Financing to Build a Multi-trillion $$$ Adaptation Industry

Financing to Build a Multi-trillion $$$ Adaptation Industry – Investing in adaptation is becoming inevitable. The greater the physical climate risks, the greater the investment opportunity. Accelerating risks only mean opportunities will occur sooner. So, this month, to ride the “early adapter” advantage, we turn to GIC for its sizing of this inevitable adaptation market as well as water gurus who share how China intends to finance its trillion-yuan water-savings industry. Insurance also plays a key role in unlocking cost incentives for proactive adaptation, and we think Link Asset Management’s sustainability-linked insurance is just the start. Finally, we explore upcoming areas like blue finance and how Hong Kong can tap this.

Is climate adaptation a viable market? GIC, one of the world’s largest sovereign wealth funds, thinks so… Its new report expects adaptation revenue from a select set of solutions to reach over USD4trn by 2050 from USD1trn today. Authors De Rui Wong & Kee Bum Kim share how global warming can drive US$2trn of growth in this market from emerging tech such as weather intelligence to more established solutions like weather-resilient building materials.

They think the opportunity will remain significant regardless of climate scenarios so don’t miss out …  they estimate the investment opportunity across public and private debt and equity to rise from USD2trn today to USD9trn by 2050. And this is just the addressable market for 21 “pure-play” adaptation products and services, out of 1,400 identified adaptation solutions!

One of the growth sectors is water conservation, a no-brainer if rivers are running dry. Here, we turn to China water experts Dr. Dongliang Shen, Dr. Cecilia Tortajada & Prof. Asit Biswas to unpack how China intends to finance its water-savings industry. Did you know that China provided “water-saving loans” totalling RMB74bn to nearly 2,000 projects in the past few years?

Indeed, China expects its water-savings industry to hit one trillion yuan by 2027 and to finance this, there’s extensive inter-ministerial policy coordination as well as collaboration between the Ministry of Water Resources & the Bank of China to produce financing guidelines. Can policies & financing mechanisms incentivise private capital into water? What are the bottlenecks?

Other Major Chinese banks like ICBC, CCB, Agricultural Bank of China and China Development Bank are also at the table so get ahead of the curve on China’s water conservation drive.

Clearly, the adaptation opportunity is huge, and this can be so much more if we proactively adapt as the GIC model assumes adaptation demand to be reactionary. It’s time to become “early adapters” to capture this upside and avoid massive losses ahead – S&P projects US$1.2trn of future losses yearly by 2050 if no adaptation measures are taken for the S&P Global 1200.

It’s not just us urging adaptation now, JP Morgan’s recent report on “Building Resilience Through Climate Adaptation” says “maintaining the status quo without adaptation destroys value”.

Leading the way as “early adapters” are Link Asset Management, AXA & Marsh. As physical climate risks escalate, insurance premiums have risen and worse still, some areas have become uninsurable. But it doesn’t have to be this way – Woody Chan from Link explains how together with insurers, they have pioneered “sustainability-linked insurance” – an innovative model that helped slash the company’s property insurance premiums by nearly 12%. This is a win-win for the insurers too as client adaptation actions also help avoid losses.

So, together, they have launched a white paper to urge real estate & insurance sectors to move beyond just valuating climate risk impacts to “Rewarding Climate Risk Adaptation”. Since its launch, there’s been growing support from big real estate players which is great as our earlier report shows that even the top 4 developers in Hong Kong are not ready for future climate risks.

We think that “green insurance” can be the next “it” product to unlock cost incentives and drive proactive adaptation – to find out how, join us in HKGFA’s upcoming seminar on “Unlocking Adaptation Finance & Building Climate Resilience Through Insurance” on 3 June 2025 – sign up now!

New adaptation financing solutions are necessary as well. Kate Martin, Sophie Le Clue & Sam Inglis from ADMCF propose “blue finance” for Hong Kong’s blue economy. From shipping & submarine cables to coastal properties – HK is built on a marine economy yet invests little in its resilience. See why they believe this paradox of dependency and neglect can provide significant opportunities in blue finance innovation and collaboration.

Are Hong Kong blue economy plans/blue taxonomy development behind mainland China? Can IMO’s new decarbonisation framework be leveraged? How can Hong Kong ride this blue wave? Dive in and find out how we can make Blue the New Black & get a sneak peek of ADMCF’s upcoming report “Blue Finance for a Blue Economy: Pathways to Marine Conservation in Hong Kong” to rethink the way marine assets are valued, protected & financed.

We’ve reached an inflexion point. Already, global economic losses from natural disasters reached USD318 billion in 2024; over half of this was uninsured according to Swiss Re. Climate risks – be they acute or chronic – are only going to intensify because we’ve not been able to significantly cut emissions. Adapting our economy as well as our financial systems to avoid future losses is now inevitable.

We’ve started to adapt for acute risks like extreme weather and wildfires but we must now prioritise adaptation for chronic risks like rising seas and rivers running dry as they too are now accelerating thanks to fast-melting ice – over 40% of worldwide glacier loss in the last 50 years occurred in this decade. We can no longer ignore fast rising seas and adapting for these will mean the adaptation market only grow.

GIC forecasted the market for flood resistant materials to exceed US$680bn by 2050 and this does not include sea level rise. Singapore alone has just upped its coastal defence fund with another SGD5bn bringing it to over SGD10bn – far from the SGD100bn it says it needs by 2100. Singapore’s coastline is only 223km… imagine the market for the tens of thousands of km of urban coastlines across APAC.

There’s no time to waste. As a vulnerable coastal international finance hub and the gateway to China, Hong Kong is uniquely situated to not only facilitate the financing of China’s booming water-savings industry and the regional blue economy, but also promote lucrative innovations like adaptation-linked insurance products that can also build resilience.

David Liao, the Co-CEO of HSBC said HK can be a “climate change superconnector” by accelerating local decarbonisation while helping finance the climate transition across Asia; we say Hong Kong can also be the key to unlocking the inevitable multi-trillion $$$ adaptation industry. It’s time to rethink the relationship between risk and resilience.