Climate Resilience: Prioritising Adaptation in a Shifting Landscape¹

A Pivot to Adaptation

Over the years, sovereign wealth funds have priorised investing in assets and technologies such as renewable energy and energy efficiency technologies that mitigate the effects of climate change by reducing greenhouse gas emissions, rather than those that enable countries and their economies to adapt to the effects of climate change, by making them more resilient to impacts like rising sea levels and extreme weather events such as droughts and hurricanes. However, in 2024, they invested $11 billion in 24 deals for climate adaptation, which outpaced the $8 billion allocated to 55 mitigation investments.

The total of 79 climate-related deals marks a new record, exceeding the previous peak in 2021. Resilient infrastructure attracted the largest share–$8.8 billion–supporting flood-resistant urban systems, climate-adapted transport, and upgraded digital networks, as shown in Chart 2.2. Global climate-related losses reached $310 billion, according to Swiss Re. Events such as Hurricane Helene and Hurricane Milton, as well as extensive flooding across Europe in the summer of 2024, underlined the urgent need for action. With 75% of sovereign wealth funds integrating climate considerations into investment decisions (2024 IFSWF-OPSWF Climate Change Report), the adaptation shift reinforces core exposures in infrastructure, industrials, and healthcare, prioritising resilience while advancing long-term sustainability.

Chart 2.1 Sovereign Wealth Fund Investments in Climate Adaptation vs Mitigation

Source: IFSWF Database

Spotlight on Action: Key Investments Shaping Resilience

In 2024, sovereign wealth funds channelled $8.8 billion into resilient infrastructure across 18 deals, establishing it as the largest adaptation category by equity value.

For instance, in April 2024, India’s NIIF invested $200 million in iBUS Network and Infrastructure to support the company in its expansion and align with the Digital India Mission programme to transform the country into a digitally empowered society and a global knowledge economy.

For many African sovereign wealth funds, food security remains vital for supporting their economies through climate change. Fundo Soberano de Angola (FSDEA) invested $10 million in Minbos Resources to support the Cabinda Phosphate Fertiliser Project in Cabinda, Angola, enhancing agricultural productivity with drought-resilient fertilisers to combat climate-driven food insecurity. FSDEA Chairman and CEO Armando Manuel noted, "The Sovereign Wealth Fund and IDC share the same interest in developing the Cabinda Phosphate Fertiliser Project for domestic and export sales."

Larger sovereign wealth funds like Abu Dhabi’s Mubadala also believe food resilience to be an important investment theme, but on a bigger scale. Mubadala, in partnership with infrastructure group Global Infrastructure Partners, invested in the A$6.4 billion ($4.2 billion) Perdaman’s Western Australia Urea Project, Australia’s largest urea plant, marking the largest investment in Australia’s fertiliser industry. The facility, among the world’s biggest, produces over two million tons of urea annually, reduces import dependency, and supports food security for 90 million people globally. Low-carbon technologies, including solar energy and green hydrogen, have been employed to drive the plant toward net-zero emissions by 2050. Saed Arar, Executive Director of Traditional Infrastructure at Mubadala, affirmed, “The investment reflects Mubadala’s responsible investing strategy, advancing national and regional food security while minimising the carbon footprint of urea production.” Mubadala’s substantial capital amplifies food resilience, addressing global food security challenges with transformative impact.

Balancing Mitigation and Adaptation

Sovereign wealth funds' investments into climate change mitigation totalled $8 billion in 2024, focused on low-carbon energy generation ($4.6 billion across 21 deals) and energy efficiency ($1 billion across 11 deals), down from $13.8 billion in 2023, reflecting a different approach. Chart 2.2 illustrates how sovereign wealth funds doubled down on investments in climate change adaptation. Deals averaged $452 million compared to climate mitigation’s $146 million, signalling that they focus on high-impact resilience, rather than headline-grabbing, renewable energy deals. As noted in the Facing Headwinds IFSWF-OPSWF survey, previous climate investment strategies focused heavily on risk avoidance and climate solutions, while, in 2024, sovereign wealth funds are increasingly seeking to drive value creation through active climate management and strategic decarbonisation. For instance, more than half of sovereign wealth funds are now engaging with asset managers and portfolio companies to enhance climate stewardship. Chart 2.2 shows resilient infrastructure dominating adaptation at $9.9 billion, followed by food security at almost $1 billion.

Geographic trends reveal Asia's growing role as an investment destination, with 15 deals in 2024, split between seven adaptation and eight mitigation deals, reflecting a balanced approach to resilience and decarbonisation. Southeast Asia drives much of this activity, propelled by economic growth and climate vulnerabilities. The Temasek and Bain SEA Green Economy 2024 report highlights the region’s potential but notes a significant investment gap. Southeast Asia needs $1.5 trillion by 2030 to meet its climate targets, yet only $45 billion in green investments were recorded by 2023. Green investments grew 21% year-on-year to $6.3 billion in 2023, led by renewables (70–75% of investments) and emerging sectors like green data centres and waste management.

To increase the use of renewable energy across the regions of the world, there needs to be more investment in grid upgrades and cross-border collaboration to reduce bottlenecks. Indonesia and Singapore attract over half of the region’s green investments due to supportive policies, while intraregional investments doubled in 2022 as foreign capital dipped. Singapore’s Temasek leads through its GenZero platform, investing in nature-based solutions, decarbonisation technologies, and carbon markets. Temasek’s pledge to halve portfolio emissions by 2030 reflects active climate stewardship, aligning with funds engaging asset managers for sustainability.

