Mitigation vs. Adaptation: Key Climate Investment Strategies for Impact VCs

Climate investments confront you with a central question: Do you focus on mitigation (climate protection) or adaptation (climate resilience)? Both approaches are crucial for tackling climate change, yet they differ in focus, impact, and risks. While mitigation addresses the causes of climate change by reducing emissions, adaptation aims to manage the consequences such as extreme weather or droughts. According to the European Environment Agency, understanding these distinctions is fundamental for effective climate action, as both strategies are necessary and complementary (EEA FAQ).

Key Facts:

• Mitigation: Focus on renewable energy, energy efficiency, and CO₂ reduction. Financial returns are often more clearly measurable. As the MIT Climate Portal explains, mitigation efforts are typically quantifiable and can be directly linked to emission reductions (MIT Climate Portal).
• Adaptation: Measures against climate impacts such as flood protection or climate-resilient infrastructure. Impact is often local and harder to calculate, as adaptation outcomes depend on specific regional vulnerabilities and are less standardized (MIT Climate Portal).
• Investment Distribution: Globally, only 10% of climate finance flows into adaptation, even though climate-related damages cost billions annually. The UN Environment Programme notes that adaptation funding needs are rising rapidly, with a growing gap between current flows and what is required (UNEP Adaptation Gap Report 2023).

Your goal as an Impact VC: A balanced strategy that combines both approaches to address economic opportunities as well as societal challenges.

Mitigation: Focus Areas, Business Models, and Metrics

Main Investment Areas for Mitigation

The energy transition in Germany offers numerous investment opportunities. Renewable energies are particularly in focus. By 2030, the share of renewables in gross electricity consumption is to rise to 65%. As early as 2019, 43% of electricity was generated from renewable sources, with wind power accounting for more than half of renewable electricity generation (IEA Germany Energy Profile).

Another key point is the coal phase-out by 2038 at the latest, supported by Carbon Contracts for Difference (CCfDs). These promote investments in carbon-free technologies, especially in emission-intensive industries. The federal government is providing up to €40 billion to support affected regions (Clean Energy Wire).

Hydrogen is developing into an important growth area. With Germany’s hydrogen strategy, green hydrogen is becoming affordable and market-ready, especially for industries like steel production and aviation (Clean Energy Wire).

The building sector also remains a central area. The focus here is on promoting energy-efficient renovations and replacing outdated oil heating systems. At the same time, investments in electromobility and alternative drive technologies are driving the transformation of the transport sector (IEA Global EV Outlook 2023).

These investment areas require new business approaches, which will be examined in the next section.

Business Models in the Mitigation Sector

Innovative business models play a decisive role in mitigation. SaaS platforms for emission tracking are gaining traction, as they generate recurring revenues and help companies meet regulatory requirements.

An exciting approach is decentralized energy solutions. One example is Xurya Daya Indonesia, which saved around 225,673 tons of greenhouse gas emissions from 2020 to 2024 through a no-upfront-cost solar roof leasing model and implemented more than 170 projects. By 2030, the company plans to reduce a further 570,252 tons of CO₂.

Infrastructure-as-a-Service models are also gaining importance. For instance, SWAP Energi built more than 800 battery swap stations across 14 Indonesian provinces between 2021 and 2024, saving 50,448 tons of CO₂e. In India, Kazam established a comprehensive EV charging network with over 50,000 charging points, reducing around 35,310 tons of CO₂ between 2022 and 2024. In 2024, the company secured $8 million in a Series-A3 funding round.

Technology platforms for specific applications are also on the rise. Bedrock Energy made geothermal heating and cooling solutions economically viable for urban areas in 2024, saving 32 tons of CO₂e. In early 2025, the company received $12 million in Series-A funding and plans to reduce 212,498 tons of CO₂ by 2030.

The success of such business models depends largely on precise measurement of mitigation impact.

Measuring Mitigation Impact

Accurately calculating emission reduction potential is essential for evaluating the success of emission-reducing technologies. One example is Planet A Ventures, which conducts full life cycle assessments (LCAs). These analyses reveal both positive and negative impacts and are made publicly available to gather external feedback.

Bottom-up impact analyses complement these approaches. They calculate impact per unit, assess scaling potential, and conduct comprehensive sustainability checks.

To structure the evaluation, impacts are categorized as direct, indirect, and transformative. Investors can record climate impact proportional to their ownership share, avoiding double counting and focusing on the impact generated during the holding period.

To increase the accuracy of LCAs, companies use international databases such as OpenLCA and EcoInvent. These standardized approaches enable comparison of different technologies and business models. According to the World Resources Institute, such standardized tools are vital for ensuring transparency and comparability in climate impact reporting (WRI GHG Protocol).

