III - Modeling uncertain outcomes

Shaping factors for climate change adaptation

1. Extreme climate events — phenomena outside the normal
   range of weather patterns characterized by their severity,
   duration, or frequency (e.g., heat waves, droughts, storms,
   wildfires, landslides, and flooding)
2. Freshwater availability — a decrease in the amount of clean
   and usable water accessible for human use and consumption
3. Sea level rise — an increase in the average level of the
   ocean’s surface over time, due to melting glaciers and thermal
   expansion of seawater, leading to the erosion and submersion
   of coastlines

1. Biodiversity loss — a severe decline in yield from key crops and livestock, as well as mass vegetal and animal species extinctions
2. Increased pests/invasive species — an increase in the activity of destructive insects and animals, leading to damage to ecosystems and possible transmission of diseases to humans

1. Regulations — legislation and practices put in place by governments and local authorities to promote or impose adaptation to climate change
2. Consumer behavior — patterns of individual purchasing decisions that reflect adaptation to climate change
3. Urbanization — an expansion of cities and towns as populations migrate due to extreme weather, moving from rural to urban areas

1. Financial mechanisms — an ecosystem of polices, investors, and financial instruments that mandate or promote adaptation investment
2. Competitive pressure — major players in the value chain assuming climate adaptation leadership, driving a dynamic market and forcing behavior change onto competitors and suppliers
3. Supply chain disruption — interruptions or significant slowdowns in the transportation and distribution of raw materials, resources, goods, and services

During our analysis, we assumed that factors within the geophysical and biological categories will behave in line with the “+3°C by 2100” global warming trajectory (see sidebar “The ‘+3°C by 2100’ trajectory”). However, the impact and scope of the behavioral/ demographic and economic categories will vary between the different projections outlined later in this chapter.

Impacts by category

The impacts of geophysical factors will be widespread and large-scale,
as evidenced by projections[4] and estimates from a variety of sources.
For example:

• Heat waves are likely to be longer and more intense over the coming decades, with minimum temperatures rising by at least
  +3°C, and an accentuation of up to +8°C at the poles, according to the IPCC. Additionally, the combination of high temperature and high humidity is likely to become more prevalent, increasing the “wet bulb effect,” which limits the human body’s ability to cool down from evaporation or sweat.

• Conditions will be more favorable for the formation of tropical cyclones, particularly affecting areas in the Pacific Ocean. For example, by 2050, the annual likelihood of an intense tropical cyclone in Japan is likely to more than double from 4.6% in 2020 to nearly 14%.[5]
• By 2040–2050, the likelihood of wildfire events will increase by nearly 30% globally, according to the IPCC, particularly due to higher temperatures causing vegetation — including rainforests, permafrost, and peatland swamps that would not usually burn — to dry out and combust.
• By the late 21st century, the share of the global land area and population affected by agricultural, ecological, and hydrological droughts is projected to increase substantially — from around 15% to 20% at a moderate or severe drought, and from around 3% to nearly 10% in the extreme or exceptional drought.[6] Some areas are more exposed to droughts, particularly Africa, South America, and the Mediterranean coast, which will see drought hazard increase by 82%.[7,8]
• Extreme precipitation events will be accentuated by climate change, increasing the risk of flooding, particularly in Southeast Asia. This will also lead to soil erosion due to extreme rainfall, a trend increasing over 80%-85% of the global land surface.[9] By 2050, experts project an increase in the frequency or intensity of precipitation events, especially in North America and Europe. In New York, annual rainfall is expected to increase from 45.6 to about 49.7 inches in that timeline.[10]
• As of 2022, 2.2 billion people lacked access to safely managed drinking water.[11] Other sources project that demand for water will rise by a further 20 to 25% by 2050.[12]
• The consequences of sea level rise will be global, with local variations in risks and damages. Some regions are more vulnerable than others; for example, 17% of Bangladesh is predicted to be submerged by 2050, displacing over 20 million people.[13]

A variety of biological factors will impact ecosystems, farming, and the spread of infectious diseases, such as:

• Crop and livestock productivity decline and biodiversity loss attributed to climate change are already endangering the whole range of “ecosystem services.” Maize yields, for example, are projected to decline further by 24% by the late 21st century, even as the global demand for cereal for animal feed and food alone is expected to increase by 50%-60% compared to 2000.[14]
• A global increase is predicted in crop pest damage to wheat, rice, and maize production of 10%-25% per degree of global warming.[15]
• The threat of zoonotic disease transmitted between vertebrates and humans is increasing dramatically due to the disruption of natural habitats by climate change (and other human factors like deforestation and urbanization). A greater probability of mosquito-borne West Nile Virus infection is expected in 2025, especially in eastern Croatia, northeastern Türkiye, and northwestern Türkiye, with further range expansion in 2050.[16]

