Our Call: Capstone first wrote in January 2020 that the nascent climate adaptation and resiliency sector will experience double-digit growth in the next five years, with sustained multiyear demand cycles. The increase in resiliency spending presents burgeoning opportunities for firms across a growing number of sectors, including the data, flood protection, materials, and engineering, procurement, and construction (EPC) arenas.

Background: The persistent and growing threat of flooding, sea-level rise, and stronger and more frequent storms is causing communities across the US to throw out its old flood prediction models, reset zoning and building codes, and broadly reconsider the risks and opportunities of its built environments. The near-term drivers of climate change are largely locked in. As such, the risks associated with climate change will likely intensify, providing an opportunity for the adaptation and resiliency sector across the value chain to grow rapidly, including an estimated $2 billion current annual spend in front-end consulting and project design alone. Established companies and innovative new firms in diverse sectors from mapping and risk modeling to rapidly deployable floodwalls and permeable pavements are well-positioned for growth, as demand for these services is increasingly legislated and appropriated at the federal, state, and local levels.

Our Rationale: The business case for pre-disaster adaptation and resiliency investment is strengthening around the US and across levels of government. Importantly, a strong federal commitment to action on climate change is not a prerequisite for growth in this space. This is fundamentally a state and local growth story, with cities and counties making up half of the total demand for these services. Legislation is increasingly bipartisan, with meaningful efforts underway across the country, from Texas and Florida to California and New York.

Our Process: We conducted a rigorous review of the public record of existing and proposed regulation and legislation at the federal, state, and local levels. We combined this research with targeted conversations with relevant regulators, policymakers, and other stakeholders to assess investment risks and opportunities.

The Outcome: A couple of weeks after we published our research, House Democrats introduced a major infrastructure proposal for 2020 and their climate bill called the CLEAN Future Act. The draft included requirements for key areas of the economy to “bake in” considerations of adaptation and resiliency to extreme weather events, sea-level rise, and other climate-driven concerns. We expect to see additional legislative efforts at the federal, state, and local levels in the coming years.