Closing the adaptation finance gap

The report highlights that the last decade was the warmest on record, with global economic losses from extreme weather estimated at US$ 2 trillion. In 2026, the World Economic Forum identified extreme weather as the pre-eminent global risk. For emerging markets and developing economies (EMDEs), climate impacts could reduce GDP by 12% by 2050 if left unmitigated. Despite these risks, adaptation finance flows are currently insufficient to meet requirements. Developing countries require 12–14 times more investment than currently reported. Currently, only 3–8% of adaptation finance is derived from private sources, creating a significant shortfall that necessitates the mobilisation of private capital.

The role of private financial institutions

Private financial institutions (FIs) are increasingly recognising the materiality of physical climate risks. Beyond risk management, there is a growing market for adaptation solutions. The core adaptation solutions market, including weather intelligence and monitoring, is valued at US$ 35–40 billion. The broader market—encompassing climate-resilient infrastructure, water management, and agriculture—is estimated at US$ 2 trillion today and could reach US$ 9 trillion by 2050. FIs that develop expertise in this area stand to gain a significant first-mover advantage. However, FIs also face internal barriers, such as limited in-house expertise and the lack of widely recognised metrics linking resilience to credit risk, pricing, and returns.

A theory of change: from information to scaled financing

The report proposes that strengthening information flows is a necessary condition to make adaptation investable. By improving the availability, quality, and consistency of data, FIs can adjust internal practices, such as credit risk analysis and asset valuation. This theory of change suggests that better information allows FIs to identify opportunities and scale up urgently needed private adaptation finance. However, improved information alone cannot overcome all institutional and financial barriers, particularly in Least Developed Countries (LDCs) and Small Island Developing States (SIDS), where policy interventions remain critical to address underlying obstacles.

The four adaptation information flows

The research identifies four critical types of adaptation-related information flows defined as potentially decision-useful for FIs:

1. Information about physical climate-related financial risks: Data showing how hazards translate into financial exposure across assets and portfolios.

2. Information about the allocation of finance for adaptation: Consistent tracking of capital directed towards adaptation using taxonomies and National Adaptation Plans (NAPs).

3. Information about the impact of adaptation investments: Measurable results showing whether financed activity delivers real-world resilience benefits.

4. Information about the financial performance of adaptation investments: Evidence of how investments perform financially, including avoided losses, preserved asset values, and lower financing costs.

From adaptation information flows to capital allocation: applications in financial decision-making

Adaptation-related information flows support various FI business functions. In lending operations, physical risk screening informs credit risk assessments and loan pricing adjustments. For example, a DFI might evaluate a coastal port upgrade where adaptation measures reduce projected physical damage, thereby lowering expected loss estimates. In investment operations, asset managers use adaptation disclosures to inform portfolio allocation and stewardship. Insurance operations utilise building-level adaptation data to refine catastrophe model assumptions and risk selection. Properties with verified measures may receive a 10% to 15% premium reduction, reflecting lower expected annual losses.

Enabling conditions: how policy shapes adaptation information flows

Policy and regulatory frameworks are essential for creating an environment where adaptation information is produced and shared. Key areas for advancement include improving national climate data infrastructure and providing guidance on country-appropriate methodological approaches for risk assessment. Financial supervisors are increasingly integrating physical risks into supervisory frameworks to ensure institutions manage material risks. Jurisdictions are also developing national sustainable finance taxonomies that include adaptation as a sustainability objective. Interoperability between these taxonomies is highlighted as a vital factor for allowing FIs to compare adaptation claims across different jurisdictions.

Potential actions to improve information flows by actor type

The report identifies specific actions for various stakeholders. Private FIs should prioritise translating physical risk into the credit-adjusted metrics they already rely on, such as probability of default. Development finance institutions (DFIs) and multilateral development banks (MDBs) are encouraged to share their institutional experience and methodologies with the private sector. Governments should invest in hazard and exposure data as a public good and articulate national adaptation priorities that FIs can align with. Financial supervisors should address material physical climate-related financial risks within existing prudential mandates. Finally, data and standard-setting bodies should focus on building interoperable platforms and refined indicators, informed by feedback from the institutions applying them.