment decisions. Few companies today self-identify as “climate resilience” or “adaptation” companies.  However, established, market-driven approaches can be used to identify companies that provide climate resilience and adaptation solutions. Many taxonomies exist to identify climate resilience companies, yet these models may be limited to specific regions, focus only on emerging technologies, or tend towards needs assessments rather than solutions. A new model has been developed and peer-reviewed for identifying climate resilience and adaptation companies that is known as the “CRISP Framework.”

The goal of the CRISP (Climate Resilience Investments in Solutions Principles) framework is to consistently guide investments into adaptation and resilience at various stages and to facilitate the identification, evaluation, investment, reporting, and engagement with companies. Adaptation companies are part of large and emerging theme, a hallmark of growth investing. Facilitating adaptation and resilience as a growth theme for equity investments is a key desired outcome of the identification framework.

The number of companies involved in climate resilience efforts has been steadily growing in recent years. While there isn't a definitive count of all companies globally, major corporations, insurers, and public-private partnerships are actively contributing to local climate resilience initiatives. These efforts focus on adapting operations to withstand climate impacts and supporting communities where they operate.

In 2023, the World Meteorological Organization (WMO) reported that almost 12,000 extreme weather, climate, and water-related events over the past 50 years have caused over $4.3 trillion in losses. In 2022, natural disasters caused global economic losses of $313 billion, of which less than half was insured. In the U.S. alone, climate and weather disasters have caused roughly $120 billion in damages per year since 2017.

In 2023, the U.S. suffered billion-dollar climate catastrophes 28 times, the highest number of disasters ever in a calendar year. These events include: nineteen severe storm events (tornado outbreaks, high wind, hailstorms), four flood events, two tropical cyclones, one wildfire event, one winter storm/cold wave and one drought/heat wave. This historic number of events exceeds the prior annual record number of inflation-adjusted billion-dollar disaster events (i.e., 22 events in 2020).

Climate resilience and decarbonization are two key strategies in addressing climate change, but they serve different purposes. Climate resilience refers to the ability of communities, systems, and economies to prepare for, respond to, and recover from the effects of climate change, such as extreme weather and rising sea levels. It emphasizes adaptation, ensuring that infrastructure and ecosystems can withstand climate impacts. On the other hand, decarbonization focuses on mitigation by reducing or eliminating carbon emissions, particularly from sectors like energy and transportation. This involves transitioning to renewable energy, improving energy efficiency, and reducing reliance on fossil fuels to prevent further climate change. Together, these approaches help both adapt to and prevent the worsening of climate-related challenges.

Climate change financing, or climate finance, refers to the funding allocated to actions aimed at addressing climate change. This funding can come from several sources. Public finance is provided by governments and taxpayers to support climate action, particularly in areas where private finance is either unavailable or insufficiently attracted. Private businesses also contribute to climate finance, often by investing in sustainable practices or green technologies. Additionally, grassroots fundraising campaigns can serve as a valuable source of climate finance, driven by community efforts. Climate finance plays a crucial role in both mitigation, where large-scale investments are needed to reduce greenhouse gas emissions, and adaptation, which requires financial resources to help communities cope with the impacts of a changing climate.

Climate resilience investment involves funding adaptation and resilience measures to minimize exposure to climate risks and comes with multiple benefits. Financially, these investments can generate positive returns for stakeholders by protecting their assets and investment returns from climate-related damage. Additionally, resilience measures help ensure business continuity, even in the face of climate disruptions, while supporting economic growth and development. By preparing for disasters in advance, these investments can significantly reduce the costs associated with post-disaster recovery. Moreover, investing in climate resilience has the added benefit of safeguarding public health by mitigating the adverse effects of extreme weather and environmental changes.

Physical climate impacts will disproportionately affect the poorest and most vulnerable populations and nations. Climate resilience measures can support investible opportunities that leverage the power of nature-based solutions and enhance biodiversity.

The climate resilience growth investment opportunity is based on three overarching drivers: 1) Increasing Climate Risks & Impacts, 2) Demand for Climate Resilience Solutions, and 3) Investment Opportunities in Climate Resilience Companies.

The Adaptation & Resilience Investors Collaborative (ARIC) is an international group of development finance institutions that work together to increase private investment in climate adaptation and resilience projects, particularly in developing countries, by sharing knowledge, building investment pipelines, and supporting early-stage ventures with innovative climate adaptation solutions; essentially aiming to scale up climate resilience investments through collaboration.

The Bezos Earth Fund is transforming the fight against climate change with the largest ever philanthropic commitment to climate and nature protection. The fund is investing $10 billion to protect nature and drive systems-level change, creating a just transition to a low-carbon economy. By providing funding and expertise, the fund partners with organizations to accelerate innovation, break down barriers to success and create a more equitable and sustainable world. To learn more, visit bezosearthfund.org.

The ClimateWorks Foundation is a global platform for philanthropy to innovate and scale high-impact climate solutions that benefit people and the planet. The Foundation delivers global programs and services that equip philanthropy with the knowledge, networks, and solutions to drive climate progress for a more sustainable and equitable future. Since 2008, ClimateWorks has granted over $1.8 billion to more than 850 grantees in over 50 countries.

GARI is a private sector, private investor-led initiative that was announced at Paris COP21 in conjunction with the UN Secretary General’s Climate Resilience Initiative. The working group brings together private and public sector investors, bankers, lenders and other stakeholders to discuss critical issues at the intersection of climate adaptation and resilience and investment with the objective of helping to assess, mobilize and catalyze action and investment. GARI aims to provide education, research, and resources to build awareness and capacity in the pri_vate sector towards the mission of catalyzing investment in resilience. To learn more, visit garigroup.com.

The MSCI Sustainability Institute has a mission to drive progress by capital markets to create sustainable value and tackle global challenges such as climate change. Its goal is to align data, analysis, policy, and action by drawing upon MSCI’s experience and expertise as a leading provider of sustainability data and metrics to the investment industry to spur collaboration across finance, academia, business, government, and civil society. For more information and to engage with the organization, visit msci-institute.com.

The Lightsmith Group is a sustainable private equity firm that invests in companies that address critical societal needs. Lightsmith invests in growth-stage companies providing technology-enabled business services and solutions in the areas of energy, water, food and agriculture, and climate resilience. For more information on The Lightsmith Group, please see: lightsmithgp.com.