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Is this the age of investing in climate resilience?

Are we entering the age of investing in climate resilience? We believe the answer is increasingly yes — but not by default. Rising physical climate hazards — heatwaves, floods, droughts and wildfires — are growing in frequency, severity and financial footprint, making resilience commercially relevant across regions, sectors and asset classes.

08/11/2026

Are we entering the age of investing in climate resilience?

We believe the answer is increasingly yes — but not by default. Rising physical climate hazards — heatwaves, floods, droughts and wildfires — are growing in frequency, severity and financial footprint, making resilience commercially relevant across regions, sectors and asset classes. What is still missing is the market plumbing that allows private capital to move more efficiently: better translation of data into decisions, more meaningful disclosure, stronger asset- and system-level design standards, and instruments such as resilience bonds. This is no longer a research question. It is also a design and delivery challenge.

The reality of navigating changing physical climate risks

We are investing through a period of genuine volatility — shifting geopolitics, fractured supply chains, and a growing sense that the assumptions underpinning long-term portfolios can no longer be taken for granted. In that context, climate is, in one important sense, one of the better-known quantities we have. A great deal of what the next few decades hold is already locked into the physical system: we know, with reasonable confidence, how much warming is already built in, how heat, flooding and drought will intensify, and roughly where and how hard that will land. That predictability is precisely what helps makes the economic case for climate resilience calculable — you cannot build a benefit-cost ratio or a payback period for a risk you cannot reasonably forecast.

But that confidence has limits, and they matter for portfolio construction. Political direction remains uncertain, the pace of technological change is unpredictable, and the natural and atmospheric systems underpinning these risks are complex, interdependent and — in important respects — already irreversibly altered by human activity. And we still know comparatively little about tipping points — the thresholds beyond which physical systems shift abruptly rather than gradually, whether that is an ice sheet, an ocean current, or a regional ecosystem entering a different state. Those tail risks cannot be ruled out, and by definition they do not show up cleanly in models built on historical relationships. 

Resilience investment therefore sits in an unusual and potentially valuable position: investors can act on well-evidenced, near-term physical risk while simultaneously seeking to build in protection against the low-probability, high-consequence shifts that current models are least equipped to price. That combination — a known baseline risk with a real possibility of tail surprise — is precisely what a well-functioning capital market should be able to price and finance. Whether it currently does so is a different question.

The conversation has shifted — from definition to mechanics

A few years ago, if you raised the subject of investing in climate resilience with an institutional investor, you got three predictable questions back: 

  • What actually is climate resilience — a seawall, a heat-proofed building, an early warning system, a sovereign disaster insurance scheme, or all of the above? 
  • What does it look like across different asset classes, given there was no template? 
  • How much capital are we talking about, and who is expected to pay?

Those were reasonable questions in a market with no data, no pricing convention and no track record. They are still worth asking. But we think we have moved past them. The question we are now hearing is a different one: 

  • How do we get private capital into climate resilience, at scale, on terms that make sense to a fiduciary?

That shift matters. It signals that the evidence base has caught up — and that the gap is no longer analytical intent, but market infrastructure.

The evidence base has caught up

Part of what has changed is the strength of the numbers that underpin the climate resilience investment case. This is particularly clear at a macro-level: The recently published GRI/LSE report with the Coalition of Finance Ministers, The Macroeconomic Case for Investing in Climate Adaptation1 , pulled together nearly 300 studies and more than 6,000 estimates. The headline is that adaptation investments can yield substantial returns at the macroeconomic level, often resulting resulting in a ‘triple dividend’: preventing losses, stimulating economic activity, and providing social and environmental co-benefits. The report looks at a wide range of adaptation actions and finds a median benefit–cost ratio of around 4:1 with benefits typically exceeding costs within about three years for the average project. That is not a long-dated bet on avoided catastrophe but near-term societal returns with a long-term compounding benefit. 

At the domestic level, the UK Climate Change Committee (CCC) warns that without additional adaptation, the cost of climate change impacts in the UK could rise to the equivalent of around 1% to 5% of GDP per year by 2050 — roughly £60 billion to £260 billion annually, compared with an estimated GDP of about £4.8 trillion in 2050 (2025 prices2 ). These impacts on health, communities, infrastructure, nature, and the wider economy would increasingly undermine the security and prosperity of society. The CCC also says the technology and plans already exist to adapt the UK to a 2 °C  climate by 2050, but putting them into practice would require annual investment of around £11 billion through to 2050 to address heat, water stress, and flooding. The CCC estimates that around 72% of heat adaptation costs will fall to the private sector, with 28% borne by the public sector. Establishing clarity over what is privately investable, what falls to government, and where blended approaches add most value is therefore essential.

