Climate Insights: Unlocking Investment Alpha
By Will Kletter
In an age where climate change is driving disruption on an unprecedented scale and having tangible economic impacts, investors can no longer afford to treat climate risk as a mere compliance issue. AI-powered climate modelling is already revealing overlooked opportunities for businesses ready to innovate and adapt.
There is little doubt that the climate is changing and the associated risks are intensifying. Current estimates indicate that global warming is approximately 1.5°C above pre-industrial levels, and likely to reach 3.0°C by 2100 without significant intervention.
Warming trends are already having tangible financial impacts. U.S. data on the costs of climate disasters shows that over the last 50 years $1 billion-plus disasters averaged 9 per year. In the last five years, that figure has more than doubled to twenty annually. The wildfires in Los Angeles earlier in the year and the recent floods in Texas starkly demonstrate the growing economic and social toll of a warming world.
Climate change and the risks associated with it have long been acknowledged by investors, but have largely been treated as compliance obligations or risk assessments rather than as a source of strategic advantage.That is beginning to change.
A growing body of evidence suggests that investments in climate adaptation and resilience will generate significant returns. Furthermore, investors and their portfolio companies are beginning to feel the effects of climate-driven volatility in supply chain disruptions, new regulations, and, in some instances, direct asset losses.
In this new context, climate insight can offer a competitive advantage. As with any disruptive force—be it AI, a global pandemic, or a changing climate—there are winners and losers. Investors who incorporate climate risk, adaptation, and resilience into their investment strategies will be better positioned to navigate volatility and capitalize on emerging opportunities.
Turning Climate Risks Into A Winning Strategy
A granular understanding of climate risk across sectors and geographies enables investors to make informed decisions that enhance long-term performance.
For example, Nuveen Natural Capital used long-term AI-driven weather forecasting to evaluate the climate suitability of potential farmland acquisitions across Spain and Portugal. The long lead time and accurate understanding of potential climate risks the platform afforded them suggested that climate conditions in the coming years would not be optimal for their targeted crop, prompting Nuveen to reconsider its investment.
This type of analysis illustrates how climate insights are increasingly integrated into due diligence processes, not only to assess physical risk but also to avoid stranded assets and improve long-term capital allocation.
Dutch investment firm Van Lanschot Kempen also demonstrates how it is proactively utilizing long-term forecasting to assess climate risks. The firm uses weather intelligence to understand crop-specific risks, regional water security, and future land viability through climate analog analyses, identifying regions that will become suitable for specific crops under future climate conditions. These insights enable them to both mitigate short-term risks and identify high-potential assets before they become widely recognized.
Identifying Future Climate-Driven Alphas
Beyond risk management, climate intelligence can also be used to unlock opportunities and alpha. By using climate analog analysis, forecasting where conditions today will match new regions in the future, investors can identify untapped, high-potential agricultural assets early.
Van Lanschot Kempen’s approach exemplifies this strategy. The firm uses long-range, multi-decadal models to evaluate where high-value crops will thrive over the coming decades. This has enabled them to move proactively on farmland acquisitions in regions likely to become more productive under future climate conditions.
More broadly across sectors and geographies, this kind of anticipatory positioning reflects a growing trend among investors who are moving beyond seeing climate risks as a compliance burden to seeing them more as a strategy to enhance their decision-making capabilities. This is also true of capital allocators at corporates, who are starting to consider climate risks – and opportunities – in the board room.
As climate trends redefine the agricultural sectors, companies like Kempen are gaining a first-mover advantage in regions that will shape future agricultural value chains. The same is true for every other sector where the transition to a low-carbon economy, coupled with climate risks, is reshaping products, markets, and supply chains.
Cross-Sector Climate Opportunities
Climate insights are not limited to land and agriculture. Sector-level and company-specific analysis reveals how consumer behavior and demand patterns shift in response to long-term weather trends and acute climate events.
Demand-side analysis using the Foundational Intelligence for Climate and Economy (FICE) model highlights this dynamic. The home improvement sector, for example, has consistently performed well after increasingly common extreme weather events. But within that sector, some companies outperform others. Ace Hardware has seen sales increase 15-20% compared to its main competitors before, during, and after extreme weather events—the result of a solid adaptation plan and a brand reputation tied to its resilience.
This trend of winners taking more is evident elsewhere as well. In the U.S. grocery sector, climate events over the past decade have led to more than twice as many sales increases as decreases (based on 10% sales swings). But we find those gains are disproportionately captured by the “winners” companies that are well prepared to respond and positioned to benefit.
Similar climate-behavior patterns are emerging across sectors including lodgings, restaurants, and commercial building supplies, revealing the businesses that win and lose across climate trends and during extreme weather events.
This intelligence helps investors identify companies with true climate resilience. Equally important, it flags those most vulnerable to climate risk, enabling smarter capital allocation and a climate-adapted, resilient portfolio.
Adaptation for Unlocking Alpha
In an investment environment increasingly shaped by technological disruptions, policy transitions, and climate volatility, the cost of inaction continues to rise. Extreme weather events are accelerating in frequency and intensity, and warming trends are changing global crop viability and consumer behaviors. Those who integrate climate insights into decision-making will not only reduce negative climate risk exposures but also unlock new and overlooked sources of alpha.
Proactive investors who move early will be best positioned to secure undervalued assets, build resilient portfolios, and support their portfolio companies in navigating volatility. Climate insights offer investors the confidence to invest strategically, adapt ahead of competitors, and lead in a global economy buffeted by new headwinds and being continually redefined.
About the Author
Will Kletter is a leader in climate resilience and sustainability, with over 15 years of experience in technology, policy, and investment. As COO of ClimateAi, Will orchestrates delivery of company strategy and global customer operations. Before joining ClimateAi in 2020, Will served as a Principal at BCG.
