Climate adaptation is no longer ‘tomorrow’s’ investment opportunity

The rising frequency and financial materiality of extreme weather events mean companies and investors can no longer afford to overlook climate adaptation. In 2025, global natural catastrophes caused around US$220bn in economic losses and, for the sixth consecutive year, insured losses exceeded US$100bn.¹

We have identified opportunities across environmental markets – products and services that address environmental challenges – for adaptation solutions that can help governments, businesses and households to better prepare for, respond to, and recover from extreme weather events.

Our analysis highlights a strong opportunity set within the water value chain, where proven technologies are employed to lower damages from floods, ensure supply continuity in droughts and improve water purification where clean water is no longer available.

As rising temperatures intensify the water cycle and disrupt global weather patterns, it is estimated that global water infrastructure spending needs to rise sixfold by 2040 to achieve historic levels of water security.² Demand for products and services that enhance water resilience is also supported by water-intensive industries, including data centres, and a keener focus on national water security.

Three stages of adaptation solution

Activities that enhance resilience can be conceptualised across three stages of an adaptation lifecycle:

• Preparation: invest in infrastructure and technologies that reduce future damages from acute and chronic risks before they occur
• Response: keep critical systems running throughout climate events, maintaining continuity of essential services
• Recovery: rebuild stronger following acute events, embedding resilience into reconstructed assets

We look to identify companies that provide adaptation solutions across each of these stages using our proprietary Climate Opportunities Taxonomy.³

The Adaptation pillar of this taxonomy captures listed companies across seven sectors (and specifically in 15 sub-sectors) whose products and services enable the economy to prepare for, respond to and recover from the rising impacts of climate change (see graphic below).⁴

Source: Impax, May 2026

Using this approach to classify company activities, we have identified that, across our listed equities strategies, approximately 28% of assets under management are in companies that derive more than 20% of their revenues from climate adaptation solutions; 22% is invested in companies that met a 50% threshold.⁵

Water illustrates the adaptation opportunity set

Based on our analysis, a substantial portion of shareholdings that meet these thresholds sit within water infrastructure and treatment, and water efficiency technologies.

This concentration is not incidental as water is the medium through which many climate hazards materialise – and impact balance sheets (see chart below). The rising intensity and frequency of droughts, flooding, extreme precipitation and storm surges mean they pose mounting financial risks to companies and their shareholders.

The 2021 drought in Taiwan – the island’s worst in over 50 years – illustrates the cascading effect: water rationing forced chip producers to absorb higher costs and constrained supply to downstream industries, contributing to a curtailment of vehicle production worth an estimated US$210bn in global sales.⁶

The combination of mounting risks with a clear commercial model sets water apart among adaptation-related investment themes. Most adaptation measures (such as coastal defence or early warning systems) are public goods that generate benefits for society at-large.

In contrast, water infrastructure serves paying customers with metered supply of a limited resource to which there is no alternative – and at a regulated rate. Only around 3% of the world’s water is fresh, of which less than 1% is readily accessible.⁷ Critically, climate change is constraining supply precisely as demand from agriculture, industry and growing urban populations continues to rise.

Source: S&P Global Sustainable1, 2025. Shared Socioeconomic Pathway (SSP) 2-4.5 is a climate change scenario in which total greenhouse gas emissions stablilise at current levels until 2050 and then decline to 2100. This scenario is expected to result in global average temperatures rising by 2.7°C by 2100.

The opportunity set within the water value chain is deepened by decades of chronic underinvestment – an estimated 30% of treated water is lost before it reaches the tap – and reinforced by broad political consensus in developed economies over the need to invest.⁸ Even in the US, water-specific legislation has consistently attracted cross-party support: the Biden-era Bipartisan Infrastructure Law, which committed US$55bn to clean water supply, has survived changes to federal environmental policy.⁹

Water adaptation opportunities primarily sit within four clusters:

1. Stormwater infrastructure: hardware that diverts, stores and treats stormwater, including corrosion-resistant thermoplastic pipes and detention systems. Equipment supplied by the likes of US-listed Advanced Drainage Systems helps cities and utilities directly mitigate urban flood risk and offers durability advantages in corrosive coastal environments.
2. Water purification solutions: assets that help ensure continuity of safe water supplies during disasters. Solutions provided by the likes of US-listed Xylem include emergency response drinking water pumps and mobile units to test and treat contaminated water.
3. Water efficiency technologies: hardware and software, from smart meters to precision agriculture systems, that improve the efficiency of water use and enhance water users’ resilience to water scarcity. Advanced irrigation systems developed by the likes of US-listed Valmont materially reduce water consumption by farms – which use around 70% of global freshwater withdrawals – versus traditional irrigation methods in water-stressed regions.¹⁰
4. Water providers: utilities that ensure the provision of clean drinking water and wastewater services. Companies like French-listed Veolia – which operates municipal services in around 100 countries – play a critical role at each stage of the adaptation lifecycle.

