What is ‘just adaptation’ and why should investors care?

In recent years, the global investment community has rallied around the Paris Agreement’s headline goal of limiting global warming to well below 2°C, preferably to 1.5°C, compared to pre-industrial levels[1].

At Royal London Asset Management, we have been supportive of the science of climate change for years, actively engaging with companies through our net zero stewardship programme and advocating for a just transition that considers the social implications of a shift to a low-carbon economy.

Although it is often overlooked, there is a second global goal established by the Paris agreement on climate adaptation which aims at ‘enhancing adaptive capacity, strengthening resilience and reducing vulnerability to climate change’[2]. As the impacts of global warming continue to become more widespread, severe, and tangible[3],[4], it is growing increasingly critical that investors (asset managers and asset owners) put their efforts towards climate adaptation and resilience, while continuing the drive for mitigation.

Climate change, however, is not only a threat to the environment, but also to equality. Vulnerable communities and regions face disproportionate challenges and risks, such as food insecurity, water scarcity, (forced) displacement and health crises[1]. Climate adaptation strategies, like their transition counterparts, stand either to ameliorate or to exacerbate these inequalities. If strategies are developed in a way that disregards the rights and perspectives of affected stakeholders and communities, they may help to manage physical climate risks for the entity, while creating adverse social and environmental impacts at the same time, a phenomenon known as ‘maladaptation’[2].

Just adaptation, on the other hand, is an approach that aims to not only minimise the risk of negative social externalities associated with climate adaptative efforts, but also to maximise the adaptation benefits for wider society, especially those that are most affected by climate change. It is complementary to the just transition approach to climate mitigation sharing many principles in common with it. These include recognising the different needs and perspectives of relevant diverse groups and stakeholders and making efforts to ensure their meaningful participation and empowerment in decision-making and implementation processes. It also means to harness the potential of different kinds of adaptation solution[3] to produce co-benefits for affected communities which can include increased biodiversity, carbon sequestration, health benefits, and employment creation[4]. However, most importantly, just adaptation like just transition ensures that solutions are fair and inclusive, leaving no one behind.

We believe investors can play a key role in driving and supporting a just adaptation by influencing the allocation of resources, the direction of development, and the corporate governance of climate action. By integrating a just adaptation lens into their strategies, policies, and practices, investors can reduce their financial and reputational risks while unlocking new opportunities for value creation, impact generation, and stakeholder engagement.

At Royal London Asset Management, we expect that active dialogue will be a particularly important lever in this area and we are exploring ways to engage companies and other actors to identify robust climate adaptation plans according to rigorous principles which have justice and equity embedded within them. We are also considering ways to engage with policymakers, regulators, and civil society to advocate for and support the development and implementation of inclusive and equitable climate adaptation policies, plans, and actions at the local, national, and international levels. We embark on this journey with a view to a just, equitable and climate-resilient future.

[1] Article 2 of the Paris Agreement.
[2] Article 7 of the Paris Agreement.
[3] A report by The Copernicus Climate Change Service found that average global temperatures had exceeded pre-industrial global temperatures by 1.5°C or more for 12 consecutive months in June 2024.
[4] The IPCC’s Sixth Assessment Report (AR6) states that ‘[h]uman-caused climate change is already affecting many weather and climate extremes in every region across the globe. This has led to widespread adverse impacts and related losses and damages to nature and people (high confidence).’
[5] IPCC’s Sixth Assessment Report (AR6).
[6] Schipper 2020, Maladaptation: When Adaptation to Climate Change Goes Very Wrong.
[7] Adaptation solutions are either technological, infrastructural, institutional, behavioural, cultural and/or nature-base. See figure 16.5, p.2434, IPCC AR6 Chapter 16.
[8] WRI 2022, The Triple Dividend of Building Climate Resilience.

Our commitment is made at the firm-level and we will report periodically and transparently on the progress we are making. This commitment does not apply to all Royal London Asset Management funds and strategies because each will have different investment objectives. Please check prospectus documentation for details on specific fund-level objectives.

This is a financial promotion and is not investment advice. Past performance is not a guide to future performance. The value of investments and any income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested. The views expressed are those of the author at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice.