In recent weeks, I’ve documented my experience using AI to start to build an initial portfolio for a potential adaptation and resilience fund. I’ve been working on different flavours of such a fund for a few years now and AI has unlocked my capacity to do this independently.
The AI I’ve been using – primarily Claude with ChatGPT for comparison – have the same rough starting point as many investors setting up thematic and sustainable funds. This is that to build such a fund you start with the high level theme and then you outline sub-themes and match those sub-themes to investment opportunities in the form of companies.
However, I’ve been thinking over the past weekend that we might have gotten thematic and sustainable fund infrastructure the wrong way around. Or at least, in the case of adaptation and resilience, there is another, more effective, returns-driven approach to take.
In this week’s article, I propose an alternative approach with the purpose of
- Ensuring the returns criteria is built into the intellectual architecture of the fund.
- Deepening the understanding of adaptation and resilience as a thematic opportunity to find better investments.
The approach I outline is particularly relevant to a potential adaptation and resilience fund but has potential read across for a broad range of thematic and sustainable funds.
TLDR: Instead of going straight for broad sub-themes, investors should use sector specifics to drive their understanding of adaptation and resilience investment opportunities. This is more intellectually rigorous and puts returns through portfolio diversification front and centre of thematic design.
The Default
In thematic and sustainable fund development, the standard approach tends to be to outline the overall thematic opportunity – e.g. energy transition, sustainable infrastructure, emerging consumer – and then to use sub-themes to identify opportunities.
For energy transition funds, the sub-themes might include grid infrastructure, transport electrification, energy efficiency, critical materials and green fuels.
For an emerging consumer fund, the sub-themes might include digital commerce, health and wellness, beauty and personal care, education, and aspirational consumption.
These sub-themes are helpful for telling the story of why a theme presents such a compelling investment opportunity. Potential clients can make sense of these megatrends in an accessible, conceptual way.
When I asked Claude to work with me to build an adaptation and resilience portfolio, it took the same standard approach – it outlined the theme and then identified eight sub-themes. Among these eight sub-themes were water infrastructure, extreme weather defense, precision agriculture.
I was pleasantly surprised to see that Claude took this thematic conceptual approach at the time. It was familiar and I was able to work with the AI to build out a few further sub-themes that seemed missing to me – like climate resilient healthcare and energy.
A Different Approach
However, an important component of this adaptation and resilience fund for me has always been that it has the potential to answer the ask of many clients: less pure-play growth exposure and a broader investment universe.
Niche thematic funds are always interesting to discuss but to actually scale a product, many investors need – be it due to regulation or client preference – broader universe for better performance through the cycle.
I realised as I was reviewing the first pass portfolio that there was a clear sector skew coming through because the AI was prioritising alignment to sub-themes.
So instead, I thought about how I approached the issue when I first started working on adaptation and resilience research a few years ago.
My starting point has always been that physical climate change affects all sectors in different ways. Different both in terms of the sector’s exposure to physical risk writ large and in terms of the vastly different effects that different extreme weather events can have (floods vs. droughts, winter storms vs. tropical storms).
Source: Schimanski, Tobias and Gostlow, Glen and Toetzke, Malte and Leippold, Markus, What Firms Actually Lose (and Gain) from Extreme Weather Event Impacts (January 06, 2026). Available at SSRN: https://ssrn.com/abstract=6035794 or http://dx.doi.org/10.2139/ssrn.6035794
This means adaptation and resilience is not a niche thematic taking place in a small corner of the global economy. This presents a real, broad investment opportunity.
The investment industry is incredibly late to the resilience party. So when I started working on this a few years back, I couldn’t jump to easily defined sub-themes nor did it seem like sub-themes would aptly capture the broad opportunity universe.
So I started in the way that felt most natural given the evidence: I went sector by sector using the Global Industrial Classification Standard (GICS). This structure identifies eleven sectors – just enough granularity for diversification but not an overwhelming list. This is where my recent work has picked up again.
Sectors > Sub-Themes
I went back to Claude to restart the process with a more sectoral approach in mind.
Specifically, I asked Claude to identify the physical risks, adaptations and resilience indicators for companies in each of the eleven GICs sectors.
This approach serves both an intellectual purpose and a portfolio construction purpose.
From the intellectual perspective, I firmly believe that to understand this investment opportunity set, you need to understand the specific challenges faces by companies in different sectors.
While there are common threads across some sectors – like robust building materials, say, – each sector contends with different challenges and therefore needs a different array or combination of solutions.
The structured approach of taking each sector and analysing the physical risks in order to then identify the adaptations needed and finally to build a set of resilience indicators is both logical and rigorous.
From portfolio perspective, taking the GICS approach ensures that we are looking for opportunities across value and growth opportunity sets from the get go – rather than trying to shoe horn in additional names after the fact.
Next Steps
Once I pointed Claude in the right direction, I was impressed with its ability to capture much of the relevant content on sector-specific physical risks, adaptations and resilience factors.
However, knowing the sector-specific risks is not enough in the case of adaptation and resilience.
Extreme weather events take place in different forms and frequencies dependent on geographies. So, we need to overlay geographic data to properly map operational and revenue exposures to the correct physical risks.
I’ll cover that in next week’s edition so subscribe using the button below if you’d like to follow this experiment.