When Jay Koh cofounded The Lightsmith Group in 2016, few people were talking about the need to invest in solutions to help people adapt to a changing climate. Eight years later, “climate adaptation” is the topic du jour.

The dark irony: the worse the climate catastrophe gets, the more valuable climate adaptation solutions become. What Koh calls the “unavoidable opportunity” is commanding new attention from development finance institutions, pension and insurance funds and impact investors.  

“We’re seeing increased amounts of investor interest in adaptation and climate resilience, because the reality, year on year on year, of climate impact is becoming greater,” Koh told ImpactAlpha from Baku, Azerbaijan, where the COP29 climate summit is underway.

Lightsmith’s annual COP side event on resilience has grown from “a tiny bunch of people having a couple of drinks and a dinner,” he says, to “a ballroom full of people really talking about how to make transactions happen.” 

The firm, which also operates a $186 million adaptation-focused venture fund, this week announced $2.6 million in fresh grant funding to help design and test demand for what he’s calling “a virtual green bank for adaptation.” The idea is to offer a full range of debt, equity and technical assistance to companies building adaptation solutions, from AI-enabled satellites to predict wildfire risk, to precision agriculture tech to boost crop yields, to new insurance solutions. 

Backers of the platform, Systemic Capital for Adaptation Localization and Expansion, or SCALE, include the Global Environment Facility and the US International Development Finance Corp., or DFC. The new funding builds on a $500,000 grant from the US AID’s Climate Finance for Development Accelerator in October. 

Collective goal

More intense and frequent storms, floods and droughts are disrupting lives, driving up food prices and making some places uninsurable. This year will be the warmest on record, the latest in a string of record-breaking years. 

“Financing for climate resilience and adaptation is vital for helping communities around the world address pressing challenges that impact their daily lives,” said DFC’s Aparna Shrivastava in announcing support for SCALE.

Negotiators at COP29 are working to set a “new collective quantified goal” for developed nations to finance the mitigation and adaptation efforts of their less developed (and less polluting) peers. Global public adaptation finance flows to developing countries amounted to just just $28 billion in 2022. An additional $187 billion to $359 billion per year is needed for adaptation alone, according to United Nations estimates. 

With greenhouse gas emissions still on the rise and the widely expected withdrawal from the Paris climate accord by the US under Donald Trump, extreme weather and other climate adaptation needs will only grow.  

Institutional investors, Koh said, “are seeing the impact of climate change on their investment portfolios, whether it’s the impact on insurance balance sheets, or the ability to refinance mortgage pools, changes in supply chain impact, healthcare, energy systems – all these things are now being affected.” 

SCALE aims to provide institutional investors a way to invest in adaptation and resilience across multiple asset classes. Koh said investors are asking, “‘If that is what’s going on on the downside, is there upside?’”

Climate adaptation investing, he says, “is an opportunity to do something about what we believe is a pretty clear trajectory.”