AI and geopolitics heighten focus on water security

Beyond climate hazards directly, two structural trends are intensifying water stress and reinforcing demand for resilience solutions.

The first is the rapid adoption of data-intensive AI tools, which is driving higher water use for server cooling in local areas where data centres are multiplying.

A ‘hyperscale’ data centre can directly consume around 2.5bn litres of water each year – equivalent to the needs of about 80,000 people.¹¹ Operational risks make effective management of limited water resources vital for data centre operators, especially in water-scarce areas: data centre operators lose around US$10,000 per minute where cooling systems fail.¹² Operators can reduce their water consumption by as much as 70% by adopting water recycling solutions.¹³ Innovative closed-loop liquid cooling systems, like those developed by French-listed Schneider Electric and US-listed Vertiv, can even remove the need for a fresh water supply.

The second is the more volatile geopolitical environment, which is sharpening focus on water supply as a national security issue in water-stressed countries.

Concerns that assets will be targeted in conflict are driving investment in domestic water supply infrastructure in the Middle East, including in desalination capacity. In the UAE, for example, where desalination accounts for around 40% of total water supply, a new large-scale plant on the Gulf of Oman was announced this May.¹⁴

Identifying value within end markets

With broad end-markets and with water being an ‘essential’ good or input to processes, providers of water infrastructure, treatment and efficiency technologies typically benefit from a platform of relatively resilient demand. Heightened focus on water resilience as physical climate risks rise should, in our view, support long-term growth opportunities.

We are mindful that the investment case for water adaptation – as for environmental solutions more broadly – is vulnerable to political and regulatory risk. A material share of adaptation spending relies on public funding, creating revenue concentration risk for solution providers. Meanwhile, shifts in fiscal priorities or political administrations can delay or redirect public spending and water tariff structures, abstraction rights and procurement decisions are all subject to government intervention.

Nonetheless, as governments, businesses and households rationally look to enhance their resilience to water-related risks – and reduce the financial risks arising from them – we believe opportunities will correspondingly expand for solution providers.

As long-term investors who accept the facts of a changing climate, it is our conviction that now is the time to identify structurally growing end-markets and understand where innovative companies could meet emerging demand – and ultimately contribute to climate adaptation at a systems-level.  

¹ Swiss Re Institute, December 2025
² Global Water Intelligence, May 2025: Rethinking Resilience: How a new era of extremes is changing how utilities invest
³ Impax’s Climate Opportunities taxonomy is used to identify companies across multiple sectors that benefit from the greater need for climate adaptation and resilience
⁴ While there are multiple frameworks that recognise different adaptation lifecycle stages, including the UN’s Sendai Framework for Disaster Risk Reduction, our approach does not seek to align with any one external framework
⁵ Impax analysis, as at 31 December 2025. Based on our calculations, shareholdings totalling £5.8bn were in companies that derive more than 20% of their revenues from climate adaptation solutions
⁶ Institute of Chartered Accountants in England and Wales, 2024: Directors fail to price in water risk
⁷ World Economic Forum, 2023: How much water do we really have?
⁸ Global Water Intelligence, March 2025: Plugging the leak: Innovative solutions for reducing water loss and its economic impact
⁹ US Environmental Protection Agency, 2021: Bipartisan Infrastructure Law: A Historic Investment in Water
¹⁰ Unesco, 2024
¹¹ Impax analysis, based on figures from World Economic Forum, November 2024: Why circular water solutions are key to sustainable data centres
¹² Water Direct, April 2025: Business Interrupted: Understanding the Real Cost of Supply Interruptions
¹³ Guardian Water & Air, March 2025: Keeping data centres cool and efficient
¹⁴ Hussein, A., 12 March 2026: How much of the Gulf’s water comes from desalination plants? Al-Jazeera
Gulf News, 6 May 2026: UAE’s Dh1 billion Fujairah desalination plant: What it means for water supply

References to specific securities are for illustrative purposes only and should not be considered as a recommendation to buy or sell. Nothing presented herein is intended to constitute investment advice and no investment decision should be made solely based on this information. Nothing presented should be construed as a recommendation to purchase or sell a particular type of security or follow any investment technique or strategy. Information presented herein reflects Impax Asset Management’s views at a particular time. Such views are subject to change at any point and Impax Asset Management shall not be obligated to provide any notice. Any forward-looking statements or forecasts are based on assumptions and actual results are expected to vary. While Impax Asset Management has used reasonable efforts to obtain information from reliable sources, we make no representations or warranties as to the accuracy, reliability or completeness of third-party information presented herein. No guarantee of investment performance is being provided and no inference to the contrary should be made.