The way humans react to climate change determines profound
political, demographic, and societal trends:

• Regulation has so far been the major lever in climate change mitigation efforts. However, for adaptation, while there have been some regulations in place since 2008 (see Table 1), they are still sparse, limited to specific industries, and lacking in enforcement power. Whether regulation will ever drive adaptation with the same force as mitigation is very much open to question.
• While consumers in industrialized countries show some signs of behavioral shifts related to climate change adaptation, counteradaptation behavior is also being seen. For example, in the US real estate market, homes near sea level rise areas are now sold for, on average, 7% less than comparable homes.[17] Yet at the same time, population growth is strong in the hottest, driest, and most vulnerable parts of the country. As an example, more than 800,000 people have moved from California to Phoenix, Arizona, since 2012.[18]
• Urbanization rates are expected to keep increasing, further boosted by the influx of refugees from affected areas, particularly in the Global South, where 70% of those displaced by climate change are moving to cities.[19]

We consider regulation and behavioral shifts in more detail in the next section.

• Climate change will profoundly impact key economic drivers on a global scale, with tangible effects on businesses. Financial mechanisms for adaptation are in development, spearheaded by international development institutions, with insurance particularly active. However, while adaptation finance for climate change hit a record $63 billion in 2021/2022, increasing by 28%, it is still significantly below the $212 billion yearly need projected by 2030 for developing countries alone.[20] 
• Industry leaders have transformed entire supply chains with their climate-mitigation efforts, pressuring customers and competitors to change. For example, Apple is demanding that its entire value chain reduce its impact on global warming. 
• Supply chains are likely to be disrupted by rising sea levels and other factors, potentially leading to major changes in global economic structures. For example, severe droughts have limited transits through the Panama Canal to 25 per day (down from 36) since January 2024, causing significant supply chain delays and repercussions on costs.[21]
• Commodity prices are highly volatile due to market conditions, and future supply chain disruptions could significantly increase them. For example, cocoa market prices increased dramatically in 2023 due to heavy rainfalls in West Africa.

The impact of human shaping factors

In our analysis, we captured all the geophysical and biological factors (1-5 in Figure 4) as part of our underlying assumption of a “+3°C by 2100” trajectory, effectively taking these factors as a given. To explore plausible futures, we scored the “human shaping factors” (6-11 in Figure 4) according to their impact and degree of uncertainty, using the results of a survey polling 60 experts and corporate executives (see Figure 5). In the matrix:

• A maximum degree of uncertainty (scored 5 out of 5) refers to a 50/50 probability of a particular factor being realized. Conversely, a score of 1 out of 5 reflects near certainty.
• Impact is a qualitative appraisal of the intensity and range of consequences of a particular factor on societies, businesses, and humans. A score of 5 out of 5 reflects very high impact across the board, while 1 out of 5 reflects little or no impact.

The factors that gained the highest scores of uncertainty and impact, placing them in the top right-hand quarter of the matrix, constitute “critical uncertainties.” These comprise regulations, consumer behavior, financial mechanisms, and competitive pressure. Supply chain disruption has relatively high certainty and major impact and was thus integrated as a given into all the future projections. Urbanization has relatively less impact than the other factors, so it was deprioritized in the analysis.

To build our future projections, we followed a structured methodology (see Figure 6). The methodology comprised four steps:

1. Rank the four critical uncertainties listed in Figure 5.
2. Identify intersections between these uncertainties.
3. Generate on/off projections for the intersections between the four critical uncertainties.
4. Filter the resulting 24 projections down to five, considering:
   • Plausibility. Is this scenario internally consistent, or is it self-contradictory?
   • Differentiation. Is it sufficiently differentiated from others to tell us something new?
   • Technological relevance. Does this scenario enable us to predict which technologies will be useful for adaptation?

This approach yields projections not strictly exclusive of each other, as each only highlights two aspects of the future. Projections may be compatible in a single world (e.g., there is a single possible world with high levels of regulation, high competitive pressure, low consumer behavior shift, and low financial resources available). However, our approach addresses this result in two separate projections. We believe this approach more closely mimics realworld decision-making than multivariate scenario-building, which often proves an intractable exercise, especially when each variable displays high degrees of uncertainty. Additionally, this approach allows for thoroughly exploring the tension that arises at the confluence between shaping factors, demonstrating clearly where contradictions, challenges, and opportunities arise.

5 projections for the future

Through this process, we have identified five projections, chosen for their internal consistency, differentiation, and relevance for technology (see Table 2). With the help of our design fiction partner Making Tomorrow, in this section we share “artifacts from the future” based on the five projections.

