People around the world are feeling the effects of climate change in the form of severe floods, long-term droughts, worsening forest fires, intensifying storms, extreme heat and more. It’s essential that communities invest in reducing and avoiding these impacts. For example, improved building methods can be the difference between a house withstanding a storm or crumbling to rubble.The critical question is: How do we pay for it?This is where adaptation finance comes in.Particularly in low-income countries, adaptation finance is sorely needed to help make people — and the infrastructure and ecosystems they rely on — more resilient to the impacts of climate change. Yet with each passing year the gap between the adaptation finance needed and what is available grows.Closing this gap is essential as climate change continues to escalate. But there are varying definitions about what counts as adaptation finance, as well as different means of providing and tracking funds. Here, we answer key questions:1) What Is Adaptation Finance?Adaptation finance is aimed at helping communities reduce the risks they face and harm they might suffer from climate hazards like storms or droughts. It pays for things like strengthening housing and infrastructure to withstand extreme weather; developing drought-tolerant crops; creating social safety nets (like cash, food or insurance to help with recovery from climate-related disasters); or improving access to climate information for better management of climate-related risks.Adaptation finance includes funds flowing from developed to developing countries as well as finance that governments — in both developing and developed countries — invest to build resilience to climate impacts within their own borders. Adaptation finance can also come from private sources, such as philanthropies, corporations and financial institutions. Businesses are increasingly investing in adaptation to protect their operations, supply chains and markets from exposure to climate-related risks.Adaptation finance often overlaps with development finance, as investments aimed at reducing communities’ economic or social vulnerability often also enhance resilience to climate change, in addition to other benefits. However, for funding to be classified as adaptation finance, it must be explicitly intended to enhance resilience to actual or expected climate risks.For example, funding a new road may boost a community’s resilience by making it easier for people to access markets, hospitals and assistance during extreme weather. To count as adaptation finance, however, the road needs to be deliberately built with climate impacts and the needs of vulnerable people in mind. A vulnerability analysis could reveal the need for a more durable road so people living in informal settlements can safely evacuate ahead of severe storms. And the road would need to be situated where it will not be directly exposed to storm surges and erosion, or elevated so that it remains passable when flooding occurs.
A partially submerged highway in Thailand’s Chiang Rai province following Typhoon Yagi in 2024. Adaptation finance pays for activities that enhance resilience to climate impacts, such as building elevated or more durable roads that can better withstand floods and storms. Photo by Boyloso/iStock
2) How Much Adaptation Finance Is Needed?Several studies give a general sense of how much finance developing countries will need to adapt to climate change. For example, the UNEP Adaptation Finance GAP Report estimates that developing countries need between $215 and $387 billion per year by 2030. The International Monetary Fund (IMF) estimates that adaptation costs exceed 1% of GDP per year in about 50 low-income and developing economies. This rises up to 20% of GDP for small island nations exposed to acute climate hazards such as tropical cyclones and rising seas.However, these are only broad estimates. It is difficult to pinpoint the exact amount of adaptation finance needed, as this requires assessing context-specific risks, clearly distinguishing adaptation from general development, and more accurate data collection. Uncertainties about future climate trajectories also complicate estimates, as adaptation finance needs depend in part on how successful we are at curbing global temperature rise.3) How Much Adaptation Finance Is Available?Even with fairly limited data, it’s clear there’s not enough adaptation finance available to meet countries’ needs.Climate Policy Initiative (CPI) estimates that $68 billion was spent around the world on adaptation on average between 2021 and 2022. Much of this was international finance: According to OECD, developed countries delivered $32.4 billion in adaptation finance to developing nations in 2022.These funding levels are many times less than what’s needed — and the gap is set to increase as climate change impacts intensify. In total, the gap between current adaptation finance and what’s needed in developing countries is estimated at $187-$359 billion per year.4) Who Is — and Is not — Receiving Adaptation Finance?Evidence shows that available finance is not reaching those most vulnerable to climate impacts, who often have the fewest resources with which to adapt. According to OECD, low-income countries received less than 10% of all climate finance provided and mobilized by developed countries between 2016 and 2022. Data from the four major multilateral climate funds — Adaptation Fund, Climate Investment Fund, Green Climate Fund and Global Environment Facility — also indicates that fragile and highly vulnerable countries are receiving less finance than other nations.
