Navigating climate challenges, the need for adaptation funding

‘One of the most significant challenges facing India is in securing funding for adaptation’ 
| Photo Credit: THE HINDU/RITU RAJ KONWAR

Countries around the globe, including India, are facing the repercussions of climate change. The physical risks from this can be classified as acute and chronic. Acute risks result from sudden and severe events such as floods and cyclones. The escalating severity, the intensity and the frequency of these events due to global warming are alarming. In contrast, chronic impacts arise from long-term changes in factors such as temperature, precipitation patterns and rising sea levels in a region. Acute and chronic risks can lead to a significant loss of life and livelihoods, adversely affecting communities and businesses.

Adaptation and its financing

Communities and businesses must adapt to mitigate these risks. Adaptation efforts can be divided into strategies to reduce vulnerability or exposure to acute and chronic risks. These efforts will vary by region and will be influenced by factors such as settlement patterns and the mix of sectors — including agriculture and industry — along with their size and employment structures. For example, adaptation strategies can differ greatly across regions, although some common approaches may emerge. One such instance is the design of homes incorporating rainwater harvesting features under the Pradhan Mantri Awas Yojana (PM Awas Yojana) in India, effectively addressing water scarcity while considering regional and climatic conditions with several different house designs.

A well-known example of adaptation is observed in the Netherlands, where a dyke system is employed to safeguard against ocean encroachment and land erosion. Meanwhile, in the Sundarbans, the largest delta, efforts are primarily focused on reforesting mangrove areas to reduce the intensity of ocean flooding caused by events such as cyclones.

Financing for the adaptation activities is called adaptation financing. Broadly, it refers to the targeted allocation of financial resources specifically aimed at building resilience against the impacts of climate change. This includes investments in infrastructure, ecosystem restoration, technology and community initiatives that reduce vulnerability and enhance the capacity to cope with climate risks.

However, the diversity of adaptation strategies, combined with the public benefit they provide, poses challenges in converting them into cash flows, resulting in frequent shortfalls in adaptation financing.

The challenges

One of the most significant challenges facing India is in securing funding for adaptation. According to India’s initial Adaptation Communication to the United Nations Framework Convention on Climate Change (UNFCCC), the country’s adaptation needs are projected to reach ₹57 trillion between 2023 and 2030 under conservative estimates. This marks a substantial increase from the ₹13.35 trillion allocated in FY22. A recent report highlighted the funding for adaptation in the country comes from State Budgets, with some additional support from philanthropic or multilateral development banks. Moreover, globally, only 4% of reported climate finance is directed towards adaptation, with 98% originating from public sources.

Given these challenges and the increasing demands for adaptation, the financing gap in developing countries is expected to range from ₹194 billion to ₹366 billion annually, 10 to 18 times the current flows. Beyond the weak business case for these projects, the gap can be attributed to a lack of appropriate financial delivery mechanisms for adaptation in emerging economies. Further, the absence of insurance options in these regions exacerbates costs, transforming physical risks into credit risks that complicate the financing landscape.

Need for a network

Developing countries will require more substantial commitments from developed nations to secure increased funding for adaptation, as their domestic financial structures are often limited and must compete with more pressing needs. Second, making insurance against climate risk affordable and accessible to everyone will be crucial in mitigating the impacts of climate-related disasters and enhancing the resilience of the financial sector. Finally, establishing a foundational finance network that offers guarantees, in conjunction with more efficient capital markets, will be essential in attracting private capital, which is lacking now.

Vaibhav Pratap Singh is Executive Director, Climate and Sustainability Initiative (CSI). The views expressed are personal