Key Findings
Asia remains disproportionately vulnerable to climate shocks, with direct economic losses averaging USD75.7 billion annually between 2000 and 2023. Yet adaptation finance lags. Global flows in 2023 were only USD65 billion, while just 12% of Southeast Asia’s USD27.8 billion climate finance in 2018–2019 supported adaptation.
Multiple structural barriers constrain the scaling of adaptation finance, including limited recognition of adaptation benefits, unclear revenue streams, and small and fragmented projects. In Southeast Asia, these challenges are exacerbated by fiscal pressures, weak planning, heavy reliance on international financing, and varied institutional capacity.
Adaptation should be systematically integrated into national planning and budgeting alongside strengthened project preparation and enhanced local implementation capacity. Embedding adaptation into taxonomies with clear guidelines and incorporating the full economic benefits would reinforce the financial case for investments in resilience.
Amid uncertainty in international development finance, mobilizing domestic capital through tailored financial instruments, better capital market access, and innovative tools is essential for Southeast Asia to meet the adaptation challenge.
Executive Summary
Asia remains disproportionately vulnerable to climate shocks, as global climate finance continues to prioritize mitigation over adaptation. In 2023, global adaptation finance amounted to just USD65 billion — approximately 4% of total climate finance flows of USD1.9 trillion.1 The consequences are particularly evident in Asia, where direct economic losses from climate-related events averaged USD75.7 billion annually between 2000 and 2023, accounting for about 40% of global losses over the same period.2 Although international commitments at the 26th and 30th United Nations Climate Change Conferences (COP26 and COP30) pledged to scale adaptation finance to USD40 billion by 2025 and USD120 billion by 2035 respectively, these figures remain far below projected requirements. By 2035, developing economies are expected to need USD310–365 billion annually for adaptation, resulting in an estimated shortfall of USD284–339 billion.3
Multiple structural barriers continue to constrain the scaling of adaptation finance. Unlike mitigation investments, adaptation projects rarely generate predictable revenue streams, as their value is primarily derived from avoided losses and public benefits rather than direct cash flows. Returns are typically realized over long time periods and depend on grants or concessional funding. Project fragmentation and relatively small transaction sizes further increase costs and deter institutional investors.
Measurement challenges compound these issues as adaptation outcomes are highly context-specific, limiting the use of standardized metrics. Planning and institutional capacity gaps exacerbate financing constraints across Southeast Asia. While some countries have established relatively comprehensive national adaptation plans (NAPs), others lag behind. At the same time, fiscal pressures — intensified by post-pandemic debt burdens — restrict public expenditure.
Despite these constraints, there is growing evidence that adaptation investments deliver substantial economic and social returns by avoiding losses, increasing economic activity, and generating broader environmental and social benefits. Estimates from the Global Center on Adaptation (GCA) suggest that USD1.8 trillion in global adaptation investments could yield USD7.1 trillion in net benefits across five priority areas, implying returns of two to ten times the initial cost.4
Other assessments find benefits distributed relatively evenly across avoided damages, economic development gains, and social and environmental outcomes. Notably, more than half of these advantages accrue independent of disaster events, including productivity improvements and emissions reductions, particularly in forestry and urban initiatives. Approximately half of the projects also exhibited links with mitigation, enabling access to carbon markets. Therefore, private sector participation should be catalyzed since there are significant opportunities in adaptation-related solutions. In Asia, adaptation needs are concentrated in agriculture, infrastructure, water systems, and biodiversity — sectors that already present scalable private investment opportunities.
Southeast Asia faces distinct regional challenges. Adaptation readiness varies widely, with countries such as Singapore, South Korea, and Japan ranking relatively high, while Thailand and Cambodia lag, according to Bloomberg New Energy Finance (BNEF) assessments.5 Blended finance remains underdeveloped and relies predominantly on international capital, with limited mobilization of domestic resources. As overseas development assistance declines, philanthropic capital and non-governmental organizations could play a more significant role in financing early-stage project preparation. Weak project pipelines persist, driven by gaps in climate-risk data, technical capacity, and bankable project design, leading to frequent rejections of funding proposals.
Several pathways exist to unlock greater volumes of adaptation finance. Sustainable bond markets represent one such avenue, with adaptation-focused bonds accounting for an estimated 6–10% of total sustainable issuances by volume between 2021 and 2024.6 Recent transactions — including a USD700 million resilience bond7 issued by the European Bank for Reconstruction and Development and a EUR300 million Tokyo metropolitan bond8 that was oversubscribed seven times — demonstrate strong investor appetite. Greater integration of adaptation into sustainable finance taxonomies could further improve market clarity. At the regional level, the Association of Southeast Asian Nations (ASEAN) Mitigation Co-benefit and Adaptation for Resilience Guide9 proposes six principles to ensure that criteria are science-based and context-specific. Debt-for-nature and debt-for-resilience swaps offer additional fiscal space.
Strengthening resilience across Southeast Asia will require coordinated public and private action. Governments should commit to stable, long-term budgetary allocations for adaptation, expand blended finance mechanisms to facilitate nature-based solutions, and strengthen supportive policies such as carbon pricing and green bond frameworks. The private sector must assess physical climate risks more systematically, deploy green finance instruments, and recognize adaptation as a source of growth and investment protection rather than a defensive cost. Progress in national planning, project pipeline development, and outcome measurement will be essential to accelerating capital flows. Countries should identify adaptation investment prospects more efficiently and create credible, implementation-ready funding pipelines. With sustained and aligned efforts, the region can narrow the adaptation finance gap and convert escalating climate risks into resilient and inclusive growth opportunities.
[1] Climate Policy Initiative. Global Landscape of Climate Finance 2025. 23 June 2025.
[2] United Nations Office for Disaster Risk Reduction. Global Assessment Report on Disaster Risk Reduction 2025: Resilience Pays: Investing and Financing for Our Future. 27 May 2025.
[3] United Nations Environment Programme. Adaptation Gap Report 2025: Running on empty. 29 October 2025.
[4] Financial Times. Adaptation: The Key to Combating Climate Disruption. Date accessed: 12 January 2026.
[5] BNEF. Ranking Resilience: Assessing Country Climate Adaptation. 13 October 2025
[6] Organisation for Economic Co-operation and Development. Sustainable Bonds: Trends and Policy Recommendations. 17 November 2025.
[7] European Bank for Reconstruction and Development. World’s First Dedicated Climate Resilience Bond, for US$700m, issued by EBRD. 20 September 2019.
[8] Climate Bonds Initiative. Tokyo Metropolitan Government to issue world’s first Climate Bond Certified using the Resilience Criteria and Taxonomy. 10 October 2025.
[9] ASEAN Capital Markets Forum. Phase 1 White Paper on Key Principles and Methodological Approaches: For the Development of the Mitigation Co-benefit and Adaptation for Resilience (mARs) Guide in support of the ASEAN Taxonomy for Sustainable Finance. November 2025.
Related Content