Using our projection methodology and identifying featured projections based on plausibility, differentiation and technology relevance, we have identified 5 featured projections.

Click on the featured projection to read in detail about this potential future.

How did we get here?

Forward-looking companies with cash reserves have prepared for the future, betting on a much broader societal and economic move toward adaptation. However, most consumers have not kept up with that trend, largely due to competing priorities, such as rising inequality and higher living costs.

The international economy

Globalized supply chains and the international division of labor continue, albeit disrupted by geopolitical conflicts and climate change impacts. Manufacturing hubs migrate to less vulnerable locations within countries, away from coasts and typhoon-prone regions. Some industrial relocation to developed countries takes place, aided by generous government subsidies.

Society

Regarding many social structures — such as labor, education, care, and family — a two-speed society emerges. Ecosystems organized around powerful, global supply chains transform fastest: large industrial hubs and cities are reengineered to limit heat, build shelters, and protect mobility. Working hours are adapted both for these urban employees and their children at school, who also receive preventative healthcare. At the same time, communities on the periphery of global trade, especially in rural areas, do not undergo significant change.

Winners & losers

There is major consolidation in pharmaceuticals, automotive, electronics, and consumer goods industries like fashion and personal care — as only those firms with the money to invest in adaptation survive. Leading companies reap the benefits of their adaptation investments and have locked in their suppliers, thus gaining a competitive advantage.

Cultural shift

In developed countries, there is a growing cultural polarization between those who embrace a shift in norms, lifestyle, and consumption habits and those who resist that shift — further feeding the “culture wars.”

Impact on the source/make/protect/sell model

• Source. Customer demand for goods made from rare raw materials including critical metals (lithium, cobalt, tellerum), rare earths, and crops (bananas, cocoa) has remained high. In particular, the fruit, meat, and dairy industries have been compelled to maintain their product range despite rising pressures from climate change. Ingenious ways to procure these crops bloom, such as with vertical farming. There is a growing lobby for SynBio to be applied in agriculture to help grow resilient species while meeting the unchanging preferences of consumers.

• Make. Constraints on manufacturing operations and processes in many sectors (automotive, electronic goods, pharma, food and beverage) have increased. Manufacturers must develop resilience in the face of power cuts and resource/workforce shortages, as well as challenging working conditions, such as extreme heat. When it comes to products, manufacturers have to compromise on other metrics, including quality and price, leading to brand reputation issues. Other manufacturing sectors that are globally integrated, such as construction and defense, continue to prioritize productivity and profitability, while services (including personal care, education, hospitality, and transportation) provided locally are not subject to the same pressures and are therefore slower to adapt.

• Protect. Leading businesses have mandated that their partners’ and suppliers’ assets be protected or insured against the main climate risks. Those companies unable to comply are no longer in business, including many in previously manufacturing-heavy regions in South/Southeast Asia and Central America.

• Sell. Disconnects between companies’ visions and customer preferences have led to commercial failures, such as Tesla’s amphibious car, making firms wary of disruptive product innovation. In a world of fragmented demand, players benefit from serving strong affinity niches, such as red meat eaters. Solutions that can help sense contradictory demand signals in an accurate and timely manner therefore become extremely valuable.

Lonely at the Top: The promise of SynBio

In 2040, the leading global life sciences companies are “lonely at the top.” They have invested earlier than others into R&D for SynBio, as well as for components not usually produced in a fermentation setting. As supply chain disruptions and extreme weather events endanger global supplies of natural drug ingredients and raise the costs of raw materials, they remain resilient to shocks, further enhancing their competitive advantage. Those impacted by the growing disruptions of climate change have no choice but to adapt, and one sustainable approach to doing so is by implementing SynBio. The ability of SynBio to provide substitutes for climate-vulnerable ingredients has been demonstrated since the early 2000s. Since its foundation in 2003, California biotechnology start-up Amyris has used SynBio to produce artemisinin, the active pharmaceutical ingredient in antimalarial drugs. Artemisinin is traditionally derived from the sweet wormwood plant, a wetland plant whose distribution area will be negatively impacted by rising global temperatures.[1]  By engineering yeast to produce artemisinin, Amyris has been able to create a more stable and sustainable source of this critical drug component. In a world of flooding and warmer waters that drive increases in malaria cases (+5 million cases; i.e., +2% globally from 2021 to 2022[2]), SynBio helps address pandemic risk by providing climate-resilient alternatives for effective treatments.

