AI could unlock US$600 billion a year in climate and sustainability value by 2028
A report by Boston Consulting Group and Temasek says artificial intelligence is expanding climate investing beyond venture capital, creating opportunities across growth equity, buyouts and infrastructure capital.
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Artificial intelligence (AI) is changing the economics of sectors such as energy storage, industrial systems and insurance. By optimising how batteries are dispatched, how motors run or how climate risk is assessed, it can help companies cut energy use, reduce waste and make better decisions on risks that were previously hard to price.
According to The Private Capital Opportunity in AI-Enabled Climate and Sustainability Sectors, a report by Boston Consulting Group (BCG) and Temasek, this is expanding the range of sectors that investors can view through a sustainability lens.
For example, AI-driven analytics may help insurers assess risk more accurately, improving underwriting decisions. This could increase insurance coverage in regions or for risks once considered too difficult to insure, supporting 15 million to 20 million additional policies.
In the energy sector, battery storage fleets using AI to decide when to charge, discharge or sell power could earn 25 to 30 per cent more revenue from the same hardware.
Deploying current AI capabilities across climate and sustainability sectors could generate US$600 billion (S$766 billion) in annual global value by 2028, according to the report. The figure covers efficiency gains, cost reductions and new revenue, and is intended as a directional estimate rather than a forecast of realised returns.
EXPANDING THE CLIMATE INVESTMENT MAP
The BCG-Temasek report grouped AI-enabled climate and sustainability opportunities across three broad areas: climate and energy transition, natural capital and resource management, and social systems and livelihoods.
It assessed the subsectors in each area by their market size, growth potential and the value AI could create. Five were highlighted for closer study: grid, storage and system flexibility management; inclusive education; industrial equipment and systems efficiency; climate risk modelling; and materials discovery.
Together, these subsectors could account for about US$423 billion in annual value by 2028. Industrial equipment and systems efficiency makes up the largest share, at US$300 billion.
Mr Andrey Berdichevskiy, partner and associate director at BCG, said the report took a deliberately conservative approach, counting only AI applications directly tied to climate or sustainability outcomes. For example, healthcare diagnostics, drug development and hospital operations were not included unless they had a direct climate link, such as disease surveillance related to climate hazards.
This means the opportunity could be larger, especially for companies with proprietary sensor data or strong links to insurers. “The climate opportunity is the entry point; the full business value is considerably broader,” said Mr Berdichevskiy.
Mr Daniel Oehling, BCG managing director and partner, added that geopolitical shifts could further speed up AI adoption in climate and sustainability. These include a greater focus on energy security, efforts to reduce reliance on imported inputs, regulatory demand for climate risk and sustainability data, and government-backed investment in AI-enabled infrastructure.
BEYOND VENTURE CAPITAL
While climate technology has long been associated with venture capital, AI-driven opportunities are now extending to growth equity, buyouts and infrastructure capital.
Venture capital continues to fund companies built around AI and specific sustainability challenges, such as adaptive learning platforms for students with disabilities. Growth equity investors, meanwhile, are expected to focus on platforms with proven deployments and growing customer bases. The BCG-Temasek report cited operational forecasting platform Tomorrow.io, which is expanding its satellite sensing infrastructure into data-sparse regions.
Buyout and infrastructure investors may also find opportunities in established businesses and physical assets where AI improves efficiency, margins or long-term cash flows. Mr Berdichevskiy cited global investment firm KKR’s investment in Zenobe, a United Kingdom-based specialist in electric vehicle fleets and grid-scale battery storage, as an example of investor interest in physical assets that may benefit from AI-enabled optimisation.
Mr Oehling said the link between financial returns and sustainability outcomes is clearest where AI helps companies use resources more efficiently. For instance, when a motor system runs more efficiently, energy costs fall and emissions decline at the same time.
The most promising companies may not always be those with the best AI models. In climate risk modelling, for instance, the advantage may lie with enterprises that control proprietary data and have established links to insurers and financial institutions.
Mr Oehling said investors should look beyond the AI model and ask two questions: Who owns the data and who has the customer relationships?
As AI creates new revenue streams and asset classes in climate and sustainability, investors with an outdated view of climate investing may miss part of the opportunity, said Mr Berdichevskiy. Late movers may face higher valuations and fewer openings as incumbents lock in data and distribution advantages.
“A company that deployed AI in industrial process control two years ago has two years of high-resolution operational data that a new entrant cannot buy or replicate,” he said.
Explore Boston Consulting Group and Temasek’s report, The Private Capital Opportunity in AI-Enabled Climate and Sustainability Sectors, to find out how AI is expanding the climate investment landscape.
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