Morgan Stanley
  • Institute for Sustainable Investing
  • Apr 9, 2024

Investing at the Intersection of Climate and Health

As a warming planet affects human health, investors have an opportunity to support initiatives that address climate-related health risks and help reduce long-term costs.

Hurricanes, wildfires, heat waves and floods—all made worse by a warming climate—are impacting the global economy, damaging property and infrastructure, decreasing crop yields, affecting tourism and more. In the U.S. alone, the historic number of weather- and climate-related disasters in 2023 resulted in record-breaking costs of $92.9 billion.1 Yet beyond this visible devastation lies a quieter, and potentially costlier, threat: the impact on human health.  

The U.S. already incurs more than $820 billion each year for hospitalizations, injuries, medical treatments, mental health conditions and lost wages linked to air pollution and climate change.2  

As extreme weather events become more intense and frequent, so too will the risks of respiratory illness, heat stroke, infectious disease through contaminated water and food sources, malnutrition and debris-related injuries—all of which will drive up health-related costs (see Exhibit 1). Additionally, in the aftermath of natural disasters, communities are often left grappling with mental health challenges including anxiety, depression and post-traumatic stress. Those who are already most vulnerable, including children and low-income communities, are likely to be most affected.   

But despite the urgency, there has been limited investment in proactive preventive solutions: Just 3% of global health spending is directed toward prevention of climate-related health issues,3 and only 5% of climate finance is allocated to adaptation efforts.4  

Morgan Stanley sees a critical need for investors to help mitigate the root causes of climate-related health risks, as well as investor appetite to do so. In a recent survey by Morgan Stanley’s Institute for Sustainable Investing, individual investors ranked climate action and health care as their top two sustainable investment themes globally. This signals a unique market opportunity to boost investments in preventive and sustainable solutions at the intersection of climate and health care. 

Three specific investment areas stand out: 1) nature-based solutions, 2) infrastructure resilience and 3) equitable access to care. Scalable investments in these three areas could help to safeguard public health in the face of a changing climate while also reducing long-term costs. 

Exhibit 1: How Climate Events Affect Human Health

Climate Hazard Health Outcome Estimated Costs (USD $)

Wildfires are predicted to be up to 1.5x more common due to climate change, and the extent and magnitude of damages are rising.5
Increased respiratory illnesses

Higher rates of particulate air pollution exacerbate respiratory disease, leading to increased hospital admissions and deaths.
$125 billion in lost wages each year6

Lost labor productivity from wildfire smoke reduced earnings in the U.S. by an average of $125 billion, according to a 2022 Stanford University study.

Heatwaves are expected to be 2x - 5x more common due to climate change.7
Increased heat illnesses and aggravated chronic conditions

Increased risk of heat illnesses. Extreme heat also exacerbates chronic illnesses such as cardiovascular, respiratory and diabetes-related conditions.
$100 billion in lost productivity each year8

Above 90⁰F, productivity drops by 25%; above 100⁰F, productivity drops 70%.9 Heat-induced declines in labor productivity cost $100 billion/year in the U.S. today; by 2050 this could reach $500 billion10. This is in addition to $1 billion in heat-related health care costs each summer.
Tropical Storms & Changing Rainfall Patterns

Rainfall and storm intensity are expected to increase due to climate change.
Higher rates of infectious diseases and debris-related injuries

Changing rainfall patterns means higher rates of vector- and water-borne diseases such as malaria, dengue fever and cholera. More powerful storms also result in higher risks of trauma from debris. Indirect health impacts include infectious diseases, exacerbating chronic diseases and mental health issues. There are also higher rates of emergency room admissions and deaths in affected areas even weeks after the event.
$50 - $125 billion for increased vaccine demand11

In addition to growing demand for vaccines against infectious diseases, health costs from tropical storms can be costly. Hurricane Sandy health costs estimated at $3.3 billion.12

By the late 21st century, the land area and population expected to face droughts could more than double globally.13
Higher risks of malnutrition and food insecurity

Heatwaves and droughts exacerbate food insecurity by impacting farming and fishing. Depending on the progress of decarbonization efforts, losses in agricultural yields due to climate change are projected to put between 8 million and 80 million people at risk of hunger by 2050.14
$53 billion in annual healthcare costs15

Estimates from the U.S. show that food insecurity triggers or worsens chronic diseases and fuels hospitalizations, all of which drive up healthcare costs. These economic costs are predicted to be much higher in lower-income countries.

