Episode 123: Why Adaptation Is Unavoidable (And Investable)

Molly Wood Voice-Over: Welcome to Everybody in the Pool, the podcast where we dive deep into the innovative solutions and the brilliant minds who are tackling the climate crisis head on. I'm Molly Wood. This week, climate adaptation is suddenly everywhere, as the impacts of climate change hit the world everywhere, all at once. Insurers are freaking out. Developing countries are freaking out. Financial institutions are freaking out. Supply chains are breaking down. Food insecurity is increasing as changing weather impacts crops. Water is vanishing in some places and overwhelming other places.

The world needs way more solutions and way more money for those solutions. So today, a conversation we've actually been having for quite a while. What if we stopped treating adaptation as a funding gap and started seeing it as an investment opportunity? Let's do that.

Niall Murphy: I'm Niall Murphy. I'm uh co-founder and managing partner at, uhm an investment business called Morphosis. We are, uh, entirely focused on climate adaptation solutions. And I'm coming to you from Commugny, ****Switzerland.

Molly Wood: People who have been following my work for a while will know that adaptation is dear and dear to my heart. That's sort of where I, that was my initial approach to covering climate solutions. Give us a little bit of uh, give us a little bit of context about the adaptation conversation, like how it's been a bit slow to start, where we are now, and why there's more interest in it lately.

Niall Murphy:  Well, I guess we are uh, dealing with the reality that we're now actually living in a world beyond 1.5 degrees. And so, certainly my perception is that for a long time we were operating under the impression that we could bend the curve and keep ourselves under 1.5 and we had a narrative that we would remain safe, uh, in a world of, of business as usual, assuming we could keep the temperatures below 1.5 degrees, above pre-industrial levels. That hasn't happened and arguably, probably another conversation, um, given the fact that we actually created that uh safety margin we probably guaranteed that we wouldn't uh stay within it.

Molly Wood: I’ll come back to that.

Niall Murphy:  We have uh, we've, we've moved beyond that and so therefore, we, I think there's an increasing realization that the world is in is in fact changing and um, those changes aren't transient, um, and that we better get good at living in the world as it's going to be. Um, and hence adaptation becomes the thematic of conversation in that, in that context

Molly Wood: There is, there has been, for decades, a sort of a controversy about talking about adaptation versus mitigation. And so I, I sort of wanna say upfront that at least my opinion is that we can do both and everything and have to. Um, but it's been interesting to watch. I think initially it was important to do both because the climate was changing even with small, relatively small amounts of warming. Now, there does seem to be a conversation about adaptation that does feel to me a little bit like a, a retreat from mitigation. Do you think that's happening or do you think it's more that there's a focus on both?

Niall Murphy:  I think that there's an increasing focus on both. Um, obviously, depending on where you are in the world, um, the mitigation conversation tone is, is, is a little bit different. But the, you know, if we measure mitigation in uh emissions per capita and green kilowatt hours commissioned, we generally see positive progress uh in in around the world with one notable major economy exception on that…

Molly Wood: That's very gentle of you. Nile. He means us, you guys. He means the US.

Niall Murphy: So, so um, at the same time, we see a pretty dramatic acceleration in uh, climate impact. We can look at that through insured, uh insured losses um and right now with a growth curve depending on the on the country but somewhere 10 and 20 percent per annum in growth of insured losses from climate I mean that's a return curve I would like to have on an investment.

Molly Wood: Yeah. Yeah.

Niall Murphy: And I think that is accelerating the realization that we're in a, we're we're we're in an environment of effect and therefore adaptation um accelerates as an interest point. I agree with you that they are in fact two sides of the same coin. Um um, mitigation is a form of adaptation and and and adaptation is what we need to do whilst the gap of mitigation and and uh and and emission uh and change remains uh open. I think one can argue particularly when we look at the the the declining cost curve on cost per kilowatt hour in in uh in green electrons um the boat is now pushed out. The inevitable transition is underway and it's really um a policy question as to how fast we can we can make that adoption happen

Molly Wood: Right.

Niall Murphy: In the adaptation context, the boat is definitely not pushed out. Uh we're facing a lot of headwinds from uh dysfunctional policy and so on which which uh means we do not have a framework for accelerating adoption of adaptation, if I can tongue twist that. Um uh and so we need to we need to do work there.

Molly Wood: Right, which is what you are trying to do, because among the gaps that certainly there's, there are huge policy gaps and we can get to that, but there's also a very large and has been for a while, very large investment gap. Right. And that's what, that's what you're trying to close?

Niall Murphy: That is correct That is very much what we're trying to close. Um, but I think if we look at the the articulation around adaptation, it’s really dominated by the expression of need, right? You, when you see uh a discussion of adaptation, it's it's uh it's framed as a funding gap. It's framed as a need for X amount of dollars um to meet uh uh an impact that's arising. And um I think we from a first perspective would argue that this is a uh an unhelpful characterization of the problem. In circa 90 percent of dollars going into labeled adaptation investments have been public funds. And obviously, it's good that we're deploying public funds, but those public funds cannot scale to the size of the the adaptation problem set that um even exists today and is certainly existing tomorrow. And as impacts accelerate, those public dollars are under even more pressure um of of allocation. And you can just glance at debt GDP ratios in OEC nations um and those ratios are going the wrong way, right? 120 percent moving upwards. And the most challenged economies from a climate impact point of view tend to be the most challenged from a debt uh point of view as well and therefore under the most pressure. So um I think we have to turn this narrative around quite significantly nd not talk about need, um but to talk about demand, actually. If we look at it from a demand side point of view and we say changes are occurring that are system systemic, um well actually and now wearing the hat of an investor, those are emerging uh demand markets. And those are therefore emerging investment opportunities and innovation opportunities. So we should be thinking about this, um, and I know it can sound slightly perverse to talk about opportunity in the context of of climate uh impacts, um, but you know, you're sitting in In uh in Silicon Valley there, and we tend to frame disruption as opportunity in the technology world, right?

Molly Wood: Right.

Niall Murphy: And, uh and that's how we have to start looking at climate, not in because that's a sort of a spin, it's actually a necessary uh way to understand the investability of the need and the opportunity right.

Molly Wood: Mm-hmm.

Niall Murphy: When big changes happen there are obviously negative impacts uh but greenfield markets get created and and that's how we we certainly see it a capital uh stakeholder's point of view. Every asset in the world is climate risk exposed. Every economy in the world is climate risk, risk exposed and so we think the right framing here is to look at adaptation really as a qualitative characteristic of how secure an investment is.

Molly Wood: Mm-hmm.

Niall Murphy: And as we see accelerating impact of climate we think more and more investors are going to be uh rating their investments with an adaptation context and moving towards assets or enterprises or economies that demonstrate a good quality of adaptation capability because that's just simply a more sensible way to both protect value and access value.

Molly Wood: Right, right. Yeah. It's, it, it, I certainly have had conversations about this central tension of sort of saying, you know, really bad things are going to happen due to, uh, an amount of warming that we could have prevented. And certainly over the next 10 years minimum, there's a lot of certainty about what is going to happen.

My friend Jay Koh calls this the unavoidable opportunity and, and we, but it feels important in terms of getting that money moving to say, okay, we've previously talked about adaptation as a, um, like you said, a public investment in hardening, you know, in sea walls and things like that. Infrastructure that are usually a public investment or we have said it's only about risk.

And now we're saying we live in a changed climate, which means we live in a climate economy, which means a lot of new solutions will have to be created and funded, and there's an opportunity to make money there, and that's just a, and, and frankly, that's an incentive to create those new solutions.

Niall Murphy: Correct And so we we put  forward a concept which we call the adaptation economy.

Molly Wood: Mm-hmm.

Niall Murphy: Which is to really take the view that adaptation is a whole economy issue. Um, it affects aspects of human wellbeing, economic uh wellbeing, uh, the financial integrity of an economy and so on. So it's it's not a department, it’s a…

Molly Wood: Right.

Niall Murphy: It's a, it's a transversal

Molly Wood: And in fact, you just presented this framework right at at Davos recently?

Niall Murphy: That is, that is correct. And we actually have now presented a uh a first pass if you like at being able to quantitatively assess that and what is the state of wellbeing if you like of of different, different uh, countries in terms of their their state of being of adaptation economy. Um, but but the the framing here is is is to view um, uh, to pick up on your point about resilience,  adaptation is is really about a a systemic transformation to a circumstance where you are, are able to move with the changes. Um I would argue that resilience is about fortifying an existing way of doing things to you know keep it going basically, right? And

Molly Wood: Right.

Niall Murphy: You know, so I build a sea wall and I'm and I'm and I'm pre, preventing some flooding, right?

Molly Wood: And I can maybe still live here. Yep.

Niall Murphy: I can maybe still live here. But if we're talking about for example complete change in precipitation patterns in a, in a country right. So rain happens at different times and in different quantum quantities. Um, that's not something you can build resilience to, right. Uh your your environment around you has fundamentally changed. So how do you systemically transform yourself in response to that, to that change, and recognize that that change is a change in motion. It's not static. It doesn't, you know, the rainfall patterns haven't changed, you know, once and they're not gonna change again. They're gonna keep changing, and so, the adaptation economy and the, and the concept of transformative adaptation, I'm I'm expressing there is is really about a deep fitness, a deep capacity to move with those changes.

So what are the new types of agricultural process? What are the new seed varieties? What are the what actually are you gonna plant next year versus what you were planting last year because of those precipitation patterns? Um, how are the supply chains that you are feeding into or that you are fed from affected by that overall change? And that's the perspective we've got to start to take. And so the adaptation economy tries to look at that overall uh systemically

Molly Wood Voice-Over: Time for a quick break. There's a lot more in the Morphosis adaptation framework among other things. Actually, I learned that according to that framework, Portugal is in a great position culturally and in terms of policy to embrace adaptation technologies. I will have a link to the Adaptation Economy Index in the newsletter this week. But when we come back more on how Morphosis is finding opportunities and aggregating funding for maximum impact.

Welcome back to Everybody in the Pool. We're talking with Niall Murphy of Morphosis Solutions.

Molly Wood: Boy, I could dig into the systemic part of this for a long time, but let's go back to the money. I wanna hear more about Morphosis and your approach to this to this financing because it's not as simple as like we've set up an investment fund. You're really trying to create some new mechanism. I love a new financial mechanism or a repackaging, I guess, of existing financial mechanisms. Anyway, give us the details about Morphosis.

Niall Murphy: Well, Morphosis is an an investment business and we are we are operating transversely adaptations are uh are transversal. It's not a vertical, right? So um on the one hand when dealing with say water tech technologies on the other hand once dealing with agricultural technologies or or um nature as infrastructure, right?

Molly Wood: Mm-hmm.

Niall Murphy: And so um you know, we are we are not a fund we are um, creating uh special purpose vehicles um that undertake investments in these different categories so we can bring together both different types of capital um and um expert uh partner investors um uh that that are topic specific if you like to to um uh to work with a particular investment. I think what's also relevant is that we are we are dealing with enabling technologies and we talk about adaptation solutions we're generally talking about a technology. I'll use that in the broadest possible sense.

Molly Wood: Right. Sometimes it seeds.

Niall Murphy: Yep. It could it could also be a you know financial uh innovation right. A financial FinTech mechanic for for example right

Molly Wood: Hmm.

Niall Murphy: Um and that might exist in one geography but the optimal early adopter markets for its application might be in a completely different geography. right. Because obviously climate effects are manifesting at different rates in different markets around the world and so one's got to put together financial structures that that are, are deploying in in one market and perhaps funding the technology risk in another.

