Climate adaptation investment gap poses systemic financial risks

A joint report from Cushon and the University of Exeter warns that pension schemes may be underestimating the financial impact of climate change. The research suggests that mainstream economic models often fail to account for extreme weather events and climate tipping points. In the UK, annual damage to GDP from physical climate risks could reach 2.8 percent under a 2 degree Celsius warming scenario, potentially rising to 7.1 percent in more severe outcomes.

Globally, the climate adaptation finance gap is widening. The UNEP 2025 Adaptation Gap Report estimates that developing countries could require 365 billion dollars annually by 2035, yet international public adaptation finance flows to these nations were only 26 billion dollars in 2023. While insured losses from natural disasters exceeded 100 billion dollars in 2025, investment in resilience remains insufficient.

Despite the risks, the transition presents significant economic opportunities. Analysis suggests that climate adaptation for economies and businesses could represent 9 trillion dollars in investment opportunities by 2050. Experts are calling for improved data, clearer government guidance, and better coordination between policymakers and asset managers to unlock capital for resilient infrastructure, water systems, and climate-smart agriculture.