Public capital could have a critical role here as a de-risking mechanism, not a substitute for private investment. We believe blended finance structures, first-loss capital facilities, and green bonds ringfenced for resilience infrastructure are more efficient uses of the public balance sheet than direct grants, precisely because they crowd in private capital at scale.

Institutional investors have long accepted that infrastructure could deliver lower, steadier returns in exchange for more predictable risk: contracted cash flows, long duration, low correlation with broader markets. If structured well, resilience investment can have a similar return profile — a school retrofitted against overheating, a water system hardened against drought, or flood defences protecting a commercial district all produce a steady stream of avoided loss rather than speculative upside. The structural difference is that infrastructure has decades of pricing convention, standardized contracts and rating agency methodology behind it. Resilience does not — yet.

What investors say they need

Strip away the framing and four things are required to convert investor intent into actual portfolio decisions:

As the IIGCC has noted, investors face an ocean of information and a desert of usable knowledge. The issue is not data volume but translation: what can actually sit inside an underwriting model or a portfolio risk framework.  Part of the problem is interoperability rather than availability: even where data exists, there is no single source of truth used consistently across investors, underwriters and banks — an issue often mentioned as a barrier to scaling private capital. Physical climate risk remains systematically underpriced — not for lack of analytical will, but because asset-level data is incomplete, vendor outputs for the same assets diverge significantly, and existing models frequently lack the spatial granularity that investment decisions require.  Uncertainty around tail events can tip from healthy caution into decision-making paralysis. Physical risk disclosure — requiring companies and asset owners to quantify and report exposure to flooding, heat, drought and sea-level rise – can be a powerful lever to redirect capital toward risk-adjusted decisions. Data enrichment at property level is also a fast-moving field: catastrophe models, widely used in the insurance sector, are increasingly capturing resilience through secondary modifiers — flood protection standards, roof construction, vegetation management for wildfire — and are expected to become more sophisticated as data quality improves. At community level, measures such as wildfire buffers or flood defenses are similarly built into the modeling. This kind of data enrichment is a fast-moving field, with data vendors offering increasingly granular property-level data. While far from mainstream, this is an area that could potentially hold promise for investors as well.

While risk analytics is essential, we believe investors do not need a complete physical risk dataset before engaging portfolio companies on how they are managing heat, water stress and supply-chain exposure, or before building resilience into stewardship conversations. The data may keep improving. The engagement does not need to wait for it.

Understanding what adaptation actually means, and how it performs, is important. A company's resilience to physical climate risk depends on its location, and runs through its supply chains, its dependence on water and nature, and the exposure of its workforce to heat. Adaptation therefore is not a single intervention; it spans a wide range of measures, from physical hardening of assets (flood barriers, cooling systems, drought-resistant infrastructure) to operational and behavioral changes (supply chain redesign, workforce heat protocols, nature-based solutions). It ranges from stress-testing assets, production processes and suppliers to protecting employees and ensuring adequate resilience measures help to reduce disruption and maintain productivity3. 

For investors, the distinction matters: different adaptation measures have different cost profiles, different payback periods and different degrees of transferability across a portfolio.

How adaptation plays out in practice also shapes its investment value. A well-designed adaptation measure seeks to reduce expected losses, can extend an asset's useful life, potentially improve its insurability and, increasingly, affect its access to, and cost of, capital. These are not soft co-benefits — they are balance sheet outcomes. But an adaptation intervention designed only at the level of a single building or site may miss most of its value. Heat adaptation, coastal defense and water resilience all behave as systems problems: the benefit of adapting one site depends partly on what happens to the infrastructure, supply chains, workforce and communities around it. A logistics hub hardened against flooding could still fail if the road network feeding it is inundated; a cooled data center could still face operational risk if the grid supplying it is heat-stressed. Investors are therefore increasingly asking for solutions engineered with that system-level interdependency in mind — not a portfolio of disconnected single-asset fixes. System-level thinking also may help to unlock a different order of financial return: shared infrastructure, pooled risk reduction and network-level resilience improvements can potentially generate benefits that no single-asset investment could justify on a standalone basis. These system-level dependencies can require collaboration with stakeholders across the ecosystem.

