- Impact Measurement & Management Practice Leader
United States, Intermediary
Change
The views expressed are those of the authors at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional, institutional, or accredited investors only.
Key points
- Companies whose products and services help to increase climate resilience are an important and growing source of opportunity for impact investment.
- Impact measurement — a critical component of the investment process for impact funds — is often challenging due to a lack of data availability. Assessing the impact of climate resilience comes with significant hurdles due to the context-specific nature of climate resilience that make determining the right metrics and data more nuanced. A mix of both qualitative and quantitative data can help to provide a holistic impact assessment.
The growing case for impact investment in climate resilience
As well as investing in solutions that help to mitigate climate change (through reducing or avoiding greenhouse gas emissions), we see a major role for impact investment in solutions that help bolster resilience against growing climate uncertainty and volatility. The research we undertake with our climate science partners at Woodwell Climate Research Center shows how urgent adapting to climate change has become, with adverse climate events already increasing in frequency and intensity. Impact investors can help direct much-needed capital to the most exposed communities and regions and tap into the attractive impact and return potential associated with the expanding range of investment opportunities in climate resilience.
Impact measurement is a vital part of the investment process for impact funds. It aims to use both qualitative and quantitative data to track whether a portfolio and its underlying investments are having the intended net positive effect on people and/or planet. However, measuring the impact of climate resilience solutions remains a real challenge for us and the wider industry. Below we share our latest perspectives on how to tackle this challenge, using the more established measurement of climate mitigation as a reference point. Based on our observations, we outline approaches that we think may help investors deal with some of the inherent conceptual and methodological difficulties of measuring impact in this critical field.
Challenges in measuring impact for climate resilience solutions
Articulating the impact case for a resilience solution and measuring, monitoring and verifying the results means overcoming several hurdles. Figure 1 lists key hurdles and differences with the more familiar terrain of climate mitigation. Some of the most important ones are:
- Data points are mainly qualitative and situation-specific — There is no broadly accepted way to construct and measure the impact of increased climate resilience, in contrast to climate mitigation, where investors can rely on universally applicable quantitative measures. We do not have a quantitative yardstick such as “greenhouse gases emitted or avoided” to work with but, instead, contend with the complex interaction of climate and social factors within a given location.
- Data is uncertain and dependent on several assumptions — Considering local and regional climate change effects and the timescale over which climate change unfolds is a difficult but necessary part of measuring the benefits of resilience. A major outcome of increased climate resilience is the extra protection afforded to people or assets in the event of a climate-related shock such as flood or drought through products/services such as flood defences, or water-saving technology. The underlying impact here is the benefit from harm or loss avoided compared to a counterfactual situation that did not occur; this is extremely difficult to accurately and consistently measure as it often necessitates the use of several assumptions. In addition, outcomes may have to be measured compared to a moving baseline as, for instance, the level of additional flooding defences needed for a given location to be resilient may increase over time.
- Indirect measurement only — Unlike with mitigation, there are no obvious ways to measure the direct impact of avoided harm due to increased climate resilience. The eventual outcome is difficult to establish given the ongoing risk of climate change and the range of influencing factors. Hence, resilience is often assessed through concepts such as risk vulnerability or through proxies, such as adaptive capacity — meaning the ability of a system to cope with the potential consequences of climate change.
Figure 1 — Principal differences in impact measurement of mitigation and resilience
| Climate mitigation | Climate resilience | |
| Target | Universal approach and overarching target: keeping the global average temperature well below two degrees Celsius above preindustrial levels | No universal approach: concepts are multifaceted and often qualitative: enhancing adaptative capacity, strengthening resilience and reducing vulnerability |
| Subject of measurement | Physical and chemical conditions | Combination of socioeconomic and environmental conditions |
| Type of measurement | Direct: greenhouse gas emissions (GHG) reduction/avoidance | Indirect: the measurement of avoided harm caused by climate change faces significant conceptual and methodological challenges |
| Context-dependency of measurement | GHG emissions are universally applicable | Climate resilience metrics are linked to specific locations or beneficiaries |
| Causality between product/service and outcome | Proven direct link between GHG emission reduction/avoidance and environmental benefits | Difficult to establish a causal link between a discrete product/service and overall climate resilience benefit provided as that is multi-faceted |
| Baseline/Business as usual comparison | Defined baseline: absolute GHG emissions in a particular year as a comparison or estimated future emissions | No defined/static baseline: the level of resilience in the past may not be a meaningful reference point for future resilience |
Sources: Christiansen, L., Martinez, G, and Naswa, P. (eds) “Adaptation metrics: perspectives on measuring, aggregating and comparing adaptation results”, p.33. UNEP DTU Partnership, Copenhagen. | Wellington. Data as of August 2024.