In 2019, Roche partnered with Boston, Massachusettsbased Gingko Bioworks to develop a more sustainable production method for oseltamivir phosphate, the active ingredient in its antiviral drug Tamiflu, a critical and widely used drug for the treatment of Influenza A and B. Oseltamivir phosphate is currently derived from shikimic acid, which is extracted from the Chinese star anise plant. This plant is vulnerable to climate change, and its supply has been affected by extreme weather events, including the 2010 droughts in Guangxi and Yunnan. By engineering bacteria to produce shikimic acid, Ginkgo Bioworks aims to create a more reliable and sustainable source of this essential drug component, helping to ensure Tamiflu’s continued availability.

Other life science giants have shown interest in SynBio research as well. In 2018, Bristol Myers Squibb entered into a research collaboration with the biotechnology company Synthorx to develop novel immunotherapies using Synthorx’s SynBio platform. This platform, called the “Expanded Genetic Alphabet,” allows for the incorporation of non-natural amino acids into proteins, which can potentially lead to the development of innovative therapeutics with improved properties. In 2020, Pfizer participated in a $300 million funding round for Zymergen, a company that uses machine learning (ML) and SynBio to engineer microorganisms for the production of various chemicals and materials.

Previous investments in SynBio biology pay dividends in shielding life science companies against future disruptions in supply and skyrocketing ingredient prices. They also hold much promise as a competitive edge in developing a wide range of new products with sought-after properties, sustainably and at an attractive cost. The SynBio market grew at 20% per annum to 2030 overall,[3] driven by sustainability concerns but also by healthcare needs, demands for manufacturing efficiency, and (on the supply side) increasing investment, low technology costs, and growing ecosystems.

The benefits and potential gains that SynBio offers are clear. However, companies must have a well-defined strategy in place to successfully implement it. Key considerations are investing in the right technologies for scale-up and cost-efficiency and ensuring sufficient production capacity. Given the diversity of SynBio, companies should carefully consider which specific fields are relevant for their business and conduct realistic market-based assessments. With an everincreasing acceleration in technology developments, timing is a further key consideration. (For more about SynBio, see the ADL Blue Shift Report “The Brave New World of Synthetic Biology.”)

Dr. Ulrica Sehlstedt, Global Practice Leader, Healthcare & Life Sciences Practice, ADL

Dr. Franziska Thomas, Partner, Healthcare & Life Sciences Practice, ADL

Notes

1. Wang, Danyu, et al. “Global Assessment of the Distribution and Conservation Status of a Key Medicinal Plant (Artemisia Annua L.): The Roles of Climate and Anthropogenic Activities.” Science of The Total Environment, Vol. 821, May 2022.
2. “World Malaria Report 2023.” World Health Organization, 30 November 2023.
3. Meige, Albert, et al. “The Brave New World of Synthetic Biology.” ADL Blue Shift Report, 2024.

“The Forest Spirit gives life and takes life away. Life and death are his alone.” — Moro, Princess Mononoke

How did we get here?

Governments are still focusing on mitigation, with a fear of imposing further heavy costs on industries around adaptation. This has led to a lack of globally agreed-upon regulations/practices to promote or impose adaptation to climate change. We see a market-driven approach to climate change adaptation, with businesses voluntarily investing to remain competitive.

The international economy

Leading companies invest in advanced adaptation technologies to protect their businesses from disruption by extreme climate events. In contrast, poorer and more vulnerable regions (e.g., Southeast Asia) struggle to access investment, due to the lack of strong institutions with the necessary manpower, data, and know-how to structure bankable adaptation initiatives. Business investment in climate change adaptation shows benefits, but the lack of societal focus on equality and long-term planning results in a lack of coordination and negative externalities. Such costs not only burden communities but also impact private companies, hindering overall progress toward sustainable and inclusive growth.

Society

A growing split emerges between generations: one prioritizes innovative new ways of living, while the other strives to maintain traditional lifestyles. Reliance on international and national government support diminishes, with private sector companies, regions, and local communities taking more of the initiative.

Winners & losers

Due to a lack of regulation, sectors that are strategically important (e.g., agriculture, energy, and coastal real estate) or have higher economic returns receive more investment than others, leading to crucial areas like biodiversity and public safety being neglected.

Cultural shift

The overwhelming focus on creativity as a catalyst for technological progress, in the absence of robust regulation, has led to ethical dilemmas and debates over moral standards. The consequences of unchecked innovation could have devastating effects, reshaping cultural and political mentalities.

Impact on the source/make/protect/sell model

• Source. The race to secure resources drives innovation in supply chain management but also prompts concerns over resource monopolization and environmental degradation. Companies invest in desalination infrastructure to secure water availability as well as local grids to secure productivity. With support from local funds, larger agricultural businesses invest in adaptation technology, such as precision irrigation, vertical farming, and sensors for monitoring.