With river flooding, populations impacted could rise by 120% in a 2⁰C world, and nearly 400% in a 4⁰C world.16
Increased risk of drinking water contamination

Extreme rainfall and storm surges will increase the risk that drinking water, wastewater and stormwater infrastructure will fail due to either damage or exceedance of system capacity. This is in addition to the diminished ability to practice good hygiene. As a result, the risk of exposure to water-related pathogens, chemicals, and algal toxins will increase in receiving waters and, when that enters source waters, may complicate drinking water treatment efforts.
$3.33 billion per year17

Estimates of healthcare costs incurred in the U.S. because of 17 water-borne infectious diseases each year, including otitis externa and norovirus infection. This doesn’t include the costs to repair water infrastructure.
** These figures do not add up to the $820 billion figure in the first paragraph as they are not solely U.S. figures and are not from the same source.

3 Ways Investors Can Scale Preventative Climate-Health Solutions

Reactive responses to disasters may garner attention, but preemptive efforts to minimize risks yield more sustainable and cost-effective outcomes in the long run. Investors can help by realigning capital toward preventive measures that mitigate climate impacts on health while reducing long-term costs. 

Efforts in three key investment areas can benefit climate and health. 

1. Nature-Based Solutions  

Harnessing and scaling nature-based solutions can mitigate the effects of climate hazards such as droughts, wildfires and heatwaves while also promoting greater biodiversity and improving health outcomes. Urban forestry initiatives that expand tree coverage, for instance, not only mitigate the urban heat island effect from extreme temperatures but also improve air quality and can enhance overall well-being. Estimates suggest that increasing tree coverage in cities by 30% could reduce premature deaths in urban heat islands by nearly 40%.18  

Beyond urban centers, improved forest management programs can reduce wildfire risks and the resulting health impacts from poor air quality. While a pre-emptive approach of removing some vegetation is costly, it can pay for itself in avoided losses in just two to three years, according to the American Forest Foundation.19

Investments in drought resilience and adaptation measures, including improved crop production technologies and regenerative agriculture practices, could help reduce the risk food insecurity and malnutrition. Additionally, investing in natural coastal defenses such as plants, reefs and wetlands can simultaneously preserve biodiversity and ecosystem services, while also delivering cost-effective benefits that protect and preserve coastal communities from storm surges and increased flood risks. Watershed restoration can also help protect drinking water sources. 

2. Infrastructure Resilience 

Upgrading infrastructure can be a cornerstone of climate adaptation efforts. Retrofitting buildings to meet or exceed building code requirements and updating existing structures in disaster-prone areas can enhance safety by reducing the risk of debris-related injuries from extreme storms or floods. 

By 2050, more than 80% of people in urban areas will need access to air conditioning to cope with extreme temperatures.20 Providing greater access to climate-controlled shelter, including cost-effective retrofits that include both air conditioning and air purification systems that mitigate harmful pollutants, can help reduce the risk of heat illnesses and lessen the impact of pollution and higher temperatures on chronic conditions. 

Upgrading infrastructure for drinking water, wastewater and stormwater management to be more resilient against more intense storms and floods has the potential to reduce exposure to water-related pathogens, chemicals and algal toxins that may complicate drinking water treatment efforts.  

3. Access to Care 

Climate risks to health care facilities also threaten access to care, with more than one third of community health center sites in the U.S. located in areas of high relative climate vulnerability.21 Ensuring equitable access to health care, including meeting growing demand for vaccines as well as treatments for vector- or water-borne infectious diseases and malnutrition, is pivotal in mitigating the direct impacts of climate change on human health. Initiatives such as the World Bank’s Climate and Health program, announced at COP28, provide insight into where investments can improve care: strengthening surveillance and early warning systems for climate events; climate-proofing health facilities; and better responding to climate-driven disease patterns.22 

Climate change also exacerbates mental health risk factors as people face displacement, loss of livelihoods and access to basic services, increased uncertainty about the future and impacts from traumatic experiences. Supporting solutions that integrate mental health support with climate action can enhance resilience and address the psychological toll of climate-related disasters. 

Redirecting investments toward prevention represents a proactive and potentially cost-effective approach to address the intersecting challenges of climate change and public health. Investors who embrace opportunities across infrastructure, access to care and nature-positive solutions will be helping both to mitigate costs and to address the effect that climate is having on people’s health and lives.

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