The many stories of adaptation finance

There are multiple stories to be told about adaptation finance. The first is that, despite mounting climate impacts, investments in adaptation are much lower than needed. According to the Climate Policy Initiative, adaptation finance accounted for $63 billion in 2021-22, far short of the estimated $212 billion needed per year by 2030 for developing countries alone. In fact, adaptation finance actually declined in 2023 as a proportion of total climate finance compared to previous years. Certainly, there is much yet to do to get financing flowing at the speed and scale needed to meet the climate crisis, especially for countries and communities most vulnerable to its impacts.

But what we call “adaptation finance” is only a fraction of what is needed to making countries, communities, and people more resilient. In fact, as our Country Climate and Development Reports, now available in close to 50 countries, make clear: reducing vulnerability to climate impacts and building resilience requires three things: more rapid development, more resilient development, and targeted adaptation interventions. Climate finance numbers tend to only capture the latter, while countries need to achieve all three for good adaptation with the first two particularly important for the world’s poorest countries.

Reducing vulnerability to climate impacts and building resilience requires three things: more rapid development, more resilient development, and targeted adaptation interventions.

Take, for instance, first, more rapid development. People living in poverty are always more vulnerable to climate impacts and so reducing poverty is one of the most effective ways to reduce climate vulnerability. While progress on poverty reduction has slowed in recent years, there’s a wealth of evidence now showing that as countries develop they also improve the adaptive capacity of people and communities. For instance, the proportion of the global population with access to safely managed drinking water increased from 62% in 2000 to 74% in 2020 – a marked improvement that reduces overall vulnerability to climate impacts. While every investment in development, access to basic infrastructure and social services cannot be counted as adaptation, it is misleading ignore the resilience gains from development progress. 

Consider, next, more resilient development. Not all development patterns deliver the same level of resilience. There are still far too many cities that continue to grow in flood-prone areas, too many infrastructure assets are not built or maintained to the right standards, and rapid development too often now leads to increased water scarcity or loss of the ecosystems that protect population against extreme events. But here too, there are promising signs of progress as countries and businesses increasingly account for climate risk in investments and business operations, and communities devise plans to build back better after disasters hit. Social protection systems are being more systematically designed to consider their role after disasters, making them better at improving people’s resilience. Countries and cities are more systematically considering risks in defining their urban plans and developing and upgrading infrastructure. In Japan, for instance, firms participate in business continuity planning to address disaster risks in collaboration with the public sector. Many private companies now have explicit investment in resilience. While some of these initiatives started from a social responsibility perspective (like General Motors’ Climate Equity Fund), they are now increasingly originating from pure business considerations, such as the challenges of climate-impacted supply chain disruptions (such as Nestlé) or the acknowledgment of climate impacts (for instance, Mahindra & Mahindra Krish-e initiative to build farmers’ resilience). 

Here too the incorporation of risk and resilience in everyday planning and business decisions goes beyond what is recorded or measured as adaptation finance, but delivers clear resilience gains. Every time a building or an infrastructure asset investment ensures the right standards for resilience, or a business plan accounts for climate-related disruptions, or an urbanization plan considers flood risks, or a forest or mangrove is protected from uncontrolled development, this is effectively an investment in adaptation, albeit one not captured by any dataset or adaptation finance tracker. 

Take, finally, targeted adaptation interventions. These are the investments captured by our estimates of climate finance. They are essential, but most of the time they are playing catch up, rectifying mistakes that should not have been made and certainly should not be replicated. Every time we build a new neighborhood in a known flood zone or a road with under-dimensioned drains, or when we destroy a forest or a mangrove that protects us against water scarcity or floods, we are increasing future adaptation investment needs, both draining our limited current adaptation resources and placing a lien on future resources. Retrofitting existing assets is costly and often makes sense only for the most critical assets (see for instance the analysis of priorities for investments in the Brazil Country Climate and Development Report). It is therefore much more valuable to focus on building new assets right, especially so in low-and middle-income countries where so much infrastructure is yet to be built. 

Every time we build a new neighborhood in a known flood zone or a road with under-dimensioned drains, or when we destroy a forest or a mangrove that protects us against water scarcity or floods, we are increasing future adaptation investment needs, both draining our limited current adaptation resources and placing a lien on future resources.

All this is not to say that more adaptation finance is not needed. More resilient and better development alone will not be enough to protect the world’s population, especially the most vulnerable communities and people. We will also need to be bracing for and gathering resources for the new challenges that climate change is rapidly creating – for instance, coastal cities that are in locations once considered safe before data on sea level rise showed that they will be exposed to increasing risks. But even with more adaptation finance, we will never be able to protect populations and economies if development investments are insufficient and people keep living in extreme poverty or if development investments continue to create new risks and vulnerabilities because they do not take future climate conditions into account. To truly build adaptation and resilience, all three are essential.

But even with more adaptation finance, we will never be able to protect populations and economies if development investments are insufficient and people keep living in extreme poverty or if development investments continue to create new risks and vulnerabilities because they do not take future climate conditions into account.

What will it take to build the resilience of countries and people across the three dimensions of more development, better development, and targeted adaptation interventions? And beyond the obvious need for more adaptation finance, how can we spend better – not just more – so that development investments deliver more resilience, improving not just the resilience of physical assets but also of communities and people? 

While successful adaptation and resilience will require a whole-of-society and whole-of-government approach, it will be essential to have better information about climate risks and stronger regulations – especially for land use and new infrastructure. 

Businesses, firms, households, and cities already have clear incentives to adapt – entrepreneurs don’t want their businesses to wash away overnight, farmers want their lands and cattle to flourish, city officials want livable and attractive neighborhoods – but they need help and, critically, information to help them plan for and respond to changing conditions. Making more, better and timely information on climate risks available is key. Climate-informed urban and land use plans – both developing them and enforcing them – hold the key to avoid locking communities into high-risk areas. In fact, good plans can also help drive development to safer places. In Tunis, for instance, sharing where the government was planning infrastructure investment helped guide urban development to low-risk zones. Most developing countries are experiencing an unprecedent urbanization moment which means there is a unique opportunity to build cities for tomorrow’s climate, reducing future climate change impacts and adaptation financing needs. 

Most developing countries are experiencing an unprecedent urbanization moment which means there is a unique opportunity to build cities for tomorrow’s climate, reducing future climate change impacts and adaptation financing needs. 

The good news is that we are not starting from scratch. There are many initiatives to build from, especially those targeting the private sector: advances in developing adaptation and resilience typologies (such as through the work of Climate Bond Initiative), as well as disclosure and standardization work (such as the International Sustainability Standards Board’s set of disclosure requirements), or guidance on climate-related risk analysis (such as the Gold Standard Adaptation Framework) or the World Bank’s Resilience Rating System which is helping our teams develop more resilient projects and operations, identify such operations and monitor progress.

There’s also a wider narrative shift underway, with market innovations helping to shift the thinking of adaptation as a cost to bear to highlighting resilience solutions that are growth opportunities for investors, to practical roadmaps laying out financing opportunities, such as the Guide for Adaptation and Resilience Finance developed by Standard Chartered, KPMG and UNDRR; or the blueprint developed by the Adaptation and Resilience Investors Collaborative. 

Adaptation finance is about more than annual dollar inflows, although obviously this remains vital in an era of worsening climate change. It’s also about making sure that all investments protect people – especially the most vulnerable – from climate impacts now and in the future. It’s about building homes, businesses, schools and hospitals that withstand these shocks and help communities survive and thrive. And it’s about time that more adaptation finance stories get told.