• Make. We see creative adaptations in manufacturing processes to enhance their efficiency and productivity, mainly within sectors with high raw material and/or electricity costs, such as heavy industries, automotive, and metal/chemical production. With higher raw material prices, manufacturing companies need to focus on cost optimization in their production lines (e.g., by reducing machine time, increasing standardization, and improving resource efficiency).

• Protect. Companies invest independently to protect their assets, leading to a wide range of solutions with varying degrees of effectiveness, such as predictive weather tools and the use of advanced materials. Nature-based solutions, where ROI is challenging to quantify, are less likely to be supported by traditional financial strategies.

• Sell. Industries directly engaged in adapting to climate impacts thrive and introduce new goods and services. For example, the construction industry specializes in resilient building technology, the water management industry focuses on water conservation/recycling, while agriculture develops drought-resistant crops and precision farming techniques.

Wild Green West: Integrating mobility into the energy ecosystem

By 2040, the individual mobility industry, driven by private investment and minimal regulation, has continued to innovate, achieving enhanced performance, fuel efficiency, and the development of new vehicles for alternative fuels. Zero-emission vehicles, primarily electric, then hydrogen, make up most of the market, comprising 50%-75% of sales. However, in regions where natural disasters and energy supply disruptions are increasingly common, fuel choices face heightened scrutiny. Alternative fuels present different trade-offs in terms of fuel access, fire risks, and vehicle-to-grid (V2G) power capabilities.

As weather emergencies become more frequent, access to fuel is crucial for maintaining daily mobility. Electric charging stations are expected to proliferate, forming dense networks in developed countries. However, events like Hurricane Sandy in 2012, which rendered 15% of electric charging infrastructure in affected areas of the Northeastern US inoperable due to outages and flooding, are becoming more frequent.

Electric vehicles (EVs) offer unique benefits in emergencies, such as powering local grids or hospital generators for a short period of time. During the 2019 California wildfires in the US, Pacific Gas & Electric (PG&E) used Tesla Powerwall batteries, on which the maximal-charging “Storm Watch” mode had been activated, to supply temporary power to affected communities.[1] Similarly, V2G charging helps deliver electricity in the event of weather-induced blackouts. The city of San Diego, California, is experimenting with a pilot program to enable bidirectional charging with school buses.[2] PG&E CEO Patricia Poppe has supported V2G charging to prevent blackouts, bolstering efforts by General Motors to add this capability on most of its vehicles, which it provided early on Ford’s F-150 Lightning.[3]

Volatile weather events, including floods, extreme temperatures, and wildfires, present trade-offs for alternative fuel vehicles. Extreme temperatures can cause batteries to degrade more quickly and require energy for temperature regulation, reducing driving range and efficiency. And while EVs tend to be less fire-prone than their conventional or hybrid counterparts (the US National Transportation Safety Board reports that EVs have been involved in approximately 25 fires per 100,000 sold in the US compared to 1,530 gasoline-powered and 3,475 hybrid vehicles[4]), fires in EVs are more challenging to extinguish. High-voltage lithium-ion batteries are at risk of thermal runaway, leading to intense, prolonged fires with pollutants and reignition risks. Hydrogen cars are more resilient to fires, as hydrogen is lighter than air and burns at a lower radiant than gasoline, reducing sustained fires and secondary fire risks. However, hydrogen cars present a (low) risk of explosion at critical concentrations of air and hydrogen. Moreover, hydrogen flames tend to be harder to detect, complicating emergency response efforts.

As a result of these trade-offs, the most resilient fleets by 2040 will employ a mixed-vehicle strategy. Large public and private fleets were early to adopt this approach. For example, Los Angeles and San Francisco committed to greening their fleets with a mix of alternative fuel vehicles, including electric, hybrid, natural gas, and hydrogen. By 2040, the mix has become electric or hydrogen-only, due to California’s zero-emission mandate. The US Army invested in hydrogen fuel cell technology, such as the Chevrolet Colorado ZH2, while the Navy has deployed EVs for on-base transportation and logistics. Amazon ordered 100,000 delivery vans from Rivian back in 2022 as well as testing Daimler Truck’s Mercedes-Benz hydrogen fuel-cell trucks in Germany.

To build systemic resilience to climate impacts, deep collaboration between EV manufacturers and local grid providers is essential. In 2016, Nissan and Italian utility company Enel launched the first large-scale V2G project in Denmark, integrating EVs into the national grid. The project installed 10 V2G units at the Danish utility company Frederiksberg Forsyning’s headquarters, allowing EV owners to connect their vehicles to the grid and sell excess energy during peak demand periods, stabilizing the grid while providing an additional revenue stream for EV owners. Meanwhile, V2G options in the US garner significant interest for commercial EVs.