Integrating impact KPIs into corporate management ensures a long-term balance between economic success and sustainable impact.

Adaptation: Opportunities, Models, and Measurement

Investment Areas for Adaptation

While mitigation focuses on reducing greenhouse gases, adaptation is about adjusting to current and future climate change impacts. Germany is taking a leading role here and had invested more than $703 million in relevant measures by December 2024 (BMZ Press Release).

A key area is water management, focusing on flood protection, drought prevention, and sustainable water supply. Projects in this field achieve an average return of 19%. An impressive example is the floating office building in Rotterdam, designed in 2021 by Powerhouse Company and Red Company. This three-story building is not only designed for flood risks but also features solar panels and a green roof for rainwater capture (ArchDaily).

Another growing field is climate risk analytics, helping companies prepare for climate-related risks. For example, before Hurricane Ian, a major building materials company used a weather forecasting tool from ClimateAi to identify increased hurricane risk in Florida. The company responded by ramping up local production of roof shingles, generating an additional $15 million in revenue (ClimateAi Case Study).

Resilient infrastructure also offers lucrative opportunities. Projects in this area, such as robust energy, urban, and transport systems, achieve average returns of 30%. One example is the collaboration between Meta, Pacific Gas and Electric Company, and the city of Menlo Park, which jointly funded levees to protect both the company’s campus and surrounding communities from rising sea levels (PG&E Newsroom).

With the Federal Climate Adaptation Act of July 2024, Germany further institutionalized these developments. The law requires the federal government, states, and municipalities to develop concrete adaptation strategies. The next section highlights specific business models used in these investment areas.

Business Models in the Adaptation Sector

Adaptation business models aim to reduce risks and build resilience. Climate services are particularly successful, often based on an "e-business model." These use web-based platforms with flexible subscription models that can be booked monthly, seasonally, or annually.

Insurance solutions also show promising approaches. One example is the insurance product developed by Swiss Re to protect coral reefs on Mexico’s Yucatán Peninsula. Payouts are triggered by wind speed measurements, enabling rapid and objective damage assessment (Nature News).

Another approach is co-creation models that drive innovation. These models are particularly effective in energy, water management, and disaster risk minimization. The focus is on user-oriented processes that differ from traditional supply-driven approaches.

Returns vary by sector: 78% in healthcare, 36% in disaster risk management, and 29% in agriculture and forestry. Additionally, these sectors benefit from increased yields and ecological advantages.

A key advantage: Over 65% of the monetary benefits from adaptation investments are independent of climate shocks, making these business models profitable even under normal conditions. Nevertheless, evaluating such models comes with specific challenges.

Challenges in Measuring Adaptation Impact

As with mitigation, precise measurement is crucial in adaptation to assess actual success. However, this is more complex, as measures are often location-dependent and difficult to predict. While mitigation successes can be measured in standardized CO₂ equivalents, adaptation requires tailored metrics.

A central aspect is risk reduction. Estimates suggest that, without adaptation measures, the costs of damages and losses would be two to ten times higher than the investment costs. Moreover, every euro invested in adaptation generates more than €10.50 in benefits over ten years (BMZ Press Release).

Resilience indices play an important role in evaluation. With the German Climate Adaptation Strategy of December 2024, Germany developed a comprehensive approach with 33 goals and 45 sub-goals. Most of these are to be achieved by 2030, some by 2050.

Integrating adaptation measures with net-zero programs offers further benefits and improves measurability. Companies that ignore climate risks could face significant costs in the long term. Therefore, it is essential to embed adaptation into decision-making processes. The IPCC emphasizes that integrating adaptation and mitigation can create synergies and reduce trade-offs (IPCC AR6 WGII Chapter 16).

Germany supports these developments with substantial funding. In 2023, the BMZ provided around €2.4 billion for adaptation measures, accounting for about 43% of total German climate finance (BMZ Press Release).

Mitigation vs. Adaptation in Impact VC

Comparison Table

To make informed investment decisions, it is important for impact VCs to understand the differences between mitigation and adaptation precisely. Both approaches have different goals, methods and impacts, as the following overview shows.

Mitigation aims to combat the causes of climate change through the reduction of greenhouse gas emissions. This often leads to more direct financial returns, as the effects achieved – such as the reduction of CO₂ emissions – are more measurable. Adaptation, on the other hand, focuses on strengthening resilience to the consequences of climate change. These measures are often specific to certain regions and offer broad societal benefits, while financial returns for private investors are more difficult to quantify.

