For decades, climate adaptation was treated as a public sector cost or a multibillion dollar financing gap driven by guilt rather than capital returns. But as extreme weather disrupts global supply chains and ensure catastrophe losses surpass $100 billion annually for six straight years, climate resilience is transforming into one of the largest private sector market opportunities.
And in a new article published by the Harvard Advanced Leadership Initiative, Social Impact Review, analysis of $96 trillion in global market cap shows that 47% of publicly traded companies are already generating revenue from products that help customers adapt. While joining us live here at the New York Stock Exchange to discuss the ROI in climate resilience as well as adaptation and the adaptation economy, is Jeff Gitterman, managing director at Gitterman Asset Management.
Jeff, great to have you here. Thank you so much for joining us.
Thanks for having me.
So first and foremost, Based on this article, give us your perspective of where we are and where the opportunities are.
So first, what we're seeing is it used to be resilience investing was a post-disaster issue. And it was we have to reassure a broken supply chain or something else that might have impacted. Now though, companies are spending more and more money on adaptation, which is pre disaster in trying to shore up these supply chains, supply chains in advance, trying to restore energy transmission lines, trying to invest in more business opportunities.
And we're seeing revenues being driven across the marketplace from the Harvard report as you said that are showing that companies are actually making money and being more profitable, whether it's on fire risk or flood risk, all of the things that we've talked about during Climate Week are becoming much more important as a pre investment, rather than a post investment.
So for viewers out there who may not be familiar with the details of adaptation revenue. Can you walk us through this?
Yeah. So it's interesting. Like fire risk. So yeah, more and more insurance companies right now, parametric insurance companies and others that are starting to embed fire risk parameters and data from AI into their insurance pricing. And they're actually offering for the first time really pre discounted pricing.
If industries, municipalities or companies do things about their fire risk vulnerabilities prior to an event. So that's a huge advantage because these companies are getting paid by insurance companies, these AI startups, and they're generating a lot of revenue. Companies are getting discounts on their insurance pricing for investing in pre risk work.
So all these companies that do that kind of work are now making money and being profitable. So we're seeing the latest studies show that 96% of the 9000 companies that were being tracked had some investment tied to adaptation in their books already. So either the company was buying insurance for it, or they weren't making their own investment for it, or they were buying a startup that was actually doing work in adaptation.
So it's becoming a huge initiative. They're saying about $368 billion a year is being invested just domestically in climate adaptation dollars.
Yeah. And when it comes to the space, frameworks are key. So can you tell us a little bit about the three tier investment framework and why it's important?
So one is there's companies that you can look at that are already deriving revenue from climate adaptation initiatives. Like we talked about fire risk companies, flood risk companies. First Street that just got acquired by MSCI. These are all examples of revenue positive companies working in climate adaptation.
Second tier is companies that actually need funding but aren't revenue positive Yeah. So there's a lot of startups that are looking for seed capital. There's a lot of municipalities that need to make local investments. New York needs to invest $2 billion in their sewer system. These are pre investment initiatives that are looking for capital and trying to source capital.
And the third is things like health risk that it's going to be very difficult to get a company to actually invest in. But is a public good. That is a huge necessity. So you're looking for NGOs, governments and philanthropic dollars to actually fund that third tier of initiative. So again, three tiers across the playing field.
First one, we're seeing a lot of money flowing in already. Second and third needs capital needs philanthropy needs government initiative and regulation.
Yeah. And given all the risks, it's not surprising that we're seeing growth in the catastrophe bond market. But tell us how capital markets are structuring instruments out there.
So I mean, it used to be the catastrophe insurance was just a bet on whether the catastrophe happened or not. It only paid off if the catastrophe hit a certain level. There was a great scene in billions a while back where they paid off the, um, hurricane pilot to say it was a category four and not a category five so they wouldn't have to pay out the hedge fund made money.
This is the world that we've been living in up until now. Not the cheating, but the world of post-disaster. Now, all of a sudden, those bonds are actually selling because they're giving the initiative up front, discounted pricing to generate reduced premiums. That's a huge example, because if we don't do that work, we don't do the brush clearing around these buildings.
If we don't shore up energy transmission lines and we don't do all that investment. First of all, where's the capital going to come from to do those investments? If the insurance companies are offering premium discounts for companies that are doing those investments? There's a trade off. They can put the money into that.
