The Limits of "Bankable Adaptation" in Climate Finance

Global businesses and financiers have grown comfortable funding climate mitigation projects like solar farms and wind turbines that come with clear revenue streams and investor returns. Adaptation, by contrast, has been treated as the poorer cousin: harder to monetise, often delivering broad public benefits rather than profits. The push to make climate adaptation projects "bankable" like mitigation, structuring them to generate private returns, was supposed to unlock vast new capital for resilience. In reality, it has largely failed to deliver investment at the scale needed. This editorial explores why adaptation finance is fundamentally different, where the "commercially bankable" approach falls short, and how a new playbook is urgently needed.

Adaptation vs. Mitigation: A Structural Divide

 

Climate adaptation finance lags far behind mitigation finance for structural reasons. Mitigation projects often produce tangible assets and cash flows, selling electricity, generating carbon credits or energy savings that attract private investors. In contrast, adaptation projects aim to reduce future climate risks or avoid losses, for example, fortifying a coastline or drought-proofing agriculture. The "returns" on adaptation are often diffuse public benefits (avoided flood damage, lives saved, stable communities) that do not translate into direct revenue for investors.

Moreover, climate resilience projects are highly context-specific and often require community buy-in and behavioural changes. Unlike a solar farm model that can be replicated widely, adaptation solutions don't scale as easily and carry more project complexity and uncertainty. Investors perceive adaptation as riskier and harder to standardise, which further dampens private finance interest.

The result is a stark imbalance. Adaptation initiatives still receive less than 10% of total global climate investment because adaptation projects often resemble public goods infrastructure with broad benefits that traditionally rely on public budgets or donor grants, not profit-seeking investors.

 

The Adaptation Financing Gap, By the Numbers

 

To appreciate the scale of the challenge, consider these key metrics:

Vast Needs, Limited Funding: Developing countries will need an estimated $215 to $387 billion per year by 2030 for climate adaptation. Yet current flows average only $63 to $68 billion per year globally, barely a quarter of what's required.

Public Sector Dominance: Adaptation finance reached a record of approximately $63 billion in 2021-22, but public actors provided almost all of it. The private sector's tracked contribution was only approximately $1.5 billion on average, a tiny fraction of total adaptation investment.

Blended Finance Reality Check: While claims of 1:6 leverage are common, blended finance for climate adaptation has mobilised less than $1 of private capital per $1 of public funding on average. Research shows a leverage ratio around 1:0.75 for developing countries, and as low as 1:0.37 in the poorest nations.

These figures show that current market-driven approaches are not closing the adaptation gap.

Patrick Verkooijen, CEO of the Global Centre on Adaptation, warns: "We face an adaptation finance gap of up to US$350 billion a year. Public money alone cannot close it. But it can unlock private capital, empower local lenders, and build financial systems that reach the most vulnerable."

 

Why "Bankable" Deals Are Elusive

 

If the need is so great, why hasn't capital poured into adaptation as it has into renewable energy? The core issue is commercial viability. Investors seek bankable projects with reliable revenue streams or cost savings to repay loans and provide returns. Most adaptation projects don't naturally produce revenue. A seawall that protects a city from storm surge prevents losses but doesn't generate cash. Such projects have been funded by governments because they are critical public goods.

A recent World Economic Forum analysis put it bluntly: "There are many barriers to private sector investment in adaptation, but the most critical is the lack of direct financial returns." High-level studies may tout enormous benefit-cost ratios, but these are societal benefits, not profits to an investor. If adaptation investments truly yielded double-digit financial returns to private owners, we would see capital rushing in, but we don't, precisely because the business case is often weak without public support.

Over-reliance on forcing adaptation into a project-finance model has diverted attention from other solutions. For years, global climate talks optimistically spoke of mobilising "billions to trillions" of private dollars. That mindset led to complacency, calling the vision a "fantasy" that did not materialise. The adaptation arena cannot fall into the same trap.

 

Rethinking the Model: Blended Finance, Guarantees and Public Leadership

 

To fund adaptation at the scale required, the financing model must shift. Rather than expecting every resilience project to be a standalone bankable venture, leaders are calling for approaches that blend public and private finance:

Blended Finance and Public-Private Partnerships: Public money from governments, development banks, and climate funds can be used strategically to de-risk adaptation projects. This includes grants or low-interest loans to cover costs, first-loss capital that absorbs initial risks, or guarantees that ensure private lenders will be repaid. The goal is to use limited public funds to leverage private investment realistically. For example, the Green Climate Fund's support for the Climate Investor Two fund attracted institutional investors by cushioning some of the risk.

Public Grants and Concessional Loans: Given the public good nature of adaptation, increased public funding is indispensable. Wealthy nations have obligations under the Paris Agreement to support adaptation in developing countries. Multilateral lenders like the World Bank are ramping up their climate finance targets, but much more is needed in direct grants, highly concessional loans, and specialised funds for resilience in the poorest nations.