To prepare for this (and other possible) futures, company leaders must maintain a broad perspective. This includes looking beyond short-term impacts and starting to prepare for the new world as structural changes begin to significantly reshape the business environment. It also implies looking beyond obvious trends and reassessing major areas of uncertainty and their implications. Decision makers will need to shape scenarios, make swift no-regret moves, and develop strategic insurance to mitigate unwanted scenarios. This requires embracing uncertainty and embedding it into decision-making: developing capabilities for scenario development and monitoring of trigger events, adjusting strategic and operational planning and related governance mechanisms, and shaping corporate culture so employees feel empowered to deal with uncertainty. Then, companies will be able to leverage digital technologies to improve intelligence and increase agility and responsiveness. (For more information on navigating this increasingly uncertain environment, see the ADL publications “Embracing Uncertainty, Driving Growth,” “Electrifying the Future,” “Truck Electrification — Profit Booster or White Elephant?,” “Driving Profitability in US Public EV Charging,” and “The Relevance of EV Battery Swapping in Emerging Markets.”)

Florent Nanse, Partner, Automotive Practice, ADL

Marc Wiseman, Senior Advisor, Automotive Practice, ADL

Notes

1. Lambert, Fred. “Tesla Activated ‘Storm Watch’ for ‘Hundreds’ of Powerwall Owners over California Fires.” Electrek, 11 June 2019.
2. “Current V2G Projects.” San Diego Gas & Electric (SDGE), accessed May 2024.
3. Melendez, Lyanne. “PG&E CEO Proposes Using Electric Cars to Send Power Back to Grid to Prevent Blackouts.” ABC7 San Francisco, 8 August 2023.
4. Weil, Gina. “Data Shows EVs Are Less of a Fire Risk than Conventional Cars.” Fairfax County, Virginia, Office of Environmental and Energy Coordination, 12 February 2024.

“Some problems seem simple and turn out to be complicated, others seem complicated and turn out to be simple.” — Cédric Villani, President of the Fondation de l’Écologie Politique

How did we get here?

Not all consumers are feeling the impact of climate change, meaning those who are not constrained to adapt simply do not. Insurance has not caught up with reality, and public funding for adaptation in developing countries remains limited, while private funding (including private equity) remains largely limited to projects that deliver short-term profits.

The international economy

Central banks struggle to curb inflation as the price of raw materials rises. The international division of labor remains in place, apart from a handful of critical materials (e.g., semiconductors) subject to state intervention. Local solutions are deployed in climate-vulnerable regions with access to capital (e.g., the Middle East), but do not spread elsewhere.

Society

Societies remain teetering on the brink of widespread change. Policies that promote both solidarity and climate adaptation have not been developed; hence, resistance to adaptation remains widespread, especially among groups most at risk, including farmers, hospitality workers, those in vulnerable industries or locations, and disenfranchised urban populations. Greater inequality gaps form between those who can afford price increases and those (still in the minority) who must radically change their lifestyles, such as living without a car, thus limiting their mobility. The disappearance of entire communities, towns, and landscapes due to fires, hurricanes, and rising sea levels creates large-scale trauma and challenging migration flows, both within and across countries.

Winners & losers

Asset-light companies in the digital space and companies whose manufacturing facilities are in low-risk areas reap benefits from being able to continuously produce goods, without interruptions from climate change effects. Companies that have already regionalized their production for regulatory reasons (e.g., life sciences) or due to transportation constraints (e.g., manufacturers of large car parts and construction materials) are more resilient. Manufacturers of commodity consumer goods (e.g., textiles and plastics) and smaller agricultural producers are immediately threatened.

Cultural shift

The public remains torn between adaptation to climate change and more pressing concerns, such as fighting rising costs due to inflation. Limited efforts by regulators and some industry leaders are insufficient to move the needle, feeding a sense of hopelessness and frustration.

Impact on the source/make/protect/sell model

• Source. Smaller agricultural producers not protected by insurance that lack the funds to invest in protection or optimization improvements face the prospect of major consolidation. Shortages and delays become a given — most companies focus on managing disruptions, as they cannot afford to limit them.

• Make. Raw material substitution is often needed, requiring machines that can function with a broader range of inputs. Only those manufacturers whose industrial processes are very vulnerable to increased climate events introduce new/innovative changes, albeit on a small scale.

