Yet adaptation finance is not keeping pace, leaving the world's most vulnerable exposed to rising seas, deadly storms, and searing heat - UN Secretary-General Antnio Guterres

Introduction

Climate change is no longer a future risk, it is a present reality. Extreme heat, floods, droughts, sea-level rise, crop failures, and growing water stress are already compromising food security, livelihoods, health, and infrastructure in developing and least developed countries (LDCs). Yet, just as adaptation needs are increasingly rising, the financial resources required to respond are falling significantly short.

Action on adaptation remains inadequate. Gaps in resources, implementation, and global attention will intensify climate risks and long-term warming. Yet the investments outweigh the cost of lack of activity.

For instance, every US$1 invested in coastal protection avoids US$14 in damages, urban nature-based solutions can lower temperatures by over 1C, and strengthened health systems significantly reduce heat-related impacts. 

Developing countries will require between USD 310 billion and USD 365 billion per year for adaptation by 2035. In stark contrast, the UNEP Adaptation Gap Report 2025 states that, international public adaptation finance flows amounted to just USD 26 billion in 2023, down from USD 28 billion in 2022. This means current finance levels meet less than 10% of estimated annual adaptation needs, leaving a shortfall of USD 284339 billion every year over the next decade, with needs that are 1214 times as much as current finance flows.

Figure 1 Comparison of adaptation financing needs, modelled costs and international public adaptation finance flows in developing countries

While progress in policy planning and meeting adaptation requirements is somewhat visible. Out of 197 countries 172 have a national adaptation plan, strategy or policy in place. The result is widening gap between what vulnerable countries need to protect their people and nature, and what the global climate finance system actually provides.

As per an article by Carbon Brief, in low-income countries adaptation finance still lacks and find very difficult in meeting their climate goals as international public adaptation finance grew much more slowly, increasing from USD 19.8 billion in 2019 to USD 25.9 billion in 2023. Year after year, the gap between the funding required and the resources actually available continues to widen. Closing this gap is increasingly urgent as climate risks intensify. However, progress is hindered by inconsistent definitions of what qualifies as adaptation finance, along with fragmented approaches to how these funds are delivered and tracked.

Figure 3 Adaptation finance provided by developed countries for developing countries

What is Adaptation Finance and how it is different from Mitigation Finance?

Adaptation is simply, actions that reduce or can cope with current and future climate impacts, while reducing risks and protecting livelihoods and the environment. Whereas climate change mitigation are efforts that reduce or prevent GHG emissions. Adaptation finance can be from multiple sources such as funds from developed to developing nations, investments made by governments within their own countries to build climate resilience, and sometimes from private sources such as businesses, and financial institutions, with companies increasingly investing to protect their operations, supply chains, and markets from climate risks.

However, sometimes adaptation overlaps with development finance, as actions that reduce poverty and strengthen livelihoods can also build climate resilience. However, to qualify as adaptation finance, the funding must be specifically aimed at addressing current or future climate risks.

Table 1 Mitigation and Adaptation options

As per Climate Policy Initiative (CPI), Global Landscape of Climate Finance 2025 report, global climate finance reached a record USD 1.9 trillion in 2023 and is estimated to have crossed USD 2 trillion in 2024, growing rapidly at an average rate of 26% per year between 2021 and 2023. Yet this surge has been increasingly directed toward mitigation. In 2023 alone, mitigation finance accounted for USD 1.78 trillion, while adaptation received just USD 65 billion, a fraction of total flows and far below what is needed, even allowing for underestimation due to tracking challenges.

Figure 4 Mitigation finance made up the majority of global climate flows, at USD 1,780 billion in 2023 (left). Adaptation finance reached USD 65 billion (right).

Finance targeting both adaptation and mitigation (Dual benefit) reached USD 58 billion, further underscoring adaptations marginal share. While private climate finance exceeded USD 1 trillion for the first time, driven largely by investments in energy systems, buildings, and electrification, adaptation continues to rely heavily on constrained public budgets.