For sovereign wealth funds, Europe is a highly attractive location in which to invest in climate change solutions. In 2024, these investors completed 24 deals in mitigation and nine in adaptation, with European strategic investment funds and Norway’s Government Pension Fund Global investing heavily in the region, encouraged by ambitious climate targets and consistent financial incentives. The European Union allocates $0.6 trillion from its Recovery Fund and 2021–2027 budgets to sustainable investments, bolstered by national packages in France, Germany, and Spain. The EU's Fit for 55 package, carbon pricing, and renewable subsidies support mitigation investments, like the $4.1 billion in clean energy deals. Adaptation investments, especially in resilient infrastructure (over $6 billion in Europe), address climate risks like flooding. The EU’s Adaptation Strategy and funding for sustainable agriculture ($1.5 billion globally) drive projects such as climate-resilient urban planning, aligning with the funds’ focus on high-impact resilience.

Chart 2.2 Adaptation and Mitigation by IRIS+ Themes in 2024

Source: IFSWF Database

As usual, mitigation investments, totalling $8 billion in 2024, centre on clean energy and energy efficiency. Low-carbon energy attracted $5.5 billion across 21 deals, a decline from $13.8 billion in 2023. Alternative fuel solutions were also attractive opportunities for sovereign wealth funds. For example, Oman Investment Authority participated in the $111 million Series B funding round for Hysata, a firm developing highly energy-efficient and low-cost electrolysers for large-scale green hydrogen production. Hysata will use this funding to further its product development and increase production capacity at its Wollongong, New South Wales, Australia facility, to achieve gigawatt-scale manufacturing.

Energy efficiency investments reached nearly $1 billion across 11 deals, reflecting sovereign wealth funds’ interest in smart grids and storage solutions. For example, in January 2024, Singapore’s Temasek joined a Series B funding round for Aira, a clean energy-tech company. Aira’s latest funding aims to accelerate Europe’s transition from gas, targeting the 130 million fossil fuel-based boilers responsible for 10% of the region’s CO₂ emissions. By promoting air source heat pumps, Aira’s solution enables consumers to cut household heating costs by up to 40% and CO₂ emissions by 75%—potentially reaching 100% with fossil-free energy—supporting sovereign wealth funds’ efforts to enhance energy efficiency and reduce emissions. These examples illustrate how sovereign wealth funds balanced immediate resilience needs with long-term emission reduction goals, reflecting a broader shift in their climate strategies.

Charting the Shift: Adaptation's Surge

The 2024 IFSWF-OPSWF Facing Headwinds report identified four key investment themes driving this balance: Generating cleaner energy (such as renewables and next-generation fuels), distributing energy efficiently (such as smart grids and storage solutions), optimising resource use (such as green buildings and sustainable supply chains), and managing physical and transition risks (such as data-driven resilience planning). While 74% of sovereign wealth funds cited mitigation as a top priority, IFSWF direct investment data shows adaptation gaining significant momentum, particularly in resilient infrastructure and sustainable agriculture.

Chart 2.2 tracks sovereign wealth fund direct investments in climate adaptation and mitigation from 2020 to 2024. While adaptation deal counts remained lower than mitigation—peaking at 48 in 2021 compared to mitigation’s 55 in 2024—the average investment size for adaptation grew significantly, reaching $452 million per deal in 2024 ($10.9 billion across 24 deals), compared to mitigation’s $146 million per deal ($8 billion across 55 deals). This trend, alongside a rise in total climate-related investments from $8 billion in 2020 to $19 billion in 2024, underscores sovereign wealth funds’ strategic shift towards fewer but higher-value adaptation projects to address urgent resilience needs.

For the majority of sovereign wealth funds, mitigation strategies, such as investing in clean energy and clean air technologies, remain a focus for addressing climate change. However, for the select group of funds that invest in climate solutions directly, rather than through intermediaries, adaptation strategies are gaining significant traction as an attractive complement to mitigation efforts.

Seizing Opportunities: Collaborative Pathways for Climate Resilience

The $18 billion invested in climate solutions in 2024 marks a significant step forward, with adaptation investments surpassing mitigation and opening new avenues for climate resilience. The United Nations Environment Programme (UNEP) estimates the adaptation finance gap for developing countries at $187 billion to $359 billion per year, based on 2022 international public finance flows (UNEP Adaptation Gap Report 2024). Sovereign wealth funds play a key role as influential long-term investors, particularly in addressing investment gaps. Their substantial capital, long-term investment horizons, and ability to take on long-term risks, such as illiquidity risk, make them key players in global markets. However, their impact is amplified when they collaborate with other institutional investors like pension funds, insurance companies, and multilateral development banks. Frontier markets, particularly in Africa, attract less than 5% of adaptation deals (based on historical IFSWF trends), presenting opportunities for sovereign wealth funds to lead innovative co-investment models that unite public and private sectors. The decline in mitigation investments from $14 billion in 2023 to $8 billion in 2024 reflects a strategic shift towards immediate resilience, yet sovereign wealth funds continue to innovate in mitigation through next-generation technologies, ensuring a balanced approach to climate challenges.

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