Weathering the Storm: Investment Solutions for Climate Resilience

Todd Ahlsten

The financial consequences of climate change are no longer theoretical. They are actively reshaping industries, supply chains and capital flows. Extreme weather events, rising insurance costs and regulatory shifts are altering competitive dynamics across multiple sectors. For institutional investors, this investment reality demands long-term planning for a range of outcomes. Allocating capital toward companies that facilitate and enable climate resilience through energy efficiency, agricultural resilience and risk management offers both downside protection and long-term growth potential.

Evolving Demand for Heating and Cooling Services

Rising temperatures are driving demand for more efficient HVAC systems, with the U.S. Department of Energy projecting that demand for space cooling will outpace household formation in the coming years. Regulatory changes, such as stricter energy efficiency standards set to take effect in 2029, will further accelerate the transition toward lower-carbon solutions.

Trane Technologies is well-positioned to benefit from this trend. As one of the most innovative players in the HVAC industry, the company focuses on energy-efficient cooling systems, heat pumps and advanced air filtration solutions. Trane is pioneering the transition from fossil fuel-based heating and cooling systems to electric alternatives, such as heat pumps, which provide better indoor air quality, lower emissions and cost savings through greater energy efficiency. The company is also leading the industry in refrigerant technology, replacing hydrofluorocarbon-based coolants with lower-impact alternatives that reduce emissions and environmental damage.

Trane’s environmental leadership is not just about compliance with stricter regulations but is a core part of its long-term competitive strategy. Through its “Gigaton Challenge,” the company has pledged to reduce one billion metric tons of greenhouse gas emissions from its customers’ operations by 2030. This goal demonstrates Trane’s commitment to sustainability and cost efficiency. As governments continue to push for stricter building codes and energy efficiency mandates, companies like Trane that provide climate-conscious solutions will likely see growing demand from commercial property owners, manufacturers and residential developers.

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Transformation in Farming Technology

Farmers face unpredictable growing conditions due to shifting rainfall patterns, increased droughts and greater crop yield volatility. Precision agriculture is emerging as a necessary adaptation, with companies like Deere & Co. integrating artificial intelligence and automation to optimize resource use. Deere’s “See and Spray” technology is a prime example of how innovation is improving efficiency while lowering input costs. Using advanced computer vision and artificial intelligence, the system efficiently detects and targets weeds with pinpoint accuracy, reducing herbicide use by up to 66%. This lowers farmers’ operating expenses and decreases the environmental impact of chemical runoff and excess pesticide use. Since agriculture accounts for a significant portion of global greenhouse gas emissions, optimizing resource consumption will be a critical priority for the sector in the years ahead.

Beyond weed control, Deere is at the forefront of integrating data-driven solutions into farming operations. The company’s connected ecosystem of autonomous tractors, smart irrigation systems and precision planting technology enables farmers to make real-time adjustments based on soil health and weather patterns. As climate change continues to increase variability in growing conditions, these innovations will be essential for stabilizing crop yields and maintaining profitability. Investors should consider how companies deploying climate-smart technology to increase resilience are positioned within the agricultural value chain. Firms that enable adaptation will be at the center of an expanding global market as demand grows for sustainable and efficient farming solutions.

Financial Sector Not Immune

The financial sector is also facing fundamental changes as climate risk becomes a more prominent factor in underwriting and risk management. The rising cost of extreme weather events has led to record-breaking insured losses, with an unprecedented number of billion-dollar disasters in 2023. Insurance companies are shifting from a reactive model to a more proactive approach, using data analytics to assess and mitigate risk before it materializes. Marsh & McLennan, a leader in this space, is refining climate risk models and providing corporate clients with tools to enhance resilience. Their approach includes asset protection strategies, operational risk assessments and business continuity planning, all of which are becoming essential, rather than optional.

Marsh & McLennan uses advanced risk modeling to assess how weather-related events could impact assets, supply chains and operational stability. The company’s climate analytics division helps businesses quantify the potential impact of extreme weather on their real estate portfolios, production facilities and infrastructure investments. By leveraging predictive analytics, Marsh & McLennan enables businesses to make better informed decisions regarding insurance coverage, property investments and risk mitigation strategies.

Navigating a Market Megatrend

Adapting business operations to climate risks is a strategic imperative that will affect every sector differently, and leaders and laggards have already begun to emerge. The unpredictable nature of climate events means being prepared and able to withstand events with the least possible impact is the goal. Companies that recognize this reality and invest in business resilience will be better positioned for long-term success.

Investors who position themselves in companies at the forefront of climate resilience will align with one of the most significant capital reallocation trends of the coming decades. The far-reaching range of recent extreme weather events validates that climate risks are no longer just a consideration for sustainability-focused investors. Being prepared for climate events is now an economic necessity, and these investments will continue to shape the future of capital markets and long-term investment strategies. Over time, only the strong will survive. Companies that invest for climate resilience will be better prepared to navigate uncertainty and capitalize on the opportunities emerging from one of the most significant market transformations of our time.

Todd Ahlsten is CIO at Parnassus Investments.

This feature is to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of ISS STOXX or its affiliates.

Tags: climate resilence, Climate Risk, Parnassus Investments, Todd Ahlsten

Keeping up with the massive energy needs of data centers to support a surge in artificial intelligence and cryptocurrencies is among the main issues facing investors in environmental, social and governance assets, according to a report from Institutional Shareholder Services’ ISS ESG.

Human rights due diligence and potential international treaties regarding plastics pollution were also cited as trends investors should keep an eye on in 2025 in the report from ISS ESG, which, like CIO, is owned by ISS STOXX.

Citing the International Energy Agency, the report stated that data center electricity consumption could more than double to more than 1,000 terawatt hours in 2026 from 460 TWh in 2022, adding that this would account for 3% of the world’s electricity usage, up from 1.7%.

“AI as a technology may lead to greater energy efficiency and smarter allocation of computing workloads to minimize the carbon impact, but the aggregate energy use of companies with large data center operations is clearly growing,” the report stated.

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The report noted that some technology companies are looking to satisfy their increasing energy needs using low-carbon energy sources such as nuclear power. However, it added that “taken together, the rise in data center electricity demand and focus on lower-carbon energy sources offers mixed signals as to whether large technology companies are transitioning in a manner consistent with Net Zero ambitions.”

Beyond energy issues, the report found that protection of human rights appears to be shifting from a voluntary commitment to a mandatory one: “With significant regulations already in place and more planned, many companies worldwide either already face or soon will face enforceable corporate due diligence duties related to human rights impacts along their global value chains.”

As an example, the report cited the European Corporate Sustainability Due Diligence Directive, which came into effect in July 2024 and is intended to address the need to standardize the European Union’s legal framework. The directive establishes a “corporate due diligence duty” covering human rights and environmental impacts, the report noted.

Concerns about “persistent” plastic pollution are also likely to be a major focus for ESG investors during 2025, according to the report. ISS cited an Organization for Economic Co-operation and Development report that found global plastic waste is expected to nearly triple by 2060, with approximately half ending up in landfills and only 20% expected to be recycled.

“The United Nations Plastics Treaty negotiations, which will continue into 2025, are seeking to address plastics pollution at the international level,” the report stated. “Possible treaty provisions on harmful chemicals in plastics may also have future legal implications for companies. Depending on its final form, the UN Plastics Treaty could increase the risks to companies and investors from plastic pollution.”