A look at global financing shows that adaptation receives significantly less funding: Less than 10% of climate investments flow into this area. Between 2021 and 2022, an average of US$68 billion was provided globally for adaptation, with about 90% of these funds coming from public sources.

These differences are crucial when designing a portfolio and should be clearly considered.

Another important point is the measurability of impact. While mitigation initiatives are relatively easy to measure through the reduction of greenhouse gases, impact measurement for adaptation measures is much more complex due to their specific nature.

The World Resources Institute highlights:

"Adaptation finance is aimed at helping communities reduce the risks they face and harm they might suffer from climate hazards like storms or droughts".

It is also emphasized:

"Investing in climate adaptation reduces future loss and damage costs".

The Federal Ministry for Economic Cooperation and Development (BMZ) shows for Germany:

"Without adaptation strategies, the estimated costs of damage and loss would be two to ten times greater than those of the adaptation measures".

These statements illustrate the long-term economic importance of adaptation investments, even if short-term returns are less predictable.

As already explained, impact VCs should combine both approaches. Mitigation tends to attract more private investment as there is a direct connection between emission reduction and financial returns. Adaptation, on the other hand, relies more heavily on public funding, which opens up new opportunities for specialized VCs.

A successful impact VC strategy should view both approaches as complementary measures. Mitigation reduces the need for adaptation to the consequences of climate change, while adaptation builds the necessary resilience against unavoidable climate impacts.

Practical Strategies for Startups and VCs

Guide for Startups

Startups face the challenge of clearly categorizing their solutions: Do they reduce emissions or increase resilience to climate impacts? This distinction significantly influences both funding opportunities and business models. A look at the transport sector illustrates this: Startups focused on emission reduction address the 24% of global energy-related emissions, while companies in the resilience sector target the estimated US$3.87 trillion in damage from extreme weather events between 1980 and 2012.

Mitigation startups benefit from clearly measurable success metrics such as CO₂ reduction, which are often directly linked to financial returns. Adaptation startups, on the other hand, face greater challenges as climate adaptation research is still in the process of comprehensively assessing risks and solutions. Companies often hesitate with adaptation measures because risks are difficult to assess, information is lacking, or climate risks cannot be integrated into business processes.

Jens Burchardt from Boston Consulting Group (BCG) highlights the relevance of the topic:

"Over the next two decades, climate change will become a highly relevant factor for companies' results".

This development offers enormous opportunities for startups that develop solutions early. Successful companies should strengthen their resilience by analyzing risks, taking adaptation measures and aligning their business model to be climate-neutral. It is helpful to make targeted use of existing resources and networks. Climate change affects all aspects of transport systems and requires timely adaptations.

While startups optimize their strategies, venture capital investors (VCs) must also strategically balance their portfolios between mitigation and adaptation areas.

Portfolio Design for VCs

Impact VCs face the task of diversifying their investments to achieve both financial returns and societal goals. There is a clear difference between Europe and the US: While European pension funds invest on average only 0.018% of their assets in venture capital, this share is 1.9% for US pension funds.

In 2023, the European Investment Fund (EIF) invested €2.8 billion in venture capital, which represented about half of its equity commitments. Nevertheless, in the EU only 30% of VC funds come from institutional investors, while in the US it is 72%. This funding gap creates opportunities for specialized climate tech funds.

VCs can leverage Fund of Funds (FoF) and equity funds to increase their reach and minimize risks. Furthermore, dual-track exit strategies are gaining importance: These prepare companies simultaneously for IPOs and private acquisitions to flexibly respond to market opportunities. Another trend is structured investments that combine debt and equity to achieve more secure returns.

Regulatory frameworks also play an important role: The EU has committed to reducing net greenhouse gas emissions by at least 55% by 2030 (compared to 1990) and is discussing a target of 90% reduction by 2040. These long-term requirements create planning security for climate tech portfolios.

This is where Fiegenbaum Solutions comes in – as a strategic partner to optimally support both approaches.

Fiegenbaum Solutions' Role

Fiegenbaum Solutions offers specialized consulting to startups and VCs to find the balance between mitigation and adaptation. The consultancy led by Johannes Fiegenbaum focuses on ESG strategies, Lifecycle Assessments (LCA), decarbonization and climate risk management.

For startups, Fiegenbaum Solutions provides tools such as impact modeling and scenario analyses to make the effects of their strategies measurable. This is particularly valuable as about 30% of cleantech companies see funding hurdles as a major problem. Additionally, the consultancy supports compliance with CSRD and EU Taxonomy requirements, helping startups become more attractive to investors. Banks are already actively considering climate risks in their lending criteria: Companies with low emissions benefit from better conditions, while companies with high emissions must meet stricter requirements.