And in some of those instances there's a need for some blended finance or or public private partnership types of types of structures. I believe that um, generally public funding shouldn't really be taking technology risk. That's what that's what um um uh technology venture investment or private uh capital investments is about

Molly Wood: Mm-hmm.

Niall Murphy: And that blended financing mechanisms work well in in deployment circumstances where you're also trying to align with uh some public policy risk factors or or political risk factors that you're that that that you're engineering against. So, so we've created a platform which which engages that complexity and is trying to find a good mappings between um innovative solutions that are viable today and can be deployed in selected markets where, where let's say viable operating conditions for those innovations exist. Um and obviously with a view that as as climate changes move forward the number of markets with the need set for that kind of solution is is going to expand right. And therefore um, there's a growth, a growth opportunity associated with those solutions.

We're very focused on principally IP led technology solutions. They might be hardware, they might be software or they might be a a financial innovation, uh and not not really on physical infrastructure type of assets like a mangrove swamp for example. Um but obviously those are very relevant uh investments to be making in in adaptation as well

Molly Wood: So are you, uh, let's first, let's talk a a little bit about the philosophy of doing it this way, which is, is that, you know, one of the concerns about adaptation funding is that like one, the public funding has really lagged. The private funding has also really lagged, but so a way to have maximum impact, it sounds like you're saying, is to aggregate funders in this way so that you're deploying with kind of maximum power instead of like little tiny shots at a time.

Niall Murphy: Yes. And I think one's gotta be very uh, prudent about where commercial viability exists. So, really align this solution that is viable in a market where there is a need set and a demand curve and other conditions that make that that solution a a a commercially sensible and profitable investment, right.

Molly Wood: Right. You're not in the moonshot game. And it's fine that others are, but you are in the Get Things Done Now game.

Niall Murphy: That's, that's right

Molly Wood: Yep.

Niall Murphy: And in the commercial returns game because to my earlier point um public finance and philanthropic finance cannot scale to the size of of of the demand set that we have. So we have to be building profitable scalable solutions that um are affordable to the to the users of those solutions um and provide a return to the investors funding them, right. And uh if we can do that and we can have the right policy contexts that help create the markets for those solutions, then we're building an adaptation economy that is attractive to private capital and is delivering results.

And I want to emphasize that's not about subsidy. Subsidy is just another form of of of public funding right. It's, it's about creating conducive policy conditions or regulatory conditions that uh that that mean that a a solution can get off the ground and progress. Um, and if we can do that and the solutions themselves are actually climate adaptive, right. Because there's no point in deploying something that solves an adaptation problem but is gonna fail if when the temperature goes up by half a degree or whose supply chains you know are gonna seize up because of uh disruptions, that's not a good solution right. But um then then we're then we're starting to create profitable adaptation markets and uh and that and that's how we think the problem's ultimately gonna get addressed.

Molly Wood: What is, what are the very, what is the Morphosis role? Are you like, are you identifying the investment opportunities and then aggregating or, or you know, are uh, people, for lack of a better word, bringing investment opportunities to you, and then you create these special purpose vehicles, like what's the, where do you sit there in the web?

Niall Murphy: Yeah, so we are uh, in that role we're an investment manager. We are identifying um solutions that we think are are attractive and bringing those towards capital providers in our network, limited partner type capital providers. Um obviously we are being approached by uh by solutions as well and and we're being approached by capital providers who want to uh engage in in solutions but you haven't got the mechanism to both identify them, qualify them, and and and determine how to apply them. I think what I'd also uh say is, yeah, we we very much think this requires an what we call an applied investment engagement.

My background's uh not as a professional investor but as a as a professional operator. I've been a founder and CEO of a number of companies I've I've built and sold. And when I look at the challenges facing solution businesses in the adaptation context, they've got the normal growth challenges if you can call them normal of young businesses that are trying to scale up, but they're also facing uh, mispriced climate risk, they're facing dysfunctional policies. Um, and so to succeed they need to map themselves into the right markets. They need help in identifying those markets. They may will need help in uh constructing the right execution strategies. And uh, and so we can bring uh insights on markets where we think that policy conditions are gonna become conducive. We can bring um some, uh let's say gray hair or wrinkles depending on how you wanna look at it on uh on on execution.