Important considerations and a potential framework
With these difficulties in mind, what are the main points that investors need to consider when measuring the impact of climate resilience solutions?
Understand the context
Investors need to create a detailed picture of the anticipated impact of climate change and the local vulnerabilities. Guiding questions that can help achieve those goals include:
- Can we obtain the relevant data and qualitative information for the associated climate risks and vulnerabilities?
- What are the major drivers of climate and non-climate-related changes? Do we understand how they interrelate and how they feed into our assessment?
- Is the proposed solution appropriate for the context? Can we identify sections of the population, regions or sectors as being at particular risk?
Clearly define how the solution will lead to increased resilience to climate change
Investors need to clearly explain how the product or service offered by the company will contribute to reducing vulnerability/strengthening resilience and articulate the underlying assumptions on how change might happen. Examples include assessing:
- the affordability of a proposed product or service, especially given that the effects of climate change disproportionately affect poorer communities
- potential technological barriers to adoption (such as legacy processes or infrastructure)
- reluctance to changing the status quo if the solution requires behavioural change on the part of the end consumer
It is also imperative to revisit these hypotheses and assumptions regularly to account for uncertain climate projections and socioeconomic changes.
Use output-related indicators as proxies
The indicators chosen to measure impact should plausibly demonstrate the contribution of the solution to climate resilience bearing in mind the relevant context. It is essential to make the most of the available data — even if it doesn’t capture the entire story.
Context: Increased frequency of extreme weather is leading to a higher risk of power outages and an increased need for backup power supply in the home. For example, around 83% of reported major power outages in the US have been linked to weather-related events.1 When looking at solutions that increase household resilience to power outages such as backup, flexible or renewable power, the ultimate climate resilience benefit relates to a decrease in vulnerability to power outages. This is a narrow measure that is difficult to capture in one number, as it is dependent on hard-to-predict factors such as the likely number of weather-related events or people’s future behaviour. Using a simple output-related metric such as the number of units sold, or number of households served, supported by detailed research linking these metrics to better climate resilience is an imperfect, yet practical solution.
Engage with companies to enhance disclosure
Not all companies publish the necessary data to demonstrate the impact that their products or services have on climate resilience. Speaking directly to company management, sustainability, or investor relations teams to highlight the importance of this disclosure is crucial.
Context: Many companies are already used to disclosing environmental data on their own operations products and services. Actively engaging with companies to highlight how climate resilience metrics (or the necessary proxies to calculate them) are a natural but crucial extension of that process may help to encourage more detailed disclosure in the future.
Look at a wide range of data:
Solutions that increase climate resilience are interdependent on various environmental and socioeconomic factors, which are difficult to control. Success is not guaranteed if implemented in isolation. Hence the importance of also looking at a wide range of data, which, while not attributable to the project in isolation, can still have a bearing on its success.
Context: When looking at a solution that aims to help increase the yield of a certain crop by making the growing process more resistant to extreme weather, we would also consider factors affecting the overall food supply chain in the relevant region as an additional lens. We can use this data to assess the significance of a solution in a wider, regional context.
Conclusions
In combination, we think these guidelines can serve as a useful framework for investors looking to measure the impact of investments in climate resilience. In our view, it offers the necessary flexibility to deal with the inherent methodological challenges, imperfect and limited data sets and complex objectives.
The challenge of measuring the impact of climate resilience should, in our view, not limit much needed investment in this area. The latest UN estimates that the so-called adaptation finance gap has now reached US$194–366 billion per year2. As part of a global ecosystem that includes policymakers, companies and individuals, impact investors can generate attractive returns while playing an important role in reducing this climate resilience funding gap.
1Climate Central. “Surging Weather-Related Power Outages.” Climate Matters | 14 September 2022 www.climatecentral.org/climate-matters/surging-weather-related-power-outages.
2UN Environment Programme Adaptation Gap Report 2023 | 02 November 2023 https://www.unep.org/resources/adaptation-gap-report-2023
Other sources:
Adaptation Metrics: Perspectives on measuring, aggregating and comparing adaptation results. UNEP DTU Partnership | March 2018 https://resilientcities2018.iclei.org/program/proceedings/
GIZ. Adaptation made to measure: A guidebook to the design and results-based monitoring of climate change adaptation projects (2nd ed.). Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH | 2013 https://www.adaptationcommunity.net/monitoring-evaluation/project-level-adaptation-me/
Climate Adaptation Knowledge Exchange (CAKE). Adaptation Monitoring and Assessment Tool (AMAT). https://www.cakex.org/tools/adaptation-monitoring-and-assessment-tool-amat
Stay up to date with the latest market insights and our point of view.
