Measuring the gradual increase in financial support worldwide for climate change adaptation

In a recent report published by the International Climate Initiative (IKI), it was revealed that global climate finance hit an all-time high of $1.9 trillion in 2023. However, the report also highlighted significant funding gaps, particularly for adaptation finance.

Emerging and developing economies received $46 billion in adaptation financing in 2023. Yet, these economies are estimated to need over $220 billion annually on average between 2024 and 2030, and nearly $250 billion annually on average between 2031 and 2050. The decrease in financing was caused by currency depreciation and "methodological updates."

Despite the dip, green bond issuances increased by $7.9 billion to reach $18 billion in 2023, partially offsetting the decrease. This slow rise of adaptation finance comes as global climate finance more broadly hits an all-time high.

The report noted that the numbers probably do not capture the full range of adaptation investments in the global landscape due to the relative novelty and lack of clear definitions and boundaries of the data collected.

The majority of the $1.9 trillion went to climate mitigation finance, which received $1.78 trillion. Meanwhile, adaptation finance accounted for only a small portion, with $144 billion in total investments. The majority of adaptation finance, 22.4%, went to water and wastewater solutions, while energy systems received only 0.5%.

The report also indicated that the climate finance sector is consolidating investor interest while still struggling with major funding gaps. Companies developing first-of-a-kind projects and technologies have a hard time finding the financing they need, with the market meeting just 1% to 17% of the need for FOAK financing.

Funders are increasingly designing their climate interventions to pursue synergies between mitigation and adaptation action. In 2023, energy systems, transport, and waste together accounted for 14% of the total dual-benefit finance. Dual-benefit finance reached $58 billion in 2023, tripling from $18 billion in 2018.

The report did not mention any specific increase or decrease in funding for adaptation solutions from the China Development Bank in 2023. However, it was noted that the dip in funding from 2022 to 2023 was due to a decrease in financing for adaptation solutions from the China Development Bank, amounting to roughly $20 billion.

The total invested in climate finance increased from $40 billion in 2018 to $65 billion in 2023. Annual investments increased by an average of 26% between 2021 and 2023, with the highest investment in the sector being in 2022, at $80 billion.

Early data indicates that the total climate finance breached $2 trillion in 2024. The Climate Policy Initiative (CPI) estimates that meeting the most conservative estimate of required climate investment, $6 trillion, may be reachable by 2028.

As the world continues to grapple with the impacts of climate change, the need for increased and targeted climate financing will remain a critical issue. The report serves as a call to action for policymakers, investors, and businesses to bridge the funding gaps and ensure that the necessary investments are made to protect vulnerable communities and economies from the worst effects of climate change.