Figure 5 Adaptation finance from national development finance institutions (DFIs) and other sources

This stark imbalance stays despite clear evidence that climate inaction could cost the global economy 15% of GDP by 2050 under 2C warming. This clearly shows that mitigation dominates climate finance headlines while adaptation remain critical for protecting vulnerable communities and significantly underfunded.
 

Climate finance is largely delivered through loans and equity, instruments that favour projects with clear financial returns. According to CPI, Global Landscape of Climate Finance 2025 report, in 2023, market-rate debt and equity made up the majority of both private and public climate finance, while grants accounted for only 9% of public flows and were almost absent from private finance. Because most adaptation projects do not generate steady revenues and rely on grants or concessional finance, this debt-heavy structure of climate finance systematically favours mitigation and leaves adaptation underfunded. Additionally, adaptation is also disadvantaged by the way finance gets delivered. Over 60% of adaptation finance is provided as loans rather than grants, increasing debt burdens for already vulnerable nations and limiting their ability to invest at large scale.

Figure 6 Climate finance instruments by sector in 2023

On the other side, if we focus on Indias climate strategy, it is heavily skewed toward mitigation, driven by domestic growth priorities and an international finance system that favours low-carbon technologies. In contrast, India Fourth Biennial Update Report, 2024 states that adaptation finance remains limited and slow, despite high climate vulnerability and estimated needs of USD 1 trillion by 2030. Additionally, as per an article by Down To Earth, in 2021-22, India allocated about Rs 13.35 lakh crore (over 5.5% of GDP) to adaptation while the major portion to mitigation. Access barriers, reliance on domestic funding, and a persistent bias toward mitigation in bilateral and multilateral finance continue to widen Indias adaptation funding gap.

How Adaptation is related to Carbon-centric finance systems?

Adaptation and carbon finance are often treated as separate climate agendas, yet in practice they share similar characteristics. As per CPI, Global Landscape of Climate Finance 2025 report, nearly 74% of dual-benefit (adaptation and mitigation both) climate finance flows into AFOLU, water, wastewater, and cross-sectoral projects, sectors where nature-based solutions deliver both resilience and emissions benefits (carbon credits). The distribution of adaptation finance in 2023 shows that most of the funding was allocated to water and wastewater system (USD 22.3 billion) and other cross sector systems (USD 31.7 billion), which addresses immediate climate risks such as floods, droughts, and institutional preparedness. While AFOLU and fisheries which is the intersection of adaptation, mitigation, livelihoods, and biodiversity has only got USD 6.5 billion. Climate impacts such as droughts, heat stress, soil degradation, and livelihood loss are first felt through lands, forests and agriculture, especially in vulnerable communities. Investments in AFOLU, through approaches like ARR, agroforestry, and sustainable land management deliver immediate adaptation benefits while also supporting long-term mitigation and development outcomes.

Figure 7 Adaptation finance by sectors in 2023, USD billion

This create a clear case that adaptation benefits are real, but financial recognition is indirect. While ARR projects are primarily financed through carbon markets as mitigation activities, their most immediate and tangible impacts are local and adaptive, reinforcing the broader adaptation finance gap where resilience outcomes remain underfunded despite being delivered on the ground.

Conclusion

The adaptation benefit can be difficult to quantify as they depend on local conditions, exposure, and existing levels of resilience. If adaptation finance is meant to protect people and ecosystems on the front lines of climate change, AFOLU must move from the margins to the centre of climate funding priorities. Tree-based and land-use interventions demonstrate that adaptation and mitigation are not competing goals, but interconnected outcomes. At Grow-Trees, tree plantations are not only removing carbon but also building climate-resilient landscapes, improving local livelihoods, and delivering real social and economic outcomes. Closing the adaptation gap will not only require financing but also supporting the actions that truly help people, especially the work happening on the ground where resilience is built.