• Protect. Unable to finance large-scale asset-protection projects, companies focus on limiting/controlling damage from the impacts of climate change. Preventative maintenance is also an area of focus to avoid infrastructure and machinery breaking under climate pressures. Greater focus is placed on selecting the right site when purchasing or building a new facility, according to multiple criteria. Data centers, in growing demand due to ongoing digitalization, take the prime spots. There is also increased demand for connectivity, with satellite links encouraged over terrestrial connections (fiber, cable) due to lower vulnerability.

• Sell. Remaining affordable is the primary concern of many industries producing mid-market products, especially in automotive. A lack of financing mechanisms causes lower readiness in key sectors, such as pharma R&D around the creation of vaccines/drugs addressing climate-borne illnesses.

Don’t Look Up: Cooling for continuity

By 2040, manufacturing plants face regular production interruptions due to fluctuating energy supply, scarcer fresh water, and challenging labor conditions caused by frequent heat waves. Customer apathy and lack of investment in adaptation have slowed down systemic and large-scale changes, leaving manufacturers to cope and adjust under duress. As a result, production costs have risen significantly. Most costs have been passed on to the customer as “climate change inflation,” making middle-of-the-range products like cars increasingly unaffordable for the median consumer, even in industrialized countries, and threatening entire markets. Concerns include:

• Access to a stable, reliable energy source is critical. In regions like India or Texas, disruptions to the electricity grid, already significant in 2024, are deeply problematic in 2040 due to damage from extreme weather and greater demands on the grid. These disruptions compel businesses to interrupt manufacturing operations for several days each year. For example, in France, in 2024, supply to industrial sites was interrupted for 10-15 days in January when residential consumption was at its highest. Manufacturers are forewarned and financially compensated by utility providers. By 2040, such arrangements have multiplied.
• Local power generation helps compensate for variations in the grid supply. Renewables such as wind and solar power, often implemented on-site, are largely insufficient for the needs of a manufacturing facility and intermittent by nature. Gas engine generators become more widespread. Small modular nuclear reactors, with capacities of up to 300 MWe, are considered for the largest, most demanding industries, such as chemicals. Additionally, there may be sporadic development of local energy communities to counterbalance the risk profiles of national grids, but the Don’t Look Up world lacks the planning, investment, and coordination required (see the Adaptation Surge projection).
• Water is an equally critical resource. Climate change has led to increased water scarcity and irregularities in water supply due to changing precipitation patterns and insufficient investment in water-harvesting infrastructure. This raises major concerns for critical processes, such as cooling in nuclear, metallurgical, and chemical plants. While desalination plants are an option in some coastal hubs, the release of brine restricts their installation in several areas. Maximizing efficiency in the use of available freshwater appears to be a safer bet. Water recycling technologies, such as membrane-aerated biofilm reactors, rainwater harvesting, greywater recycling, or closed-circuit reverse osmosis, which treat wastewater for reuse in manufacturing processes, are examples of innovations in this space.
• The increased frequency and severity of heat waves worldwide, including those that are extremely humid, significantly impact working conditions. Resulting changes in ways of working, such as shortening or moving shifts to cooler times, may lead to organizational issues, productivity losses, and increased labor costs. The automation and robotization of manufacturing tasks, usually implemented to streamline processes and improve productivity, also protect workers from hightemperature environments. However, automation has its limits, and not all tasks can be performed by robots. Additionally, most automated machinery relies on electronics that cannot withstand excessively hot environments (>25°C-30°C, or 77°F-86°F).
• Investments in thermal comfort systems, hitherto considered too expensive, are likely to develop. Thermal comfort implementations can be partial to control costs. For example, air-conditioning is installed in only the most heat-sensitive workshops, or factories are fitted with air-conditioned cabins like the Cabin Cool concept designed by Air Innovation, which directly cools air for machine-handling vehicle operators. Arguably, the most economical of thermal comfort solutions works symbiotically with heatconscious design: improving airflow, managing exposure to the sun, and increasing the use of electric machines (e.g., electric presses) wherever relevant.
• In 2040, reliable supplies of power and water will become leading criteria for the location of new manufacturing sites, putting pressure on industrial hubs to secure these services for their tenants. In existing plants, companies are well advised to include adaptation in their comprehensive industrial strategy plans to ensure they can take on these challenges consistently and affordably when they arise — thus building lasting competitive advantage.

Arnaud Jouron, Managing Partner and Global Practice Leader, Performance Practice, ADL

How did we get here?

In response to recent climate catastrophes, governments worldwide enacted strict adaptation regulations, including prohibiting construction in vulnerable coastal areas, while consumers increasingly demanded action on adaptation measures. Some public sector funding was made available to support adaptation projects, but this is insufficient on its own, requiring additional finance from the private sector.

