As climate impacts accelerate, finance gap for adaptation rises to $366b yearly

Despite the clear signs of accelerating climate risks and impacts worldwide, the adaptation finance gap is widening and now stands at between $194 billion and $366 billion per year.

According to a new United Nations Environment Programme (UNEP) report adaptation finance needs of developing countries are 10-18 times as big as international public finance flows – over 50 per cent higher than previously estimated.

Coming ahead of the COP28 climate talks taking place in Dubai, United Arab Emirates, the Adaptation Gap Report 2023: Underfinanced, Underprepared-Inadequate Investment and Planning on Climate Adaptation, leaves the world exposed to climate risks.

The modelled costs of adaptation in developing countries are estimated at $215 billion per year this decade and are projected to rise significantly by 2050. The adaptation finance needed to implement domestic adaptation priorities, based on extrapolation of valued Nationally Determined Contributions and National Adaptation Plans to all developing countries, is estimated at $387 billion per year.

Despite these needs, public multilateral and bilateral adaptation finance flows to developing countries declined by 15 per cent to $21 billion in 2021. This dip comes despite pledges made at COP26 in Glasgow to deliver around $40 billion per year in adaptation finance support by 2025 and sets a worrying precedent.

While five out of six countries have at least one national adaptation planning instrument, progress to reach full global coverage is slowing. And the number of adaptation actions supported through international climate funds has stagnated for the past decade.
Ambitious adaptation can enhance resilience – which is particularly important for low-income countries and disadvantaged groups – and head off losses and damages.

The report points to a study indicating that the 55 most climate-vulnerable economies alone have experienced losses and damages of more than $500 billion in the last two decades. These costs will rise steeply in the coming decades, particularly in the absence of forceful mitigation and adaptation.

Studies indicate that every billion invested in adaptation against coastal flooding leads to a $14 billion reduction in economic damages. Meanwhile, $16 billion per year invested in agriculture would prevent approximately 78 million people from starving or chronic hunger because of climate impacts.

However, neither the goal of doubling 2019 international finance flows to developing countries by 2025 nor a possible New Collective Quantified Goal for 2030 will significantly close the adaptation finance gap on their own and deliver such benefits.

The report identifies seven ways to increase financing, including through domestic expenditure and international and private sector finance. Additional avenues include remittances, increasing and tailoring finance to small and medium enterprises, implementation of Article 2.1(c) of the Paris Agreement on shifting finance flows towards low-carbon and climate resilient development pathways, and a reform of the global financial architecture, as proposed by the Bridgetown Initiative.

The new loss and damage fund will also be an important instrument to mobilise resources, but issues remain. The fund will need to move towards more innovative financing mechanisms to reach the necessary scale of investment.

“Today’s Adaptation Gap Report shows a growing divide between need and action when it comes to protecting people from climate extremes. Action to protect people and nature is more pressing than ever,” UN Secretary-General António Guterres, said in his message on the report. “Lives and livelihoods are being lost and destroyed, with the vulnerable suffering the most.”

“We are in an adaptation emergency. We must act like it. And take steps to close the adaptation gap, now,” he added.
As a result of the growing adaptation finance needs and faltering flows, the current adaptation finance gap is now estimated to be $194-366 billion per year. At the same time, adaptation planning and implementation appear to be plateauing. This failure to adapt has massive implications for losses and damages, particularly for the most vulnerable.

“In 2023, climate change yet again became more disruptive and deadlier: temperature records toppled, while storms, floods, heatwaves and wildfires caused devastation,” said Inger Andersen, Executive Director of UNEP.

“These intensifying impacts tell us that the world must urgently cut greenhouse gas emissions and increase adaptation efforts to protect vulnerable populations. Neither is happening.

“Even if the international community was to stop emitting all greenhouse gases today, climate disruption would take decades to dissipate,” she added. “So, I urge policymakers to take heed of the Adaptation Gap Report, step up finance and make COP28 the moment that the world committed fully to insulating low-income countries and disadvantaged groups from damaging climate impacts.”

MEANWHILE, the civil society groups have noted that the widening gap in adaptation finance is a stark indicator of years of neglect, leaving countless vulnerable people exposed to escalating climate calamities. “Instead of providing finance to developing countries, affluent nations have exacerbated the climate crisis with their persistent investments in fossil fuels.

“Developing countries stand ready, awaiting the necessary funds to safeguard their people against imminent climate disasters. Without timely adaptation, we are setting the stage for unimaginable loss of lives and livelihoods caused by relentless floods, raging wildfires, and surging seas,” according to Harjeet Singh, Head of global political strategy, Climate Action Network International.

WWF global climate and energy lead, and President of COP20, Manuel Pulgar-Vidal, said: “Without urgent action to build the resilience of communities and ecosystems to the climate emergency and resulting weather-related disasters, the world will face an unprecedented and protracted humanitarian and ecological crisis. It is unacceptable to see progress on adaptation slowing and finance declining, while climate impacts escalate.

“This year the world has faced everything from record-breaking heatwaves and raging wildfires to catastrophic storms and floods that have devastated lives, economies, and ecosystems. No part of the world is untouched by the impacts of climate change, and the most vulnerable are most in peril.

“At COP28 next month, countries have the opportunity to help reverse this trend and supercharge adaptation efforts, by agreeing a comprehensive framework for the Global Goal on Adaptation, with clear targets and an implementation roadmap.

“Finance will also be crucial for unlocking action – we need to see at least a doubling in current adaptation finance by 2025 to meet the needs of vulnerable countries. But above all, leaders need to act to address the causes of the climate crisis. If we phase-out fossil fuels, decarbonise our economies, and restore nature, the need for ever-increasing action and finance for adaptation will diminish.”