One potential reason for this is that accessing adaptation finance often requires significant institutional capacity. While funding requirements vary based on the type of finance involved, they are often complex, requiring the staff, data and know-how to structure bankable adaptation initiatives. Least developed countries often lack these resources, despite having the highest need for adaptation finance. High costs of capital, driven by factors like currency and political risks, further limit access to finance.5) Why Does Climate Mitigation Receive More Funding than Adaptation?While adaptation finance has increased in recent years, it still represents less than 10% of global climate investments. The majority goes to climate change mitigation: efforts to reduce greenhouse gas (GHG) emissions and halt rising temperatures.There are several reasons why mitigation receives more finance than adaptation. Mitigation’s focus on GHG emissions not only makes it easier to define, it also makes it easier to invest in. Activities like installing solar panels or manufacturing electric vehicles bring a more immediate and certain financial return than many adaptation initiatives, which focus on building long-term resilience to extreme events that may happen further in the future. Nations may also be more inclined to invest in mitigation internationally given the contribution to global emissions reductions.6) Why Is Adaptation Finance Difficult to Track?Adaptation finance can be tricky to define and track, in large part because adaptation is highly context specific. Unlike mitigation finance, which targets a narrower set of solutions to reduce GHG emissions, adaptation requires a broad array of activities tailored to particular climate risks faced by specific locations.There are also varying methods for tracking adaptation finance. Two of the most widely used approaches — OECD DAC Rio Markers and MDB Joint Methodology for Tracking Adaptation Finance — offer guidance to financial institutions and countries providing adaptation finance. While their methodologies differ somewhat, both focus on identifying whether an investment has supported climate resilience, and if so, to what degree.Some countries have developed their own approaches to tracking adaptation finance and budget expenditures. These often draw from the two methodologies mentioned above but make modifications to suit national circumstances. As a result, adaptation finance provided or received by countries is not always easily comparable.Even with methodologies in place, tracking adaptation finance is complicated. It requires funding and capacity to execute, which organizations aren’t always resourced for. Moreover, spending on adaptation may occur across different units of the organization, creating a cross-cutting challenge requiring additional coordination.Adaptation finance from the private sector is even more difficult to track because, unlike public funding, governments do not maintain centralized accounting systems for private investments. As a result, virtually no country systematically monitors how much private funding is spent on adaptation within or outside its borders.7) Are Developing Countries Receiving Financial Support for Adaptation?The UN Framework Convention on Climate Change (UNFCCC) governs the process by which countries come together to cooperate on climate action. Under the UNFCCC, developed countries committed to help developing countries — which contributed least to the climate crisis but often suffer the worst impacts — finance their adaptation efforts.This commitment has led to the adoption of key climate funds (such as the Adaptation Fund and the Green Climate Fund) to channel international finance to developing countries. Developed countries also agreed under the UNFCCC to double adaptation finance from 2019 levels to roughly $40 billion by 2025. As of 2022 (the latest data available), they had reached $32.4 billion, putting them on track to realize this goal.
In Gambia, the UN Environment Programme (UNEP) helps farmers develop methods that are more resilient to climate impacts like rising temperatures and erratic rainfall. International support is an important source of funding for developing nations to pursue climate adaptation. Photo by UNEP/Flickr
Most recently, at the 2024 UN climate summit (COP29), countries agreed to a New Collective Quantified Goal (NCQG) on climate finance. Parties committed to deliver $300 billion — with efforts to reach $1.3 trillion — for climate action in developing countries by 2035, aiming for a balance between mitigation and adaptation finance. The NCQG also acknowledges the need to improve the quality of adaptation finance, particularly the need for grant-based resources and highly concessional (affordable) finance that does not exacerbate existing debt burdens.8) How Much Adaptation Finance Comes from the Private Sector?While private sector finance for adaptation is especially difficult to track, the data that is available shows it’s particularly limited. For example, of the climate finance that the CPI has been able to track, approximately 90% of adaptation finance was provided through public actors.There are several reasons for this. Adaptation projects often bring broad social benefits, but clear financial returns for private investors may be difficult to discern. Many vulnerable communities are also located in areas perceived as too risky for private investment, including areas suffering from conflict or other forms of instability. Other times, private investments in resilience are not made simply due to uncertainty about which adaptation options to invest in or a lack of long-term planning, technical capacity and data.Private investment in adaptation needs to be scaled up, as public funding alone will not be enough to close the adaptation finance gap and meet the large and growing need for climate resilience. Private companies finance, build and maintain vital infrastructure, supply chains and markets. It is essential that they integrate climate resilience into their investment decisions and explore innovative financial instruments to expand collaboration with the public sector. Governments can help by creating incentives and risk-sharing mechanisms to accelerate private investments in adaptation-related activities.9) How Is Adaptation Finance Being Provided?The majority — around 76% — of adaptation finance to emerging market and developing economies (excluding least developed countries) is provided in the form of non-concessional finance. Least developed countries, for their part, tend to receive a majority of their funding in the form of grants. Some countries have opted to turn down loans for climate-related activities to avoid adding further debt to their balance sheets. Any efforts to scale up adaptation finance should also aim to ensure that the right type of funding is matched with the right types of projects.10) What Is the Relationship between Adaptation Finance and Finance for Loss and Damage?Funding for "loss and damage" — climate impacts that go beyond what people can adapt to — is an important discussion point in climate negotiations. Finance for loss and damage and for adaptation are closely related, as both aim to help communities deal with the costs associated with climate impacts. The main difference between the two is that adaptation finance is intended to help communities prepare for and reduce potential impacts, while loss and damage finance primarily pays for losses that occur despite investments in resilience. Investing in climate adaptation can help reduce loss and damage costs down the line.Next Steps for Scaling Adaptation FinanceGrowing adaptation finance will require stronger political commitments and more institutional capacity in both the public and private sectors. Better data on the economic and social risks posed by climate change, as well as on the financial and economic returns of adaptation projects, is also essential to increasing investments. This information would help countries, donors and the private sector agree on adaptation priorities, track adaptation finance and integrate adaptation priorities into national planning.The 2025 UN climate summit (COP30) in Belém, Brazil presents a crucial opportunity to elevate the case for adaptation finance, building on recent momentum to secure stronger commitments and bridge the global finance gap. In Belém, the current and previous COP hosts will present a roadmap for reaching the NCQG’s $1.3 trillion target, which parties hope will provide clear guidance on scaling up adaptation finance. Negotiators will also decide on a set of indicators to track progress on the Paris Agreement’s Global Goal on Adaptation. Including credible finance-related indicators will be essential for holding parties accountable to their adaptation goals and driving real change for those on the front lines of the climate crisis.At COP30 and beyond, countries must scale up adaptation finance to support those already affected by climate change and prepare for the impacts yet to come. Doing so is a strategic investment that, via broad social, economic and environmental benefits, will contribute to global stability and prosperity.