Part of what makes resilience a hard sell to some investment committees is that it typically generates no direct cash flow of its own unless linked to fees. This is where significant product innovation for the next few years is likely to occur. Resilience bonds are a compelling example: rather than raising capital for a single defensive project and hoping avoided loss shows up on someone's balance sheet, a resilience bond pays investors — in part — against demonstrated resilience performance. This is the same logic sustainability-linked bonds apply to decarbonization, applied instead to a system's capacity to withstand and recover from shocks. It gives private capital a monitorable proxy for a benefit that has historically been almost entirely invisible: the flood that did not damage the factory, the storm that did not disrupt the supply chain, the heatwave that did not cause a grid failure. That kind of instrument — not grant funding, and not disclosure alone — may help to turn "resilience is a good idea" into something an investment committee may underwrite. Get the structuring right on a handful of transactions and you have a template the market can replicate.

Who in the investment chain has what influence?

Acting on climate resilience requires clarity not just about what to do, but about who in the investment chain has the leverage to do it — and through which channel. The answer differs by actor and conflating them is one reason progress has been slower than the evidence warrants.

Think of the investment chain as three concentric circles: asset owners appoint investment managers who allocate capital to and steward investees (the financial assets — listed equities, credit, real estate, infrastructure, private markets). Each layer of the chain has two primary levers: capital allocation — where and how capital is deployed — and stewardship — engagement, voting and escalation to influence the behaviour of investees and, in turn, the management of the physical assets and operations they own or finance.

Through those two levers, the investment chain may affect climate resilience outcomes through three channels. The first is encouraging investees to manage physical climate risk well — helping ensure that the boards and executive teams of portfolio companies, infrastructure assets and real estate funds have credible plans for managing physical asset risk, operational disruption, supply chain exposure and business interruption. This is where stewardship conversations about heat, flooding and water stress belong. The second is allocating capital directly to resilience solutions — early warning systems, adaptation infrastructure, nature-based solutions, resilience-linked financing instruments. The third is engaging at the systems level — with regulators, policymakers, governments and civil society — to help shape the broader environment on which all private investment ultimately depends: critical infrastructure, ecosystem services, planning policy and the economic incentive framework.

A few distinctions matter in practice. Investment managers typically operate within mandates set by asset owners; their ability to allocate directly toward resilience solutions usually depends on an explicit instruction. Asset owners, by contrast, can set that mandate — and are therefore the primary decision-makers when it comes to integrating adaptation as a strategic objective. Systems-level stewardship — engaging with governments and regulators on infrastructure policy, disclosure requirements or blended finance design — is a developing capability for most institutions, and its effectiveness is likely to be geography- and context-specific rather than universal. But it is increasingly recognized as a legitimate and necessary part of what it means to manage systemic risk.

For the investees themselves — the companies, funds and projects in which capital is held — the relevant questions run deeper than portfolio-level risk scores. A well-governed investee will be actively managing physical asset risks and operational resilience, engaging with the communities and regulators on whom its social licence depends, and reducing its reliance on the critical infrastructure and ecosystem services most exposed to climate disruption. That is what credible physical climate risk management looks like at company level, and it is what we believe stewardship conversations should be probing.

Understanding this chain of influence is not just conceptually useful — it is practically necessary for any investor trying to translate a resilience commitment into action. The Mercer Investor Transition Pathway is built around this logic.

The frameworks making this operational

What is needed are practical tools that translate the above into investment process. Mercer's Investor Transition Pathway aims to give institutional investors a structured route for embedding adaptation into existing frameworks — not as a bolt-on, but integrated alongside climate mitigation, nature, circular economy and fair transition. The pathway comprises four steps: 

Establishes the investment mandate and strategic targets for managing climate risk across the portfolio. This is an important foundation for the steps that follow.

Uses climate scenario analysis to translate physical risk (heat, flooding, drought, tipping points) from a general concern into something specific to a given portfolio and time horizon. This is also where the emerging opportunity set could become more concrete: innovative financing is beginning to open scalable investment across early warning systems, building and infrastructure adaptation, water management, agriculture and food security, and ecosystem conservation and restoration. These are real-economy exposures that institutional capital remains structurally underweight — not because the return case is unclear, but because the pathway from mandate to allocation has, until recently, not existed in actionable form.

