Weighing the Storm: Climate Risks and Investment Opportunities in Campgrounds and Outdoor Recreation

The rise of climate-driven disasters—from wildfires to floods—has reshaped the risks facing campgrounds and outdoor recreation businesses. As natural hazards grow in frequency and severity, operators must navigate rising insurance costs, infrastructure vulnerabilities, and regulatory pressures. For investors, this presents both challenges and opportunities to back resilient businesses or profit from sectors addressing the climate adaptation gap.

The Insurance Crisis: A Growing Risk for Outdoor Businesses

Climate change has exposed a stark protection gap in natural disaster insurance. In 2023, only 38% of global economic losses from climate disasters were insured, leaving a $172 billion gap. For campgrounds and outdoor businesses, this means escalating premiums and dwindling coverage.

In the U.S., insurers are withdrawing from high-risk areas like California and Florida, forcing businesses into state-backed FAIR plans, which often pass costs to policyholders. The National Flood Insurance Program (NFIP), critical for campgrounds in flood zones, faces $20 billion in debt due to subsidized premiums that no longer reflect true risk.

Investors should monitor insurers like Allstate (ALL) or Travelers (TRV), whose stock performance reflects shifts in risk exposure and underwriting practices. Rising premiums in disaster-prone regions may squeeze smaller operators, creating consolidation opportunities.

Operational Resilience: Strategies for Survival

Businesses adapting to climate risks are gaining a competitive edge. Key strategies include:

1. Infrastructure Hardening:
   Installing solar-powered backup systems, flood barriers, and fire-resistant materials. For example, Waffle House's hurricane-ready model—with generators and rapid-response teams—ensured 40% better performance than peers during Hurricane Ian.

2. Data-Driven Planning:
   Using tools like ClimateAi's Yield Outlook to predict disruptions and adjust operations. A campground might reschedule events or stockpile supplies ahead of extreme weather.

3. Diverse Revenue Streams:
   Diversifying offerings (e.g., glamping, winter sports) to reduce reliance on seasonal activities. REI's shift toward rentals and guided tours highlights this trend.

4. Community Partnerships:
   Collaborating with local governments on disaster preparedness. Flagstaff, Arizona, integrates wildfire resilience into zoning laws, benefiting nearby campgrounds.

Economic Stakes: A $1.2 Trillion Sector at Risk

Outdoor recreation contributed $1.2 trillion to U.S. GDP in 2023, supporting 5 million jobs. However, climate disasters threaten this growth:
- The 2022 Yellowstone floods reduced visitors by 43%, crippling gateway towns reliant on tourism revenue.
- Projections warn that Montana's outdoor economy could lose $107 million annually by 2050 due to climate impacts like wildfires.

Yet, the sector's resilience is evident. Post-pandemic demand for outdoor activities drove campground revenue from $8.7 billion in 2023 to projected $9.6 billion by 2028. Investors should favor businesses with:
- Geographic diversification (e.g., operations in both coastal and inland areas).
- Strong liquidity to fund recovery efforts after disasters.
- Innovative partnerships, such as those with insurers offering parametric policies (which pay out automatically after an event like a flood).

Investment Opportunities in Climate Resilience

1. Outdoor Infrastructure Providers:
   Companies like Cummins (CMI) (backup generators) or First Solar (FSLR) (renewable energy) supply critical resilience tools.

2. Insurance Innovators:
   Insurers offering parametric insurance (e.g., Swiss Re's climate-linked policies) or telematics-based risk assessments may capture market share.

3. Outdoor REITs and Operators:
   Investors might consider campground REITs with hardened infrastructure, though many remain private (e.g., Kampgrounds of America). Public alternatives include Outdoor Ventures (hypothetical example) or REI, which invest in climate-resilient facilities.

4. Climate Tech Startups:
   Firms like ClimateAi or RiscData provide risk analytics, enabling businesses to make informed adaptation decisions.

Risks to Avoid

• Overexposure to High-Risk Regions: Campgrounds in wildfire-prone areas without firebreaks or those in flood zones without elevation plans face existential risks.
• Underinsured Assets: Businesses relying on NFIP or FAIR plans may struggle to recover after disasters.

Conclusion: Climate Resilience as a Competitive Advantage

Investors must prioritize businesses that proactively address climate risks. Those with robust infrastructure, data-driven contingency plans, and adequate insurance coverage are poised to thrive. Meanwhile, the protection gap creates opportunities in climate tech and insurance innovation. As disasters reshape the landscape, resilience isn't just an operational necessity—it's a key driver of investment returns.

For the cautious investor, tracking climate resilience ETFs or insurers with adaptive underwriting strategies offers exposure to this growing sector. The storm is coming—but so are the opportunities.