They shore up buildings. We get less post-disaster costs at risk. And the cat bonds are selling at a discount because the companies are making pre investment.
Yeah. And while we're on the subject of bonds I do want to get your perspective on what we're seeing across the bond market. Because here in the US on this Monday morning the ten year is back above 5.3%. And we're also looking at volatility around the world. And this is not just in the Asian markets but also in Europe.
Given the political tensions that are in France as well as Spain. So you have been in the markets for many decades. What do you make of all this volatility, Jeff?
You know, it's really a lot oil based. Yes, there is some inflation. But we saw the job numbers on Friday. The job number weaker than expected. So we don't see it as as much inflation driven as it is political risk driven and deficit driven. The bond market is sending a clear signal or the bond vigilantes if you want to call them that, that if we don't get the deficit under control and if we don't get the Iran war under control and get oil prices down below, you know, well below 100 that the bond markets aren't going to be forgiving.
They're going to keep driving yields up. Ultimately, it's going to be a headwind for businesses. And we're going to see growth slow. So we'll get it one way or the other. I mean, I think in the next 12 months we'll see lower interest rates, either because we've resolved the Iran conflict or we've hit headwinds and the economy is slowing.
And all of a sudden we're back after probably two rate increases that we'll see over the next six months. We're back nine months from now having to look at lower interest rates.
Yeah. And you just honed in on a lot of what we're watching this year as we kick off the final quarter of 2026. So geopolitics, politics, not to mention fiscal as well as monetary policy. And we all like to say this time is different, but is it really different.
I mean, I think it is different because there's fundamental conflicts in Washington that are making it very difficult to get anything done. The market though like certainty. So if the market thinks we're going to swing from a Republican controlled House and Senate or there's risk of one House being taken, one House is fine.
The market likes that because nothing really gets done in that world or both houses being controlled by the Republicans. Less regulation, more money flowing. The market likes that Democrats get control of both houses. The markets are going to be really volatile in that kind of environment because they'll expect changes around taxes, deficit control, reduce pricing.
It's a lot of pressure that the markets don't want to see. The markets are happy to party today and worry about the hangover later. They don't want to see that the parties end up.
Yeah. And finally, just before I let you go, speaking of parties, I do want to get your perspective on artificial intelligence. Not just the technology, but also the opportunities because there is a lot of dialog about what AI will actually do the benefits, the risks, the opportunities. But where do you stand and why?
I mean, I think in medicine, incredible. We're seeing reports from Harvard Medical that they're making innovations that would have taken 160,000 years to find and discover without AI. So in medicine, I think we're going to see world changes over the next 5 or 10 years. Longevity, cancer risk. All of those things are up for grabs for AI to really be a huge benefactor.
Job risk on the other side of that and lots of jobs being lost. Huge risk to the economy. Are we going to get Musk's universal basic income? Who's going to pay for that? I think we're teetering on this seesaw of there's lots of good that could come from it. There's also, obviously lots of bad that can come from it.
We're living in an unknown, which makes it very difficult for markets to operate. And it also makes it really hard for people to function when the world is changing so fast underneath their feet. People normally don't do well in a rapidly changing environment. They get scared. They get nervous. Fundamental religion is on the rise in a world where there's rapidly changing environment around people.
So I think it's a scary time. We need better thought leaders out there talking about this. I don't think the guys that are running AI are the right guys to be talking about how we actually deal with it, regulate it, educate people about it, use it to our benefit and make sure it's embedded in AI that they serve.
It serves humanity and not that we're being served up to AI.
So yeah. And do you bring up an important point, because when we're talking about the opinions out there regarding the future of AI as well as the guardrails, we've even heard from the Pope regarding what should and should not happen. But what guardrails do you think we need when it comes to this tech?
I mean, it's very difficult because we don't know the capability of the next wave of AI. So the guardrails, are they even safe? It's like, can they actually prevent what we want to have? We've already seen with the hugging face catastrophe that there's embedded AI agents out in the internet that they haven't been able to recall and shut down.
So it might actually be too late for that. We might just be in the hope and pray phase that whatever we're building next is not going to wipe us out. Um, it's a tough spot to be in.
Well, Jeff, I appreciate your time this morning. Thank you so much for weighing in and breaking all of it down for us this morning.
Thanks for having.
Me. Thank you.
