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We know that we live in a warming world. In 2024, the global temperature exceeded the pre-industrial average of 1.5°C – the first time this has happened for a full calendar year. What we do not know is the future trajectory of global warming. How much will carbon emissions cause our world to further heat up?

“The world warming by 3°C is now a plausible scenario,” said Phineas Glover, Head of Sustainability Research, APAC, �۶���Ƶ. “What does this mean in reality? It means real assets may be impacted by more frequent and severe weather extremes, and it means the energy systems that support life on earth will face more volatility.”

Glover was speaking at the 28^th �۶���Ƶ Asian Investment Conference, where he moderated a panel of sustainability experts on how investors can prepare for a world where climate change pushes temperatures above the target 1.5°C, as agreed in the Paris Agreement.

Investors are particularly concerned about the economic impact of climate change. The latest models from the National Bureau of Economic Research forecast that 1°C of warming will translate into a 12% reduction in world GDP¹, which is much higher than earlier estimates.

Applied to a 3°C warming scenario and the total damage adds up to a 36% reduction in GDP – a number that would completely change the global economic landscape.

The rapid pace of climate change has forced a realisation that mitigation strategies on their own might not be enough to avert severe warming. In addition to working to reduce the emission of greenhouse gases into the atmosphere, adaptation can be considered to adjust to the future effects of climate change.

“We are moving into an environment that we have not experienced before, to a world that is potentially up to 3°C warmer, which means that we have to start investing in climate adaptation, which may present a larger investment opportunity than what we have seen over these past 25 years in climate mitigation” said Anup Jacob, Co-founder and Managing Partner, Activate Capital.

Investments are required for both mitigation and adaptation to be successful. The International Energy Agency expects USD 2.2 trillion to direction be directed towards renewables in 2025² – a number that falls short of how much is needed to realise net zero. �۶���Ƶ Global Research forecasts that the overall transition spend needs to reach USD 3.5 trillion per annum by 2030 and cumulatively reach USD 97 trillion between now and 2050.³

A variety of factors are influencing sustainable investment trends, said Jacob, including lower costs of key technologies, like batteries, and stimulated investment in renewables, in part due to energy security.

He went on to say, however, that there are headwinds – such as subsidies in several major economies that have expired or been removed; certain emerging technologies, like hydrogen power, have been put on a backburner; while in certain markets there is a broader backlash against ESG.

But there are reasons to be optimistic about Asia Pacific’s contribution to the energy transition. According to �۶���Ƶ Global Research, the region accounts for 47% of the cumulative transition spend globally since 2004, and more than 60% of annual renewable capacity addition since 2013.⁴

Adaptation can take a variety of forms, many of which require transforming important key industries.

Agriculture, for example, will need to adapt to a warmer world so that it can ensure food security. As a result, alternative proteins, vertical farming, and aquaculture will all become more prevalent over the coming years. Changing weather patterns will affect how infectious diseases spread across the world, as climate increases the risks associated with mosquito-borne infections. Access to effective insecticides will therefore become increasingly important, as well as the essential medicines in response to increasing infections.

The panel discussed the insurance industry, as more extreme weather events will result in an increase in natural peril claims, which will push up reinsurance costs for insurers or even force some insurers to exit high-risk markets. Adaptation in this sector will require a reassessment of how the industry prices risk.

Technology can also play a role in adaption. The panel highlighted how satellites are becoming cheaper to launch into orbit, which could be used to better predict extreme weather and the disastrous effects of climate change – such as wildfires. The good news for investors is that there are already many companies on the ground, offering technical solutions to the sustainability issues faced by industry.

Looking ahead, adaptation to climate change is urgent and of existential importance, requiring the a rapid and comprehensive redesign of the global economic system, which will involve digitisation and decarbonisation of supply chains, manufacturing, and production systems. “I’d like to see adaptation become normal, good business practice, which is integrated into strategy, core operations and tracking" said Emeritus Professor Mark Howden, ANU Centre for the Public Awareness of Science, Australian National University.

¹ NBER
² IEA, World Energy Investment
³ �۶���Ƶ,��Global Sustainability "Sustainable Transition Investment Strategy"
⁴ �۶���Ƶ, APAC Sustainability. 2025 Outlook