How climate adaptation investment can be promoted and mobilised

A central challenge is that most adaptation projects do not generate direct financial returns. This hinders their ability to be packaged into investments for investors.

The value of adaptation projects predominantly lies in avoided losses; reduced downtime; and long-term business continuity. While this is valuable to companies engaging in such projects, it is not something which can be structured to service interest payments or dividends. This contrasts sharply with climate mitigation projects such as renewable energy, where predictable cash flows from electricity sales make projects straightforward for investors to finance.

Another obstacle is the tendency for investors to conflate adaptation opportunities with thematic exposure. Rather than identifying adaptation projects to invest in directly, capital often flows into companies that benefit from climate impacts, such as manufacturers of air conditioners or back-up generators.

In addition, many climate-exposed assets are public goods, such as road networks, bridges, water supply networks and drainage systems, electrical grids, river systems and floodplains. Companies have limited incentive to invest in protective infrastructure beyond their own operations. This creates a classic ‘free rider’ problem which requires intervention from local or national governments.

While climate risk data was once a legitimate obstacle to decision making, the data landscape has evolved. Advances in modelling now allow for more accurate estimates of financial losses from physical hazards and provide highly localised assessments of risks such as flooding. This enables more robust cost-benefit analysis for adaptation projects.

However, SMEs still face constraints, as they often lack the capital or market access to fund adaptation measures unless there is a rapid payback period or immediate operational benefit.

Mobilising investment requires stronger public-private collaboration. Effective adaptation depends on coordinated action: protecting a factory is futile if surrounding public infrastructure remains vulnerable. National governments can set priorities through adaptation plans while local authorities and corporates, which are closest to the risks, can share information and build capacity to identify and address vulnerabilities.

Financial markets also have a role to play. Green bonds can channel capital into adaptation, and sustainability-linked loans or bonds could tie financing costs to adaptation improvements. Insurance will be equally important. Insurers’ sophisticated risk models and annual repricing cycles create strong incentives for companies to mitigate near term physical risks, aligning adaptation with lower premiums and reduced exposure.

Directors’ duties are another emerging driver. As climate risk data improves and insurance costs increasingly reflect physical exposure, boards will face tangible financial implications. This will push directors to consider adaptation measures as part of their responsibility to protect asset