Today’s newsletter looks at a new JPMorgan report on the huge investment returns on adaptation. It follows renewed concerns that governments will need to rein in spending on climate programs in order to meet new obligations such as defense.

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Getting a return from avoiding a loss

By Alastair Marsh

The private sector isn’t spending nearly enough on adaptation, leaving potentially huge returns on the table, according to JPMorgan Chase & Co.’s global head of climate advisory.

Adaptation — the process of protecting assets against the physical damages associated with weather shocks such as wildfires, floods and droughts — has taken on a new urgency with the world now on track for warming of roughly double the critical threshold of 1.5C.

“I’ve always been shocked by the under-spend on adaptation,” Sarah Kapnick, a climate scientist who was hired to advise JPMorgan’s corporate and investment banking clients on how to navigate the impacts of global warming, said in an interview. “But it’s because of the status quo of thinking. There’s this static thinking, the desire to maintain status quo that means that people have blinders to what the future looks like.”

Sarah Kapnick Source: FRAME Studios

Investing in companies that are alert to such risks has significant financial implications, according to a report published by Kapnick on Thursday. Investors not only stand to limit losses, but can tap into outsized returns, her report shows.

Kapnick points to research from established sources such as the World Economic Forum, indicating that adaptation — if done right — can deliver a return on investment in some sectors as high as $43 for every $1 spent. That’s equivalent to well over 4,000%.

“Maintaining the status quo with regards to thinking about climate adaptation can actually be costly and destroy value,” she said. At the same time, there’s “growing evidence that there is a return on investment of adaptation. So it’s not just a spend to avoid risk, it actually has a return associated with it.”

It’s a conclusion that others in the finance industry are also drawing. In a report published this week, Jefferies analysts led by Luke Sussams said climate adaptation strategies deliver better returns than mitigation strategies.

Over a one-year time horizon, investors exposed to adaptation solutions stand to get total returns that are 13.5% higher than those on mitigation strategies, Sussams said. When the time horizon is stretched to three years, that extra return rises to 21.1%, he said. The investment bank’s findings are based on an analysis of more than 300 companies across sectors.

For now, however, many investors are disproportionately focused on mitigation, which typically takes the form of emissions-cutting technologies associated with net zero goals, Kapnick said. Mitigation accounts for more than 90% of total climate finance globally, while adaptation finance is currently on track to meet just a sixth of the expected need by 2030, according to the JPMorgan report.

The analysis by Kapnick, who was previously the chief scientist for the US National Oceanic and Atmospheric Administration, stands out as an increasingly rare example of a Wall Street bank publicly discussing climate strategies. That’s as the industry struggles to navigate its way through the political backlash against the transition toward a low-carbon economy, with US President Donald Trump regularly mocking the green policies of his predecessor. 

At the same time, extreme weather events fueled by climate change are dominating news headlines and upending the lives of millions of people. The Los Angeles fires, floods in Valencia and increasingly destructive hurricane seasons are among events underlining the need to adapt to the fallout of weather patterns that are becoming more erratic. 

“From an investor standpoint, choosing those companies that are prepared — or are investing to be prepared — for the future will reduce those volatilities of losses, but may also be able to capture these types of trends of the need for adaptation going forward,” Kapnick said.

Read and share this story on Bloomberg.com. 

Under-invested tech

Ripe for picking

Political spotlight

By Alex Morales

The debate around net zero took a new turn in Britain this week, as the views of a former Labour prime minister and the one currently in power seemed at odds. 

Prime Minister Keir Starmer was forced to defend the UK government’s plans to phase down greenhouse gas emissions after former premier Tony Blair said the international approach to tackling global warming isn’t working.

The climate debate is “riven with irrationality” and “present policy solutions are inadequate,” Blair said on Tuesday in the foreword to a report issued by the institute that bears his name. That’s leading to a strategy that is “unrealistic and therefore unworkable,” he said.

Former prime minister Tony Blair was back in the news this week.  Photographer: Christopher Goodney/Bloomberg

Blair’s words were seized upon by members of opposition parties, who have criticized Starmer’s government for pursuing net zero policies that they say raise costs for British households.

