Climate change is bringing more frequent and intense extreme events, leading to increasing economic losses around the world. In the EU alone, economic losses have reached billions of euros per year. While mitigation alone is no longer enough, Climate change adaptation (CCA) is key to protecting societies and economic development. Although the public sector in AZK is widely studied, the contribution of private companies remains underestimated. Companies are the backbone of the economy, but surprisingly, only one in five had a physical adaptation plan in 2022. The new study offers a unique insight into corporate investment in AZK in 28 European countries in 2018–2022, covering 5 risk types and 19 economic sectors.

Overall investment trends: The analysis shows that private investment in AZK in Europe is still low, but has been growing significantly in recent years. Total annual investment in the EU and the UK increased from €15.4 billion in 2018 to €52.9 billion in 2022, representing a 243% increase in five years. As a proportion of national gross domestic product (GDP), investment ranged between €0.15 and €0.92 per year, with an annual increase of €30.6 to €37.4 per year. However, this investment is not evenly distributed across countries. The Netherlands leads with an average of 0.58 % GDP, due to their historical vulnerability to floods and the potential for combined risks. Southern European countries such as Greece, Croatia and Italy also show higher investment, while Ireland and Luxembourg lag behind.

Sectoral differences in adaptation: The study reveals significant differences in the intensity of adaptation across sectors, defined as the ratio of a sector's share of total national adaptation spending to its share of GDP. While all sectors are increasing their investments, some are lagging behind in terms of their economic contribution. The manufacturing sector and wholesale and retail sectors show low adaptation intensity.. These key sectors, which together account for up to 30% of GDP in many countries, invest 4-5 times less in adaptation than their share of gross value added (GVA). This is worrying, as manufacturing has significant assets at risk of physical damage. Tourism-related sectors in southern Europe also show low intensity, despite the high projected climate impacts on tourism. Conversely, sectors such as water management and public administration and defense are generally adaptively intensiveThe most adaptively intensive sector is the mining and quarrying sector, indicating high adaptation costs relative to economic returns and vulnerability.

Investments by threat type: Investment analysis into adaptation by type of threat showed that the most resources are devoted to adaptation to heat waves and floods. In most countries, investments in heat waves are dominated by, for example, air conditioning and ventilation systems, which are relatively affordable and provide immediate benefits. Southern European countries give this threat a particularly high priority due to the critical need for cooling. Countries with less investment in heat waves often have a higher proportion of investment in floods, especially in Central and Eastern Europe. Investments in adaptation to forest fires and droughts are relatively low, accounting for a negligible share of total spending.

The interaction between public and private adaptation: One of the key findings of the study is the positive relationship between the growth of public and private investments in adaptation. The analysis showed that an increase in public spending on AZK by 1 % leads to an increase in private investment by 0.28 %. This suggests that public investment in AZK “attracts” private investment (the so-called crowding-in effect), similar to other public investments in infrastructure. This finding is consistent with recent studies suggesting that trust in government measures positively influences private adaptation. Other factors also influence the growth of private investment: growth in the GVA sector, price changes, population density (due to the protection of valuable assets in cities) and the rating of the government debt (an indicator of macro-financial stability). Recent experiences with climate events also have a significant impact – after floods, heat waves and forest fires, private investment in AZK increases.

Conclusion and implications: The study's findings are important for policymaking. They highlight the need for targeted, sector-specific AZK strategies and incentives, especially for sectors with low adaptation intensity. Insufficient adaptation in these sectors can lead to significant damage and indirect macroeconomic impacts. Synergies between public and private investments should be used to bridge the adaptation gap. Governments can signal the need for private adaptation and strengthen the capacities of businesses, for example through public-private partnerships. Future research should provide more detailed data at the firm level and assess the effectiveness of different adaptation measures, taking into account their timing (proactive vs. reactive). Ultimately, an effective adaptation strategy involving all key economic actors – households, businesses and government – is essential to ensure economic development and build a climate-resilient society. Spring

The report was published in the journal nature.com

Glossary of key terms

• Climate Change Adaptation (CCA): Measures taken to reduce the vulnerability of systems and populations to the actual or expected impacts of climate change, which aim to protect people, nature and the economy.
• Autonomous adaptation: Adaptation measures taken by private actors (e.g., firms, households) based on their own interest, often without direct public intervention.
• Crowding in effect: A phenomenon in which public investment stimulates or supports additional private investment, rather than crowding it out.
• Crowding out effect: A phenomenon in which public spending reduces or crowds out private investment.
• GDP deflator: An indicator of the average price level of all new, domestic final goods and services in the economy.
• Extreme weather events: Unusual, severe or unexpected weather events, such as heat waves, droughts, floods, forest fires and storms, that cause significant damage.
• Gross Value Added (GVA): A measure of the contribution of an individual producer, industry, or sector to GDP.
• K-Matrix Data Services: A data provider that uses a consolidation approach to triangulate data from various transactional and operational sources to estimate economic activity, including investments in climate change adaptation.
• NACE 2: Statistical classification of economic activities in the European Community, used to categorize economic sectors.
• Panel data: A dataset that contains observations about multiple units (e.g. countries, sectors) over multiple time periods.
• Sectoral adaptation intensity: The ratio of a sector's share of total national adaptation spending to the sector's share of GDP, which indicates how much a sector invests in adaptation compared to its economic contribution. A ratio above 1 indicates high intensity, below 1 indicates low.
• Public adaptation: Investments in climate change adaptation made by the public sector, often aimed at protecting citizens and building critical infrastructure.