3.2 How capital can protect people, places and supply chains
· 9 min read
This article is part of the Sustainable Finance Guide, a new series by Globalfields in collaboration with illuminem. Together, we provide readers with clear, educational insights into where sustainable finance stands today and how it is evolving to support nature, regeneration, and long-term resilience.
Adaptation does not refer to the prevention of climate change or halting its effects, but it is about living with it.
According to the United Nations Framework Convention on Climate Change (UNFCCC), adaptation refers to ‘adjustments in ecological, social or economic systems in response to actual or expected climatic stimuli and their effects’ [1]. In practice, this means altering the processes, practices and structures that underpin our societies so that communities, infrastructure and ecosystems can withstand a changing climate.
Climate adaptation is action.
It involves the deliberate implementation of measures that build resilience in communities, preparing for the effects of climate change rather than preventing it. Resilience, while closely related, slightly differs in meaning. It is the capacity to anticipate and cope with the shocks related to climate change, in a way that sustains long-term wellbeing [2]. Whilst adaptation is the tangible action, resilience is the outcome and a change in the way of thinking.
The value of adaptation is tangible. Building flood defences, such as sea walls, saves lives and property. Developing early warning systems allows communities time to prepare and evacuate. Creating green urban spaces cools cities and improves health. These actions limit harm, but adaptation, may also take advantage of potential opportunities that climate change could bring. In some regions, adaptation may mean shifting to new crops that are better suited to the new climate, ensuring both survival and sustainable prosperity [2].
However, adaptation can never be uniform. While conceptually it is the process of ‘adjusting to the actual or expected climate and its effects’, in reality, there is no one size fits all response or universal formula. Adaptive measures must be context-specific, country-driven and informed by the best available scientific evidence as well as traditional knowledge of local and indigenous communities [3].
The ultimate objective of adaptation is clear. Adaptation is about protecting people, communities, livelihoods and ecosystems from the escalating risks of climate change.
Within the sustainable finance landscape, adaptation must be understood as a strategic investment. Capital directed towards adaptation strengthens communities and ecosystems, while also protecting supply chains, stabilising economies, and protecting long-term financial returns.
Adaptation is now formally recognised as a key component in the global climate agenda. Article 7 of the Paris Agreement anchors this by establishing a global goal on adaptation by ‘enhancing adaptive capacity, strengthening resilience and reducing vulnerability to climate change’ [4]. In doing so, it aims to strengthen national adaptation efforts through support and international cooperation, which is underpinned by financial systems that can channel capital where resilience is most required.
The Paris Agreement further institutionalised this vision through the formulation and implementation of National Adaptation Plans (NAP) – plans which identify medium- and long-term adaptation priorities, needs and strategies. Their purpose is twofold: to reduce the vulnerability of the impact of climate change through building adaptive capacity and resilience and to integrate adaptation into relevant new and existing policies, programmes and activities [5]. Countries should periodically update and submit these plans which outline adaptation priorities, needs, plans and actions.
The UNFCCC, the Global Centre on Adaptation (GCA) and the World Resources Institute (WRI) stress that adaptation finance must be scaled urgently, particularly in the vulnerable countries where climate impacts threaten decades of development progress. The International Monetary Fund (IMF) estimates that adaptation costs exceed more than 1% of GDP annually for approximately 50 low income and developing countries. However, this could rise to 20% of GDP for small island nations [6].
The finance gap is staggering and urgent – developing countries will require between 215 to 387 billion USD per year by 2030 to meet their adaptation needs.
For the sustainable finance landscape, this is both a warning and a call to action. Capital flows must shift from reactive relief to proactive resilience where adaptation finance protects communities, ecosystems and supply chains before climate change impacts begin or, at this rate, worsen. To be effective, capital must be allocated within a coherent, science-based and internationally coordinated approach.
At its very core, adaptation aims to protect the foundations of human survival from the impacts of climate change, such as water, food, health and infrastructure. These systems support economies and allow them to thrive. Thus, capital allocation towards adaptive measures is an investment in long-term economic stability and sustainability.