Attacks also came from the left side of the political spectrum. Green Party Co-Leader Carla Denyer suggested in a post on X that Blair is a “political dinosaur,” and that the current government “isn’t doing what it needs to do to protect us” from climate change, a reference to a separate report Wednesday from Britain’s advisory Climate Change Committee, which expressed concern about potential cuts in the government’s forthcoming spending review to flood defenses.

The Tony Blair Institute for Global Change, which produced the report, was forced to issue a clarifying statement on Wednesday saying it supports the government’s 2050 net zero targets and described the Starmer administration’s approach as “the right one.”

This week Canadians elected Mark Carney, leader of the Liberal party, to be their prime minister. Carney is a newcomer to politics, but is well known in international finance and climate circles, running both the Bank of Canada and the Bank of England, and founding the Glasgow Financial Alliance for Net Zero (GFANZ). Canada is far from reaching its legally mandated goal to achieve net zero by 2050, and has one of the highest emissions per capita of anywhere in the world. Now Carney has been elected, can he translate his international climate leadership into domestic policy, or will climate fall by the wayside as he fortifies Canada against a trade war with the US?

Bloomberg Green senior reporter and former Toronto Bureau Chief, Danielle Bochove, joins Zero to discuss. Listen now, and subscribe on Apple,  Spotify, or YouTube to get new episodes of Zero every Thursday.

Mark Carney Photographer: David Kawai/Bloomberg

President Donald Trump has kicked off “the next gold rush,” unlocking “access to critical deep seabed minerals,” the US National Oceanic and Atmospheric Administration proclaimed in a press release last Friday. 

Following an executive order from Trump, The Metals Company (TMC) on Tuesday applied for a US license to extract minerals from the Clarion-Clipperton Zone, an immense region of the Pacific that stretches from Hawaii to Mexico.

There’s a hitch, though. The Clarion-Clipperton Zone and the rest of the ocean floor in international waters falls under jurisdiction of the International Seabed Authority, whose 169 member nations plus the European Union are loath to give up their mandate to regulate deep sea mining for the benefit of humanity while ensuring the effective protection of the marine environment.

ISA Secretary-General Leticia Carvalho on Wednesday warned that unilateral action by the US “sets a dangerous precedent that could destabilize the entire system of global ocean governance.”

What will happen next? For more details, read the full story on Bloomberg.com. 

One of The Metals Company's exploration vessels.  Photographer: Richard Baron

Finance bosses are worrying they ‘overhired’ on ESG. After having “overhired in a very evangelical and philosophical way,” many financial companies are now avoiding some of the ESG profiles they targeted just a few years ago, said Tom Strelczak, a London-based partner focused on sustainability at Madison Hunt.

Some clean energy firms are considering a US exodus. Companies are weighing their options to see if there are more accommodating locations for investing in decarbonization, said Cathy Shepherd, Citigroup’s global head of corporate banking for the clean energy transition. 

US commodities might dodge new EU rules. US commodity producers will likely avoid strict checks under the European Union’s rules to curb deforestation after months of lobbying, providing relief for the sector against the backdrop of a tariff war.

By Siobhan Wagner

Texas needs to cool down. Its famed summer heat is arriving early this year, according to data tracked by BloombergNEF. 

The clean energy researcher looked at the number of cooling degree days (CDDs) recently in the state. This figure is derived by looking at the mean temperature of a day and determining how many degrees that was above 65F. 

For example, a day with a mean temperature of 80F has 15 CDDs, as the US Energy Information Administration explains. The number helps the energy industry understand how much extra demand there is for electricity, as air conditioning use puts more stress on the grid. 

In a new report, BNEF found that grid operator Electric Reliability Council of Texas has experienced 220 CDDs since April 1, 87 CDDs above the 10-year average. With more heat expected over the next two weeks, this number could nearly double, according to BNEF. 

“With the season already off to a warmer-than-normal start, the CDD count could hit the stratosphere this summer,” the researcher said. 

Do you have a compelling story you want to tell? The Bloomberg Green Docs competition is open to all eligible filmmakers who would like to compete to win a $25,000 grand prize for a short climate documentary. The aim is to explore our climate future with documentaries that reveal the world we are making today. Films must be under 10 minutes and submissions will be accepted through May 23. The winner will be announced at the Bloomberg Green Docs Film Festival in Seattle on July 16. Visit the Bloomberg Green Docs official site for more information and rules.

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