Financing climate action: Adaptation finance gap

There is currently a serious gap between available finance for climate change adaptation and the identified needs of vulnerable developing countries

Historically, climate action has primarily focused on climate change mitigation, i.e., the reduction of greenhouse gas emissions to limit global temperature rise and prevent severe climatic changes. However, especially for developing countries such as Sri Lanka—which is only responsible for less than 0.1% of current global emissions and an even lesser percentage of cumulative historic emissions—, investment into adaptation is of equal or even greater importance.

Climate change adaptation describes the process of “adjustment to actual or expected climate change and its effects in order to moderate harm or take advantage of beneficial opportunities” (Intergovernmental Panel on Climate Change, Sixth Assessment Report). As identified by science and policymakers, means of implementation are required at scale for Sri Lanka and other countries to support this process. However, there is a significant gap between the current provision of adaptation finance and the identified needs of vulnerable countries across the world.

Where does the money come from?

According to the 2024 Adaptation Gap Report published by UNEP, adaptation finance provided to developing countries from international public sources amounted to a total of $ 27.5 billion in 2022. However, the needs for adaptation finance are estimated at between $ 215 to $ 387 billion per year, indicating a grave shortfall even when accounting for private sector and domestic public sources (for which there is currently insufficient data). Furthermore, out of the existing finance flows from international public sources, the majority (62%) consists of loans, only around three quarters of which are concessional.

This adaptation gap in both quantity and quality has been widely acknowledged. The new collective quantified goal on climate finance, which was decided at a global level in late 2024, highlights “the need to dramatically scale up adaptation finance” and acknowledges “the need for public and grant-based resources and highly concessional finance, particularly for adaptation and responding to loss and damage in developing country Parties.” However, the decision does not contain a separate sub-target for adaptation finance, and there is no clarity yet on the exact modalities on how to collective mobilise and track money towards the new global financial goal.

The large gap between available and required adaptation finance is concerning and has serious implications for climate-vulnerable developing countries. Without adequate provision of finance—as well as technology and other means of implementation—, many of the necessary actions will either not be implemented (leading to potentially much higher costs for losses and damages from future climate impacts) or must be funded from domestic resources, which means reallocating money from other areas of national budgets, raising taxes, or incurring further debt. Already, the existing debt interest payments of developing countries (excluding China) amount to 2.4% of GDP, considerably larger than the current allocation of adaptation finance (UNCTAD).

What are the challenges and implications?

There is trifold challenge when it comes to closing the adaptation finance gap. First, the available total flow of adaptation finance needs to greatly increase to become adequate to the expected costs of adequate adaptation measures to protect economies, lives, and human wellbeing. Second, delivery mechanisms must be strengthened to get the money to where it is needed—or, in other words, access to funding for national and subnational actors should be streamlined, simplified, and made more effective. Third, there is also a need to build capacities to spend any mobilised and disbursed funds effectively and ensure that they create the intended benefits, including through a pipeline of viable projects.

Without adequate climate change adaptation, countries—as well as businesses, communities, and households—cannot prepare themselves to face a changing world with increasingly intense and frequent climate impacts. If there is no ex-ante investment into adaptation, the resulting costs have to be shouldered in ad-hoc and reactive ways, trying to recover and rebuild before the next disaster. The costs of inaction (or insufficient action) are much higher than the costs for anticipatory and proactive adaptation, and without sufficient international finance flows, they would most likely be paid by those who are directly affected and most vulnerable.

How can we close the gap?

If the current provision of adaptation finance is insufficient, how can this gap be closed? On the one hand, public finance from developed countries should be scaled up in line with their commitments under the United Nations Framework Convention on Climate Change and the Paris Agreement. 

On the other hand, other sources of finance—such as contributions from the private sector, new business models, and innovative financial instruments—could be explored to further supplement funding and allow for more ambitious action. Blended finance facilities and public-private partnerships could also play an important role in leveraging public or philanthropic funding and catalysing additional investment and capital.

At the global level, developed countries must scale up the overall pool of adaptation finance and ensure that it can be accessed by developing countries, predominantly in the form of grants or highly concessional loans. At the national and subnational level, it is important to map (and cost) adaptation needs, identify viable projects and approaches, develop business models, build institutional and technical capacities, and enhance the enabling environment and ecosystem for adaptation planning, implementation, monitoring, evaluation and impact verification, reporting, finance tracking, and management.

(The writer works as Director: Research & Knowledge Management at SLYCAN Trust, a non-profit think tank. His work focuses on climate change, adaptation, resilience, ecosystem conservation, just transition, human mobility, and a range of related issues. He holds a Master’s degree in Education from the University of Cologne, Germany and is a regular contributor to several international and local media outlets.)