The Thinking Ahead Institute’s climate transition working group has been exploring a thesis – that a narrowly defined transition is likely to fail.

The narrow definition relates to decarbonising economic activity: ‘mitigation’. A more positive framing of the thesis would be that a broadly defined transition (including biodiversity loss, social inequality, and circular economy) – ‘adaptation’ – is more likely to be successful.

Here we report on the group’s exploration of adaptation, which is our collective, defensive response to a warming planet and changing climate. Adaptation is defensive because it seeks to enhance our future security in response to threat – so rebuilding a flooded house on stilts or changing where and how we grow crops.

Adaptation versus mitigation

It is useful to start by comparing adaptation with mitigation, as in the table below.

	Adaptation	Mitigation
Characteristic	‘Defensive’	‘Offensive’
What it is	Reduction in vulnerability	Reduction in emissions
What it does	Address the symptom	Address the cause
Geography	Local	Global

The dominant focus in the investment domain has arguably been on mitigation, such as net-zero commitments. This position has logic behind it – if you solve the cause, you also address the symptoms.

However, we believe that adaptation should receive more attention. This is partly because mitigation and adaptation are not mutually exclusive – there is an intersection between the two, which might yield particularly compelling investment opportunities – and partly because they are in a dynamic relationship with each other.

If we had pursued an aggressive mitigation pathway starting in the 1980s, we might have found there was little current need for adaptation. Now, however, given insufficient historic mitigation we find that the temperature is rising, which requires more adaptation, reducing the focus on mitigation and the resources available for it. This locks in further temperature rises, which will require yet more adaptation, and so on.

Adapting to what?

There are multiple levels on which adaptation is likely to be needed. Most obviously, we can start with direct physical impacts and peel back the layers from there:

• Climate change events: There will be increased frequency of extreme weather events (such as hurricanes and droughts). Rising sea levels will salinate fertile river deltas, erode coastlines and bring flooding.
• Degraded ecosystem and weaker related services: We are likely to see a reduction in agricultural yields and drop in food security.
  Social and cultural shifts: We are likely to see higher levels of human migration and displacement, and potential shifts in consumption and lifestyles.
• Energy disruption: Transitioning from the dominant fossil energy to renewables (mitigation) will bring adaptation problems because of the disparity in their characteristics. For example, energy density, availability, or transportability.
• Economic disruption: The world is committed to an income reduction of 19 per cent within the next 26 years independent of future emission choices, according to a recent paper published in Nature.

However, I would like to take the adaptation thinking a bit deeper and more abstract.

My colleague, Roger Urwin, uses an ‘iceberg model’ to describe what is going on in a complex system. In our context, above the surface, we observe adaptation behaviours but right at the bottom of the iceberg, hidden well below the surface, is the mental model from which the behaviours arise.

One version of the mental model assumes there is a mean (for example, our living standards improve over time), and sees adaptation as correcting for the shocks that come our way – we assume there is reversion to the mean. If we hold this mental model then we can run down the bullet list above and quickly work out what we need to do to correct for any shock.

An alternative mental model could assume that there is no longer any mean to return to. In this model, temperature has already risen outside the range within which humans developed agriculture and created a civilisation (true), and we are at – or have already passed – a number of irreversible tipping points (possible).

This is a world of mean aversion, where there is no average, and no normal to return to. Adaptation under this mental model looks totally different. If we run down the bullet list now, it is far from clear what we should do.

We basically have three choices… mitigation, adaptation and suffering

The title above is a quote from John Holdren, an American scientist and climate adviser to former President Barak Obama. The quote continues with, “We’re going to do some of each. The question is what the mix is going to be”. The more mitigation we do, the less adaptation we have to do, and the less suffering we will experience.

However, it is possible that we have already left it too late to mitigate. We are currently on a path to around 2.7 degrees Celsius of warming by 2100 suggesting that the mix will be dominated by adaptation and suffering.

Assuming that we wish to avoid unnecessary suffering, we will have to do a lot of adaptation. We can categorise adaptation as follows:

• Behavioural / voluntary: This occurs at an individual or community level, such as a corporation.
• Forced / regulatory: This is imposed from an urban, regional or national level.
• Technical / technological: These adaptations can be adopted voluntarily (perhaps ‘heavily sold’ by profit-motivated entities) or forced through regulation.

Adaptation is necessary and will be part of our future, but there are a number of issues that make this a difficult area for the investment industry:

• Geographical disconnect / mismatch: Where emissions are produced (‘global north’) typically doesn’t match where the impact occurs (‘global south’). It follows that there is a lack of incentive for investors to direct adaptation capital where it is most needed.
• Short-term uncertainty: The benefits may be difficult to capture in the short term. For example, assessing avoided future losses.
• Market absence: The regions most affected by climate change (‘global south’) often have less access to capital markets.
• High upfront costs: Large-scale infrastructure projects (such as sea walls or flood barriers) may require significant initial investments, and may have uncertain future revenues.

While there will be micro-opportunities to invest in adaptation and earn an investment return, the above points suggest that aggregate and large-scale adaptation may not provide attractive investment returns.

If this is true, a rather bleak question suggests itself: if we are not aggressively investing in mitigation, and we are unlikely to invest at scale in adaptation, are we setting ourselves up for suffering?

Tim Hodgson is co-founder and head of research of the Thinking Ahead Institute at WTW, an innovation network of asset owners and asset managers committed to mobilising capital for a sustainable future.