Molly Wood: Wisdom. Wisdom is the word that we use. Yes.

Niall Murphy: Wisdom. There we go, and uh and um and and those kind of elements to help help businesses be successful.

Molly Wood: Yep. Um, how has this been received so far? Like I said, you know, it was interesting coming out of the most recent COP, uh, there was a lot more conversation about adaptation. I think there is clearly a recognition that, you know, the climate has changed, that this is a, a need, uh, in a way that maybe wasn't as obvious before. How, how have you been received at places like Davos as well?

Niall Murphy: I think that the uh, certainly the the keyword adaptation has rapidly accelerated in in use over the last 12, 12-18 months. I'm sure you would've you've seen that and um, certainly in the experience of Davos last week, um, no longer are we in a question of should we be adapting or should we be mitigating. It's it's a highly integrated uh, conversation. I think what's also interesting is um, very active engagements now from large institutional financial players, particularly from the insurance sector that um are very well aware of the systemic impacts that are occurring but also from the investment banking world. Um, basically all geos um that that are concerned about the financing of assets and supply chains, that that are seeing the de-insuring, if I can try and uh coin a phrase there, of certain assets particularly at the supply end of global  supply chains, uh making those assets uninvestible and unfinanceable. Um and so the the institutional finance community is is is is very much engaging.

Molly Wood: You heard me, heard me chuckle there over the word insurers and it was a very dark chuckle because that is, I think, I think you could say that's the tipping point in some, in some ways that, that the adaptation economy has been waiting for. The point at which countries or cities or or assets or supply chains are uninsurable, then you have a, a massive ripple effect through financial institutions that makes this truly unavoidable.

Niall Murphy: And that is happening now. That is happening now.

Molly Wood: Yep.

Niall Murphy: And so when I’m talking about financial institutions, I’m not talking about you know multilateral development institutions. Those organizations are definitely engaged. I'm talking about the the the the commercial banks that are, you know, financing commercial assets and commercial supply chains and many cases injecting um funds into into private equity uh instruments and so forth. And and uh they are now very actively engaged in this because it's very clear what the knock-on effect of of the systemic risks are. So yeah, I think the fact that that engagement is happening is very positive. Um and it was very clear that there was a gap needed. Um, on the one hand, back to the earlier part of our conversation, the the narrative is being dominated by this um sense of need and an assumption that financing approaches needed to be concessionary in some way, or or fully philanthropic. And the commercial finance world obviously can't engage that. That's not their business model, other than in, in a sort of um social responsibility sense. Um and so they've been looking for uh a frame to have a conversation about how do we create investible markets for adaptation. And so we've seen a very strong response to that. Last week in Davos, when we rolled out a pilot of a of a quantification of this, then you know we had uh we've seen great response from the from from the financial sector because in order to build finance products you need ratings. You need assessment, you need indexes, you need um um some standardization of terminology that says we can compare A and B right? Whether A is a solution or B is a market, right.

Molly Wood: It's wild to think that we are at that level of basics with this economy. Like it is actually sort of wild to think we're building that in real time. You are building that in real time.

Niall Murphy: Well, we are.

Molly Wood: Well, the collective, yes.

Yeah, the metrics que, the metrics question is a whole other hour, so I won't necessarily go there immediately, but what can you, what can you tell us about the, you know, we've alluded to the types of investible opportunities and you've given us a couple specifics, but if you can give more examples, like what are the types of, whether it's things you've invested in or not, um, through Morphosis. What are the types of solutions that are available commercially, scalable, you know, de-risked?