The Way Forward for Impact VCs

Impact VCs face the challenge of finding a balance between climate mitigation measures and adaptation strategies. A look at Germany shows what this balance can look like: 57% of climate financing flowed into emission reduction projects in 2023, while 43% was provided for adaptation measures. The total volume amounted to €9.94 billion. This distribution provides a solid foundation for future developments.

Figures from Boston Consulting Group show that up to 25% of corporate profits could be influenced by climate impacts. In Germany, companies are already responding by investing in flood protection and modern cooling systems. At the same time, investments in adaptation measures are increasing, opening up new opportunities for impact VCs.

Growing Importance of Adaptation Investments

In Europe, investments in adaptation measures are recording annual growth of 30.6 to 37.4% and already account for 0.15 to 0.92% of national GDP. A remarkable effect is the so-called "crowding-in effect": Public spending on adaptation measures additionally attracts private capital. Particularly in sectors such as manufacturing and retail, which have so far focused little on adaptation, significant investment opportunities are opening up.

The trend is also evident globally: Global climate financing reached a record value of US$1.9 trillion in 2023, with over US$1 trillion coming from the private sector for the first time. Evans Njewa, Chairman of the Group of Least Developed Countries, underscores the urgency:

"Adaptation is a lifeline".

According to the United Nations, developing countries need US$160 to 340 billion annually by 2030 to implement necessary adaptation measures.

New Approaches for Impact VCs

For impact VCs, this means they need to adjust their valuation methods. While mitigation startups often benefit from clear CO₂ metrics, evaluations of adaptation solutions are more complex. Too strong a focus on emission reductions could lead to important adaptation solutions being overlooked, particularly for lower-income countries.

An example of innovative financing approaches is debt-for-nature swaps. Ecuador has used this strategy to protect the Galapagos National Park. In exchange for debt relief, the country commits to investing US$17 million in conservation over 18 years.

Integration of Mitigation and Adaptation

For the future, it is crucial that impact VCs equally consider the temporal and spatial impacts of climate change, mitigation and adaptation. Successful mitigation facilitates adaptation, while effective adaptation measures mitigate the consequences of climate change. This close integration of both approaches strengthens not only resilience but also the sustainability of portfolios.

Fiegenbaum Solutions offers specialized impact modeling and scenario analyses that support investors in achieving long-term returns while achieving measurable climate impacts. With these tools, impact VCs can better navigate the complex relationships of climate change and make informed decisions.

FAQs

How can startups in Germany balance their strategies between climate protection (mitigation) and climate adaptation (adaptation) to achieve both economic success and societal impact?

Startups and Climate Protection in Germany: Wisely Using Opportunities

Startups in Germany have the opportunity to refine their strategies by combining climate protection measures such as the reduction of emissions and efficient resource use with climate adaptation measures such as strengthening resilience and dealing with climate risks. This dual focus not only opens up economic advantages but also contributes positively to society.

To achieve such goals, startups should develop solutions that specifically address climate risks while reducing the CO₂ footprint of their processes and products. Orientation towards Germany's national climate adaptation strategy, which provides clear goals and measures, can offer valuable support. This strategy not only serves to increase competitiveness but also supports national climate goals, such as the targeted reduction of greenhouse gas emissions by 55% by 2030.

By strategically positioning themselves between mitigation and adaptation, startups can not only improve their market opportunities but also build sustainable business models for the future.

What challenges and opportunities exist in evaluating the impact of investments in climate adaptation compared to climate protection?

Evaluating the impacts of climate adaptation investments is often more difficult than for climate protection investments. While climate protection measures often aim for directly measurable results such as the reduction of CO₂ emissions, adaptation measures aim to build long-term resilience. This makes their effects less tangible and more difficult to compare. Additionally, there is often a lack of standardized metrics, which further complicates transparency and comparability.

A promising opportunity lies in the development of new, standardized evaluation methods. Such approaches could make the effectiveness of adaptation measures more measurable. This would not only have the advantage of increasing transparency but would also strengthen investor confidence and significantly improve the attractiveness of such projects.

How does public financing support adaptation investments and what advantages does this create for impact VCs?

Public financing plays a central role in Germany when it comes to promoting investments in climate adaptation measures. Initiatives such as KfW's Impact Facility or Germany's support for the Adaptation Fund help finance projects that strengthen resilience against the impacts of climate change. Since 2023, the Adaptation Fund has provided over USD 640 million globally to advance climate adaptation projects.

For impact VCs, these funding opportunities offer clear advantages: They help minimize investment risks, facilitate access to capital and create space for innovations in this area. By using these programs, you can specifically align your portfolio while actively contributing to addressing the climate crisis.