The international economy

International efforts are characterized by increased globalization in the form of cooperation on climate initiatives and technology exchange, combined with increased state intervention that focuses efforts and resources on climate adaptation. Disparities between the global North and South still exist, with unequal access to financial resources. However, with the global South being crucial to agriculture and electronics production, new ways to cooperate are developed and knowledge is shared, with large metropolises serving as the primary laboratories for adaptation.

Society

The relatively close alignment between business leaders and the public creates a catalyst for transformation, with change in daily life and basic needs. For example, food production relies on lab-grown meats and vertical farming to limit land use and water consumption, remote and digital collaboration is predominant, and electrification has spread among cars and trains.

Winners & losers

Success stories are found among risk-taking companies that rapidly develop climate adaptation technologies, particularly benefiting food and infrastructure industries, with some companies achieving near-monopoly status. As it is an extreme race, less innovative firms or those that move too slowly struggle. Industries are stuck in a pattern of “maladaptation” decline, leading entire regions to collapse, such as textiles in Bangladesh.

Cultural shift

When it comes to consumption, sobriety, localism, and resiliency are the key trends.

Impact on the source/make/protect/sell model

• Source. The sourcing of raw materials is affected by stricter environmental regulations and shifts in consumer behavior. Information and traceability technologies enable significant reductions in food waste. Farming practices adapt to biodiversity loss and water shortages by developing water management systems and lab-grown processes, while geo/climate-engineering techniques are developed to increase crop yields. Industries reliant on mineral extraction also face stricter regulations on their environmental impact, leading to limitations in raw material use.

• Make. Manufacturing processes are redesigned and now involve adaptation technologies like digital twins and predictive analytics, which require up-front investments but lead to long-term savings. Driven by consumer demand and greater regulation, the textile industry shifts to a closed-loop manufacturing process using the circular economy to minimize waste and water usage. Due to increased extreme heat waves, working hours have been adapted in exposed industries like construction. To limit operational interruptions and productivity losses, firms invest in technologies that secure their energy supply, including retractable solar panels.

• Protect. Insurers develop more sophisticated risk assessment models and push through incentives for climate-resilience infrastructure, leading firms to invest in measures to protect their assets. Public investments in major infrastructure (e.g., sea walls) increase to protect densely populated areas and industrial hubs. Businesses relocate their assets to areas less exposed to potential flooding or hurricanes, and any new plants and assets are built to be resilient to extreme climate events.

• Sell. During this extreme race for adaptation, the focus is on the speed of technology development. Market leaders invest heavily in talent and set the pace for innovation, forcing rivals to keep up or risk obsolescence. Firms must adapt to the shift in consumer preferences for “climate-appropriate” goods while ensuring product differentiation.

Adaptation Surge: Focusing on the local to drive adaptation

A key benefit of these communities is their ability to reduce exposure to the national grid, which can be vulnerable to disruptions from natural disasters and other events. By generating and consuming renewable energy locally, these communities can ensure a more reliable and resilient energy supply, even in the face of extreme weather events or other disruptions. For example, in the aftermath of Hurricane Sandy in New York, the Brooklyn Microgrid project was created to provide power to local residents and businesses even when the larger grid is offline.

Another benefit of local energy communities is their ability to use energy more efficiently through more granular demand forecasting. By analyzing local energyusage patterns and predicting future demand, these communities can adapt and optimize their energy production and consumption to minimize waste and reduce storage costs. ML can be of considerable use in precisely forecasting demand, spotting issues, rerouting flows in the case of anomalies, and maintaining network security. This can lead to lower costs for consumers and a more sustainable energy system overall. For example, the Today Navarra Energy community in Northern Spain generates sustainable “0-mile” energy through solar panels installed on the roofs of municipal buildings, allowing approximately 5,000 homes and small businesses to save up to 25% on their energy bills.

In addition to these benefits, local energy communities also offer the ability to offload surplus energy onto the regional or national grid, further increasing the efficiency and sustainability of the wider energy system. By generating more energy than they consume during certain periods, these communities can sell excess energy back to the grid, reducing waste and increasing the overall supply of renewable energy. For example, in Germany, the sonnenCommunity project has created a network of local energy communities that can share surplus energy with each other and with the larger grid. Likewise, the El Rosario Solar Local Energy Community in Tenerife supplies the local industrial zone, households, and 20 EV charging points and can provide surplus energy to the commercial network.

Some challenges to consider when setting up a local energy community as a provider include identifying demand hot spots, designing a differentiated offering with collective benefits, and establishing the operating model. This involves defining the best times for offloading surplus-generated power and EV charging, price monitoring, and optimization — tasks for which dedicated tools can help.

Luis del Barrio, Partner, Energy, Utilities & Resources Practice, ADL

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