Niall Murphy: Well, um a business that we're not invested in right now but that I think is incredibly uh exciting is an organic polymer business. Um so it's basically a chemistry company that's that's uh innovating uh really interesting polymers that um are super effective at absorbing solar radiation and filtering solar radiation. Right. And this is used um, in a really simple use cases in greenhouse uh in the in the sheeting that you put over greenhouses right. And what does it do? Well, it it reduces the temperature inside the greenhouse significantly. It filters out various uh light spectra that mean that um you can grow plants uh more effectively inside the inside the greenhouse. So in a, in a heating environment, a warmer environment you you want semi-controlled agricultural uh situations where you can um, you can grow more crops and even though it's getting hotter outside right.

Molly Wood: Right.

Niall Murphy: And so that's a real technology that's working really effectively today. The same type for polymer can be used for example as a covering on a window to, to reduce the um the penetration of solar radiation into a building. So you're now reducing the temperature uh inside the building in a iin a hotter environment. So that's a, that's an adaptation solution. It's dealing with a changing temperature context and allowing functions like uh like like agriculture to to to adapt. Um what's also great about it is the business model of a company like that is not dependent upon a centralized manufacturing capability right. So essentially the recipe for this chemistry can be distributed around the world. There's actually lots of of of production capacity around the world for for making polymer sheeting and so forth. And that's important because we think that the world that we are in now and we're moving into, we're gonna see more fracturing geopolitically, we're gonna see more fracturing uh of supply chains. And so business models that are dependent upon centralized production and and shipping stuff across the world are probably quite vulnerable. So this, this particular business I think is a provides a great frame of that. So that's that's one specific example.

Molly Wood: I'm gonna get their name from you after. I would love to have them on the show.

Niall Murphy: And it's a, you know, and that's a profitable viable business right now today. So people, you know, will think about adaptation and assume that these businesses aren't aren't necessarily viable, but that they that's that's not true. There are good examples like that. You know, another examples would be uh um desalination um on a micro scale so not sort of super scale desalination that's used to to to um uh provide water to a whole city, but how can you have desalination at a scale that's applicable to a single industrial facility or a small community or a collective of farmers for example that is self-drive and so on. And there's a couple of great solutions meeting that need today. I think that's a good example of viable technologies but they also need a good policy context in in most countries around the world actually, producing and distributing potable water is a centralized mandate that only uh public authorities can can undertake. And so, it's generally speaking not legal for uh an independent party to produce their own water and share it with a community or with a collaboration of other of other partners.

Now in electricity, we've solved this problem whereby we have the concept of a feed in tariff. So I can put solar panels in my roof and I can feed uh power back into the grid, so I'm, we're decentralizing the power grid and we're creating autonomy and we're creating an economic model that facilitates that, that generally doesn't exist with water. And yet water is one of the

Molly Wood: That's fascinating.

Niall Murphy: And yet water is one of the biggest areas of of adaptation demand right. So some estimates a 40 demand gap by the end of this decade and that's driven know significantly by just changing precipitation patterns right, in the, in the world right. So we've got to these these great innovations that can produce water at a dollar per cubic meter or less, that's great. But if they, if they can't execute because they can't operate legally in a in a market environment that even has need, then we're shooting ourselves in the foot right. So that that's where it's an example of where policy and innovation need to need to work together.

Molly Wood: Perfect. Perfect. Nile, thanks so much for the time today. I appreciate it.

Niall Murphy: Thank you Molly

Molly Wood Voice-Over: That's it for this episode of Everybody in the Pool. Thank you so much for listening. A reminder that I will have a link to that Adaptation Economy Index in the newsletter, which has been totally refreshed for 2026. You can subscribe at everybodyinthepool.com, the website where you will also find all the latest episodes and more.

Next week, I'll interview a startup in the adaptation and disaster response space. So stay tuned for that. And if you would like to support this show directly and become a subscriber, you can get an ad free version and my eternal thanks in response. Just hit the link in the description in your podcast app of choice.

Together, we can get this done. See you next week.