Bridging the Climate Adaptation Gap: A Shortfall in Climate Finance

At the recent COP summit in Azerbaijan, world leaders pledged $300 billion for climate finance in developing countries, a figure that falls short of the estimated $1.3 trillion needed annually for climate mitigation and adaptation, according to economists. Additionally, this $300 billion pledge could lose about 20% of its value by 2035 due to inflation – a critical oversight, as the final agreement fails to adjust for rising costs. While this pledge marks a step forward, it underscores the obvious gap in global efforts, particularly in climate adaptation – a crucial need highlighted by recent catastrophic floods in Valencia. Europe, paradoxically the fastest-warming continent, also grapples with its own adaptation challenges. From wildfires to floods, heavy storms, heat stress, and droughts, these climate risks are no longer distant threats but a stark reality. The question remains: Is the world investing enough to adapt to these intensifying risks?

Adaptation: A Safety Net with Holes

Adaptation financing is meant to shield humanity from climate impacts. Measures such as deploying drought-resistant crops and creating effective flood zones to manage heavy rainfall highlight the transformative potential of adaptation. As one of Europe’s most paved regions, Belgium faces unique challenges in water management, as seen during the floods in the Vesder valley in 2021. Governmental policies should align the housing market with water management optimization by ensuring new houses are not constructed in flood-prone areas. Adaptation measures should be prioritized for existing homes already in sensitive zones, or residents should be supported in relocating to safer regions.

Global adaptation finance shrank as a proportion of total climate finance, dropping from 7% in 2019–2020 to a mere 5% in 2021–2022[1]. This imbalance is like buying a fancy new car without spending on insurance – you are unprepared for the potential accidents ahead. Agriculture, infrastructure, water, and disaster preparation are key sectors requiring this crucial adaptation finance in developing countries.

Figure 1: Adaptation finance needs by sectors based on 26 developing countries’ NDCs and NAPs (percentage of annual total of $212 billion)[2]

While absolute climate adaptation flows grew modestly to $63 billion annually, of which $56 billion directed toward developing countries, the needs are far greater. Experts estimate these nations alone require $212 billion annually for adaptation until 2030, thus requiring a fourfold increase.

Despite the urgency, private finance, including institutional investors and commercial banks, contributes less than 3% to global adaptation efforts. To bridge this gap, private finance streams can be improved by investing in enhanced disclosure and reporting practices for adaptation, enabling stakeholders to understand the risks and returns better. Additionally, raising awareness and building capacity within financial teams can help institutions integrate adaptation into their investment strategies.

The disparity between adaptation and mitigation funding reflects deep systemic challenges. Mitigation, with its tangible metrics such as tons of carbon reduced, appeals more to investors seeking clear returns. Adaptation, however, deals with probabilistic benefits – floods averted, lives saved – making it a harder sell to private financiers. Public funding, though essential, cannot fill the gap alone. As the world rallies for climate solutions, let us ensure we are prepared not just to mitigate but also to adapt. After all, as Valencia’s floods demonstrate, the storm is already here.

 

[1] State and Trends in Climate Adaptation Finance 2024

[2] Adaptation Gap Report (2021)