3.3 Financing the overlap between mitigation and adaptation
· 7 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.
Both climate change mitigation and adaptation are crucial to tackling the climate crisis, and investments in both must skyrocket to meet rising demand.
Although the scale of impact differs between adaptation and mitigation activities, with climate mitigation typically having a global impact and adaptation a more localised one, they are deeply interconnected. Mitigation is critical, however, as impacts like sea-level rise and intensifying extreme weather cannot be reversed in the short term. Therefore, countries and communities must adapt to them.
While specific pathways may vary, there is consensus that both mitigation and adaptation funding is essential. Integrated approaches that address both challenges concurrently - such as green infrastructure projects using renewable energy to enhance resilience against flooding - offer significant benefits. Many nature-based solutions, like reforestation, reduce emissions and capture greenhouse gases while simultaneously building resilience to extreme weather events like floods, heatwaves, and droughts [1].
Investing in cross-cutting solutions maximises climate co-benefits with minimal additional cost. These projects often span multiple sectors, integrating climate considerations across various activities rather than keeping them siloed. As climate finance becomes increasingly constrained, there is a stronger need for projects that deliver multiple, complementary benefits.
Historically, mitigation financing has dominated the climate finance landscape, with over half of annually tracked climate finance being dedicated to mitigation activities.
However, as shown in Figure 1, the share of adaptation has progressively increased over the period, from 17% in 2016 and 25% in 2019, to 28% in 2022, owing to a USD 22.3 billion increase over 2016-2022. In this period, financing for cross-cutting activities has more than doubled, jumping from USD 6.2 billion in 2016 to USD 13.6 billion in 2022 [2]. However, the pattern of limited finance for adaptation represents a bottleneck, which could be improved through cross-cutting approaches.
Figure 1: Climate finance provided and mobilised in 2016-2022 per climate theme and sector (USD billion)
In terms of sectoral distribution of activities across themes, Figure 1 illustrates that while mitigation projects are primarily focused on energy and transport and adaptation projects on agriculture and WASH, cross-cutting projects show the most diverse portfolio of sectors, displaying the ability of cross-cutting projects for cross-sectoral integration [4].
Blended finance is increasingly regarded as a powerful tool for mobilising private capital for climate and development.
It leverages multilateral and bilateral financing, particularly in Emerging Markets and Developing Economies (EMDEs), where both the need and opportunity for investment are exponentially rising. Following patterns from the 2021-2023 period, blended finance is expected to occupy an increasing share of all mobilised climate finance in the coming decade; therefore, it is important to observe trends of cross-cutting finance in blended finance projects [5].
(More detail on Blended Finance to follow in Article 4.2)
Globalfields has supported the design and implementation of IREME Invest, Rwanda’s green private investment facility, through targeted technical assistance to the Rwanda Green Fund and the Rwandan Development Bank. This Facility was designed to address the limited bankability of climate-aligned projets and the resulting reluctance of private investors to engage, particularly in cross-cutting sectors.
IREME Invest deploys a blended finance model that combines public, concessional and private capital to de-risk investments and mobilise private finance at scale. Through instruments such as concessional loans and credit guarantees, the Facility reduces ros for commercial investors while enabling financing for projects that deliver both climate mitigation and adaptation benefits.
The broader contribution of IREME Invest lies in its explicitly cross-cutting approach. By partnering with multilaterals, MDBs and private sector actors, the facility offers flexible financing tailored to diverse project types and risk profiles. This enables investments that do not fit neatly into a single mitigation or adaptation category. In doing so, IREME Invest illustrates how blended finance can create an enabling environment for cross-cutting investments to scale. This case study highlights the importance of financial architecture in unlocking cross-cutting climate action.
As observed, climate adaptation has been chronically underfunded due to less certain revenue streams and a lack of familiarity among investors. While mitigation finance continues to occupy a large share of climate finance overall, the trends outlined above demonstrate that cross-cutting projects have the ability to mobilise higher ratios of private finance and direct flows to historically underfunded sectors and projects. By including mitigation elements in adaptation projects, these initiatives might appear less risky and include more predictable revenues, as returns on adaptation are typically more difficult to observe.
Urban development projects have a high potential for leveraging mitigation financing in this manner [7]. The Urban Resilience Fund (TURF), implemented by the European Investment Bank (EIB) and targeting cities in Sub-Saharan Africa, clearly demonstrates this. The fund invests in urban mobility, energy transition, smart city solution infrastructure, and waste management systems and contains a first-loss equity tranche funded by donors. This has allowed Development Finance Institutions (DFIs) and private investors to finance the fund. This fund and similar initiatives demonstrate that the growing maturity of the mitigation market may provide opportunities for blended finance to shift into transactions that bring in elements of adaptation and contribute to mainstreaming climate resilience within investment strategies [8].
Cross-cutting activities are often cross-sectoral. Project developers may use renewable energy sources such as solar power to power agricultural irrigation systems that build resilience in farmers against changing weather patterns. The combination of adaptation and mitigation also offers private sector investors the opportunity to make potentially shorter-term, tangible returns through mitigation elements, while building climate resilience through adaptive measures. Additionally, this type of project design highlights how cross-cutting approaches can overcome sectoral silos and encourage both public and private institutions to seize all opportunities to maximise co-benefits.
Additionally, cross-cutting efforts can lead to overall lower transaction costs and help balance the goals of climate action under limited resources, an urgent issue for regions with high emission levels and vulnerability. For instance, in forestry-based carbon credit generation projects, where the mitigation portion of the transaction (i.e. the credits from future CO2 absorption) can be sold in the short term, while tree growth can create long-term benefits such as reduced erosion and cleaner watersheds.
To conclude, the climate challenge cannot be solved through a binary choice between mitigation and adaptation, whereas cross-cutting finance recognises climate action as a system rather than a set of silos. By designing investments that reduce emissions while strengthening resilience, cross-cutting approaches maximise impact, stretch scarce capital further, and align climate objectives with development realities.
Mitigation continues to anchor private investment through quantifiable revenue streams and scalable technologies. Adaptation remains essential for managing unavoidable climate impacts but requires support to overcome weak market signals. Cross-cutting approaches bridge this divide by embedding resilience within mitigation-led investments, enabling adaptation to be financed, de-risked, and mainstreamed rather than treated as a separate or secondary priority.
The next section examines what an evolving climate finance landscape means for businesses in practice. As mitigation, adaptation, and cross-cutting investments are rising, understanding how private capital shapes the climate agenda, why concessional capital is critical to unlocking integrated solutions, and how climate impact is measured will determine which actors remain credible, competitive, and compliant in the ongoing transition.
The views expressed are for informational purposes only and do not constitute financial, legal, or investment advice.
Start your journey with the Sustainable Finance Guide and explore the series reshaping how we think about money, markets and our planet. View the full guide content here.
Looking for more information on sustainable finance and what it means for your business or school? Check Globalfields' new pages here.
Curious how major companies measure up on climate? On illuminem’s Data Hub™, explore verified emissions data, net‑zero targets, and sustainability performance of thousands of firms — from industry leaders to emerging innovators.
Sebastian Rath
Sustainable Finance · Sustainable Investment
Simon Gupta
Sustainable Finance · Sustainable Investment
illuminem briefings
Nature · Sustainable Finance
The Guardian
Public Governance · Sustainable Finance
The Wall Street Journal
Corporate Governance · Sustainable Investment
The Business Times
Sustainable Investment · Corporate Governance