Integrates the analysis into investment decision-making through a three-pronged lens of Risks, Alignment and Solutions: understanding exposure across the portfolio, engaging investee companies and sovereigns to manage that risk, and allocating toward solutions that address it.

Formalizes the baseline, sets targets and outcomes, and establishes a review cycle as circumstances evolve.

All four steps sit on a foundation of Stewardship and Stakeholder Engagement. This is not a peripheral add-on: in our view, stewardship can be an effective tool that investors have for managing systemic risks that no single holding can diversify away, and stewardship outcomes can form part of the transition plan itself.

One important point to flag: almost all progress on physical risk analysis has been made on real assets, where exposure is tangible and data is accessible. Listed equity and credit remain much harder. A company's resilience to physical climate risk runs through its supply chains, water dependencies, and the heat exposure of its workforce — all considerably more difficult to model and quantify. Closing that gap — so that investors can assess systemic physical risk in listed portfolios with the same rigor they now apply to real assets — is arguably one of the field's defining near-term challenges.

Insurability as a systemic portfolio risk

Insurability adds the other half of the picture. Insurance withdrawal is not, in our view, primarily a financial sector failure — it is a failure to manage the underlying risk. When a location or asset class becomes uninsurable, it is a clear signal that planning policy and infrastructure investment have fallen behind the risk. Insurability is therefore a systemic portfolio risk that accumulates quietly until it surfaces as a valuation shock.

The response must start with pricing resilience at the individual asset level — rewarding buildings, sites and infrastructure that have demonstrably reduced their risk, rather than pricing exposure as a uniform feature of a postcode or sector. Insurance innovation linking resilience to outcomes is expected to play an increasing role here, including through resilience bonds. Marsh has already demonstrated this in practice: for example the Cape Lookout Resilience Bond placed by Marsh’s reinsurance broker Guy Carpenter Securities team in North Carolina; and in Asia working with AXA, we structured a Sustainability-Linked Insurance model for Link’s REIT in which the asset manager's investment in physical climate resilience — and their willingness to share the underlying data — directly secured more attractive insurance terms. It is a replicable model.

In addition to an adequate risk management strategy, appropriate coverage levels also matter. Businesses systematically underinsure — particularly for business interruption, which is frequently the larger financial loss driver of extreme weather events, and which often remains uncovered entirely.

A market converging on shared vocabulary

This framing — resilience as both a defensive play (protecting insurability) and an offensive one (longer-term value creation in the context of the asset management lifecycle) — is gaining pace across different investors groups. At London Climate Action Week in June 2026, we brought together asset managers, private capital firms, banks and insurers to explore the latest solutions. A growing number signalled — in their own ways — that resilience is becoming an active investment criterion rather than a defensive afterthought. That convergence on a shared vocabulary is a necessary precondition for any asset class to scale, and it is now visibly underway. 

Bringing people with us

One final point: Climate resilience must work for the people who live and work in the places portfolios are exposed to. Physical climate risk does not land evenly — it concentrates on the regions and communities with the least capacity to absorb it, and rising inequality is one of the more destabilizing systemic risks investors face. Support for the workers, households and communities most exposed to both climate risk and the cost of adaptation, in our view, should be embedded in how investors approach the social dimension of physical climate risk, and in how they engage with policymakers — not treated as an optional adjunct to the financial case. We will not deliver climate resilience at scale if we do not bring people with us.

1 Rising et.al.  2026: The Macroeconomic Case for investing in Climate Adaptation https://www.lse.ac.uk/granthaminstitute/publication/the-macroeconomic-case-for-investing-in-climate-adaptation/

2 UK Climate Change Committee  (2026): A Well Adapted UK, https://www.theccc.org.uk/publication/a-well-adapted-uk/

3 For more information see Surminski (2026): Extreme heat is becoming a business risk. Are employers ready? Available on LinkedIn:  https://www.linkedin.com/pulse/extreme-heat-becoming-business-risk-employers-ready-swenja-surminski-ztrwe

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Our people

  • Swenja Surminski, Managing Director of Climate & Sustainability, Marsh
  • Keith Guthrie, Head of Sustainability UK, Mercer
  • Vanessa Hodge, Senior Investment Consultant, Mercer 
  • Shilpita Mathews, Climate & Sustainability Manager, Marsh Risk
  • Sandra Hansen, Catastrophe Risk Management Specialist, Guy Carpenter

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