The macroeconomic case for investing in climate adaptation
This report from the Grantham Research Institute on Climate Change and the Environment at the London School of Economics (LSE) provides a groundbreaking new synthesis of the economic and fiscal risks arising from physical climate change and the economic case for investing in adaptation to climate impacts. The report combines the results of nearly 300 studies and more than 6,000 unique estimates of the consequences of climate change and adaptation investment and includes case studies from six countries.
Without increased adaptation, climate change could reduce GDP per capita by 3–15% by 2050, with low- and lower-middle-income countries facing losses of 8–18% or more. Broader welfare losses — including non-market impacts like health, well-being, and cultural heritage — are projected at 8–19% globally by mid-century. Climate change is also expected to drive up inflation, increase unemployment, widen inequality, and put sovereign credit ratings at risk, creating cascading fiscal pressures on governments.
On the investment side, the evidence is compelling: adaptation yields a median benefit-cost ratio of around 4:1 and an internal rate of return of roughly 25%. The report introduces the concept of a “triple dividend” — preventing losses, stimulating economic activity, and delivering social and environmental co-benefits — with average projects expected to recover costs within approximately three years.
The report is particularly relevant for finance ministries, development institutions, and planners working at the intersection of climate risk and economic policy, offering practical guidance on narrowing the adaptation investment gap and integrating resilience into fiscal planning.