Financing Climate Adaptation: Making It Happen
Karin Bony-Merad Managing Director, Head of Sustainable Finance, Societe Generale
Florencia Mascaró Director, Sustainable Finance UK, Societe Generale
Financing climate adaptation is a necessity, but the investment decision can be challenging.
Climate change is no longer a future risk. It is a present-day economic reality that is reshaping markets, business models and investment decisions. Worldwide, heatwaves, droughts, floods and wildfires are disrupting operations, damaging critical infrastructure and testing the resilience of supply chains.
This summer alone, record-breaking heatwaves and wildfires have strained energy and water systems, interrupted production and transport networks, and accelerated the degradation of natural ecosystems that underpin economic activity. The financial consequences are increasingly visible on corporate balance sheets, in insurance markets and across global value chains.
Mitigation remains essential to limit global warming and reduce the severity of future climate impacts. Yet mitigation alone is no longer sufficient. Adaptation, the process of adjusting to current and anticipated climate risks, and resilience, the capacity to prepare for, withstand and recover from climate-related shocks, as defined by the EU Taxonomy Regulation, have become strategic imperatives for both businesses and public authorities.
Increasingly, climate adaptation is not simply a risk management exercise. It is a driver of long-term competitiveness, economic security and strategic sovereignty. Organisations that fail to adapt face growing operational, financial and regulatory risks, while those that invest early in resilience are better positioned to protect assets, secure supply chains and sustain returns.
The economic case is compelling. According to the World Economic Forum, climate-related disasters have caused more than $3.6 trillion in economic losses since 2000. With less than half of those losses covered by insurance, businesses are shouldering an increasing share of the financial burden. As physical climate risks intensify, adaptation is emerging as a critical investment priority for preserving value and strengthening long-term resilience.
The adaptation finance challenge
The scale of necessary financing is huge. On the corporate side, consulting firm BCG puts adaptation and resilience project spending in the range of roughly $800 billion to $1.2 trillion between 2026 and 2030.
If we focus on developing countries, the UN Environment Programme's Adaptation Gap Report suggests developing countries alone face adaptation needs in the hundreds of billions annually, from around $310 billion to nearly $365 billion a year by 2035. By 2050, that number could exceed half a trillion dollars annually.
Several structural barriers explain this gap
Reliance on insurance
Many companies have historically relied on insurance rather than investing in adaptation. However, rising premiums, reduced coverage and growing exclusions are making preventive investment increasingly attractive. In some sectors and regions, maintaining insurability may become essential to securing financing and preserving asset value.
Uncertain returns
Corporate capital allocation often favours projects with clear short-term paybacks, while adaptation investments primarily protect value and reduce future losses rather than generate immediate revenue.
Limited risk data and analytics
Despite rapid progress in methodologies and tools, many companies still struggle to assess physical climate risks, quantify financial impacts and build robust business cases for adaptation investments.
Fragmented opportunities
Adaptation projects are often highly location-specific, with few standardised solutions, limiting scalability and reducing investor appetite.
Lack of common metrics
The absence of widely accepted impact metrics makes it difficult for institutional investors to assess, compare and scale adaptation investments.
Reports by both UNEP and The Climate Policy Initiative show that only around $65 billion, out of the total $1.9 trillion of total climate finance in 2023, was tracked as adaptation. The absence of clear identification of adaptation investments also contributes to the wide funding gap observed.
Adaptation markets gaining momentum
The business case for investing in climate adaptation is increasingly compelling across multiple dimensions, including risk management, operational resilience and financial performance. While challenges remain in scaling investment, several adaptation-related markets are already gaining traction.
- Water resilience stands out as one of the largest and most mature adaptation themes. Growing water scarcity, drought risks and regulatory requirements are accelerating investment in desalination, wastewater treatment, industrial water efficiency, smart water technologies, water-as-a-service business models and critical water infrastructure enhancement. For example, the GBP 3bn Haweswater Aqueduct Resilience Programme1, a transaction supported by Societe Generale, will strengthen long-term water supply resilience for 2.5 million people.
- Energy resilience is another rapidly growing market. Investments in battery energy storage systems, grid hardening, distributed energy solutions, backup power and advanced cooling technologies are helping businesses manage increasing exposure to heat stress, power disruptions and rising energy demand from digital infrastructure. As an example, Societe Generale supported the GBP 594m Thorpe Marsh BESS project, which will partly-fund construction of a 1.4 GW battery energy storage facility in Doncaster, strengthening grid flexibility and supporting the integration of renewable energy into the UK power system.
- Nature-based solutions are also developing. Wetland restoration, ecosystem management and regenerative agriculture can provide both mitigation and adaptation benefits while generating diversified revenue streams under appropriate financing structures. Societe Generale has for instance recently participated in a $60 million delayed draw term loan (DDTL) to finance the construction of a greenfield mitigation bank portfolio2. The financing will support the development and acquisition of stream and wetland mitigation banks that help offset the environmental impacts of critical infrastructure projects.
Making adaptation more appealing to investors
Capital markets have historically favoured climate mitigation. According to the Climate Policy Initiative, more than 90% of global climate finance is directed towards mitigation activities such as renewables, electric vehicles, and decarbonisation, while adaptation receives only around 7% to 8%.
The challenge is not a lack of financing solutions. Adaptation investments can already be funded through a range of instruments, from general corporate-purpose financing to dedicated sustainable finance products. The real priority is to make climate adaptation projects more visible, measurable, and attractive to investors.
To achieve this, corporates and governments should continue developing robust adaptation strategies that clearly articulate climate risks, resilience objectives and investment priorities. Greater transparency would help investors assess how organisations are preparing for physical risks and identify those that are proactively strengthening resilience.
Dedicated use-of-proceeds financing can further support capital mobilisation by providing investors with clear visibility on adaptation-related expenditures. By linking projects to recognised adaptation themes, such as water security or infrastructure resilience, and aligning them with sustainable finance labels, issuers can broaden investor participation. A recent example is the $1 billion dual tranche (green and blue) bond issuance from Emirates NBD3 (Dubai’s largest bank) for which Societe Generale acted as joint bookrunner. Issued under its Sustainable Finance Framework, the transaction will support a range of sustainable projects, including adaptation-related investments aimed at enhancing the resilience of critical infrastructure and developing technologies detect to extreme climate hazards.
Ultimately, how capital is allocated may become one of the clearest signals of climate readiness. Companies that demonstrate meaningful and sustained investment in resilience are likely to be better positioned in a future of increasing volatility.
How can sustainable finance make a difference?
Sustainable finance has successfully mobilised capital for climate mitigation. The next challenge is adaptation. Banks have a critical role to play in this transition by bringing together issuers, investors, insurers and technical experts, in order to translate adaptation needs into investable opportunities and scalable financing solutions.
Climate adaptation now requires a similar level of market mobilisation. While emerging initiatives such as the Climate Bonds Resilience Taxonomy will help strengthen market practice, the foundations already exist. The EU Taxonomy includes a dedicated adaptation objective, and existing green financing instruments can already support projects that enhance resilience.
Sustainability-linked instruments also offer untapped opportunities. While GHG emissions reduction KPIs have become a standard practice in the sustainability-linked market, adaptation and resilience objectives remain largely absent. Incorporating adaptation-focused KPIs could create powerful incentives for organisations to integrate adaptation into strategic decisions.
If mitigation defined the last decade of sustainable finance, adaptation may define the next. As climate-related disruptions become more frequent and costly, financing resilience is becoming essential to long-term value creation, competitiveness and economic security.
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