Water is key to addressing climate change and building resilience. So much so that 60% of adaptation solutions are linked to water. From the mangrove belts in Bangladesh, which protect coastal embankments during storms while sustaining livelihoods to the “Room for the River” initiative in the Netherlands, which mitigates flooding by creating space for rivers while preserving urban infrastructure and economic activity, water-based adaptation shows that resilience and development can manifest hand in hand. In Sub-Saharan Africa, the numbers are clear: investing 6 billion USD annually in water management could avert losses exceeding 90 billion USD [7].
In agriculture and food systems, adaptation could determine whether nations can feed their people and sustain their economies, thus it is vital. This can include climate-resilient crop varieties, integrated pest and water management, and seasonal forecasting. These adaptive tools equip farmers with tools to endure volatility and embrace climate induced change.
In the health sector, adaptation can translate into climate-proof healthcare infrastructure, training health professionals or early monitoring of climate sensitive diseases, such as malaria or cholera. These investments do more than just directly saving lives, but it preserves human capital, productivity, all in all, ensuring a thriving economy.
In the infrastructure and urban resilience sector, coastal defences, resilient and retrofitted houses as well as green urban spaces adapt to the changes in climate alongside increasing population.
Though these sectors have been listed out distinctly, their vulnerabilities, and solutions, are profoundly interconnected. Across these sectors, adaptation finance acts as a tool to protect not only communities and their places, but the supply chains that prosperity can depend upon.
Lao PDR is amongst the most climate vulnerable and least developed countries, facing rising temperatures, heavier rainfall and greater disease burdens. In 2021, the Ministry of Health launched the project with support from Save the Children Laos, which contracted Globalfields to design the funding proposal. This project received a USD 25 million grant from the GCF.
The project invests in resilient health infrastructure, Water, Sanitation and Hygiene (WASH) systems, and health system capacity across 25 vulnerable districts. The key objective of this project was to enhance the climate resilience of the health systems and strengthen the communities’ capacity to manage current and anticipated health impacts resulting from climate change.
The broader contribution is that this project exemplifies how sustainable finance can extend beyond direct action in the environmental field – such as renewable energy and mitigation. Adaptation is the fundamental action which meaningfully (if correctly implemented) addresses community resilience too. This project identifies the importance of directing capital towards social resilience as another core pillar of the sustainable finance ecosystem.
Unlike mitigation and emissions reduction, adaptation does not pertain to a single, universal metric.
Measuring progress on adaptation is inherently challenging. Its impacts are often location and context specific, making them harder to quantify. For example, a sea wall that protects one community from flooding cannot be easily compared to an early warning system that saves the lives of many across a region.
Furthermore, there is limited data available to make meaningful assessments with extra requirements to report progress bringing additional burdens to governments that already have constrained resources and time. Given this, there is an ongoing question of how to best track progress on adapting to climate impacts. Though national governments are developing their own monitoring and evaluation plans, very few are operational at the moment.
Despite this, measuring is still vital.
For local and national institutions, measurement may support learning and responses to changing risks and hazards. On a global scale, measurement identifies how global investments are helping countries minimise the risks of climate change – highlighting where progress is being made and where gaps remain [8].
Too often, adaptation is overshadowed by the need, and success, of mitigation. But without adaptation, financial systems face instability through spiralling humanitarian situations and disrupted supply chains.
Investing in adaptation is risk management. It is an opportunity to redesign systems that are more resilient, equitable and sustainable. For investors, adaptation finance protects not only vulnerable communities, but also ensures a future to invest in.
As the WRI states, adaptation finance is about ‘making people, and the infrastructure and ecosystems they rely on, more resilient to the impacts of climate change’ [9]. The sooner capital is directed into adaptation, the stronger shield we build for people, places and supply chains to be aware, reactive and responsive to climate change and its effects.
As a concluding remark, adaptation and mitigation can often be treated as binaries – one reactive and the other preventive. However, the reality is that these actions may reinforce each other. The next article addresses cross-cutting investments, those that reduce emissions while simultaneously strengthening adaptive capacity.
The views expressed are for informational purposes only and do not constitute financial, legal, or investment advice.
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