Risk Transfer and Insurance Solutions: The private sector can contribute via insurance and risk transfer products. Examples include parametric insurance schemes and insurance-backed bonds. One notable case is the Quintana Roo Reef Insurance in Mexico, where hotel owners and the government jointly fund a policy that pays for reef restoration after hurricanes. Scaling up climate risk insurance is part of making adaptation finance more resilient.

New Metrics of Success: We must adjust how we measure the success of adaptation investments. For adaptation, success should be measured in lives protected, economic losses avoided, and communities made safer. A seawall that prevents $100 million in flood damage may not produce revenue, but these outcomes are the real returns from a societal perspective. Impact metrics (how much risk is mitigated per dollar, how many people benefit) are more telling for adaptation than a financial IRR.

 

Real-World Deals: Financing Resilience on the Ground

Despite the challenges, there are promising examples of adaptation projects being financed through creative structures:

Water Resilience via Public-Private Partnership: In Rwanda, the Kigali Bulk Water Supply Project was structured as a PPP between the government and a private utility company. The private partner financed, built, and operates a new water treatment facility, with the government committing to purchase a guaranteed volume of water. Development bank support and guarantees helped make the project bankable.

Sovereign Green Bonds for Adaptation: Small island states are turning to green bonds to raise funds for resilience. Fiji issued a sovereign green bond raising approximately US$50 million to finance climate-resilient projects like flood protection and climate-smart agriculture. Similarly, Indonesia has included adaptation expenditures in their sovereign sustainability bonds.

City-Level Climate Bonds: Cities are using municipal bond markets to finance adaptation. Paris issued a €300 million Climate Bond in 2015, earmarking 20% for adaptation projects. The funds planted 20,000 urban trees and created 30 hectares of new parks to reduce heat islands and manage flooding. By bundling these into a large bond, Paris tapped private capital for adaptation via its own balance sheet.

Innovative Risk Pooling: In Australia, the government established a Cyclone Reinsurance Pool to lower insurance costs in high-risk regions. By backing a $10 billion reinsurance pool for cyclone and flood damage, the scheme encourages insurers to continue providing coverage in vulnerable areas at affordable rates.

Each of these examples required public sector initiative or support, whether through policy, public funding, or risk-sharing instruments. They show that creative financing is possible, but also underscore that few adaptation projects are purely private.

 

Toward a New Climate Resilience Playbook

 

Climate adaptation cannot be approached with a business-as-usual financing mindset. The realities of diffuse benefits, public-good characteristics, and uncertain revenue mean that forcing adaptation into a narrow “bankable projects” framework will continue to fall short. Instead, success will come from embracing partnership models and long-term thinking:

• Governments and MDBs must lead with increased funding, smart subsidies, and policies that price climate risks and rewards correctly. Public finance isn’t replacing private capital – it’s enabling it, by absorbing risks and rewarding resilience that markets currently undervalue.

• Private investors and insurers should broaden their metrics for returns. Investing in adaptation may not yield outsized profits, but it can protect core assets, ensure business continuity, and open new markets for resilient services and technologies. There is an opportunity in providing solutions from drought-resistant seeds to urban cooling systems, especially if supported by public procurement or viability gap funding.

• New coalitions and instruments need to be scaled. Blended finance facilities, resilience bonds, climate risk insurance pools, and outcome-based financing for adaptation can all funnel more capital into resilience if designed and executed well. Transparency and data on climate risk reduction outcomes will be vital to build confidence in these mechanisms.

Most importantly, the world must redefine what a “successful” climate investment looks like. In the context of adaptation, a project that fortifies a million lives against future storms is a triumph even if it doesn’t tick the boxes of a classic project finance term sheet. As the World Economic Forum article emphasised, real progress means facing facts, making serious public investments and overhauling how global finance works and not recycling promises of private capital that never come.

The next decade will test our collective ability to invest in resilience. For too long, adaptation finance was the Cinderella of climate finance – underfunded and underestimated. It’s time to change that. With climate impacts accelerating, every business and every government has a stake in climate-proofing economies and communities. That will require courage to pursue new financial models and a willingness to judge investments by the resilience they build, not just the revenue they return. The limits of “bankable adaptation” are now evident; breaking through those limits is not only a moral imperative but an economic one because the cost of inaction will far exceed the cost of well-funded adaptation. In the end, financing adaptation at scale is not just about protecting the vulnerable, it’s about safeguarding the very markets and prosperity on which businesses depend.

By recognising adaptation finance as a shared global challenge and deploying innovative, blended, and impact-driven strategies to meet it, we can begin to close the gap before it becomes an unbridgeable chasm. The private sector has a crucial role to play, but it must be underpinned by public leadership and a new vision of success. The era of treating resilience as an afterthought is over. Investing in adaptation may not look “bankable” in the traditional sense, but it is unquestionably bankable for the future of our societies and economies.