Can Development Banks Do Better on Climate Adaptation Finance?

In 1992, Al Gore termed adaptation to be “a kind of laziness, an arrogant faith in our ability to react in time to save our skin.” The evidence suggests otherwise.

Climate adaptation—the set of actions that societies take to protect their populations from extremes, such as storms, floods, droughts, heatwaves, and cold snaps—works. It includes all the things people in rich countries take for granted: well-constructed buildings that withstand disasters, dikes and dams that protect from floods, air conditioning and cold storage for food and medicines, early warning systems, well-equipped first responders, and evacuation routes along well-paved roads.

A society’s resilience to climate extremes is closely coupled, of course, with economic development. That includes access to plentiful energy, better technology, improved agriculture, cheaper and more reliable communications technologies, and the ability to pay for better houses and infrastructure. Even a cursory look at the data makes abundantly clear that development has saved millions of lives over the past century. The average person today is 99 percent less likely to die from floods, droughts, storms, or other extreme climate events today than in 1920—and that’s almost entirely the result of the decline in the number of people living in poverty.

And yet, multilateral development banks–the largest providers of finance to poor countries–remain firmly committed to fund far more climate mitigation than adaptation. By leaving adaptation off the financing agenda, development banks like the World Bank risk keeping impoverished countries poor, and at greater risk of catastrophic natural disasters.

They must do better.

Climate Finance Is Not a Proxy for Development Outcomes

In recent years, the World Bank and its regional counterparts have been under immense public pressure, mostly from the richest shareholders, to expand their climate portfolio. Led by the World Bank, they have set ambitious targets to finance climate change mitigation and adaptation projects in low- and middle-income countries. As a result, their climate portfolios have undergone a significant expansion, especially after the publication in 2016 of the first World Bank Group Climate Change Action Plan.

Too often, the amount of finance has become a proxy for outcomes when it comes to agenda-setting and strategy at the multilateral development banks. For example, much of the World Bank reform agenda under discussion by the Bank’s shareholders over the past few years has focused on optimization of the institution’s balance sheet to scale up climate finance. Regardless of the merits of this agenda, it should not overshadow the need for a more intensive focus on how the Bank is programming its climate finance.

An examination of the World Bank’s climate portfolio of over 2500 projects between 2000 and 2024 shows that the Bank has a climate portfolio skewed towards mitigation (Figure 1). Of the total amount of $174 billion, 58 percent of its climate financing was directed to mitigation while adaptation projects received 42 percent. Low income countries—those with annual per capita income between $1086 and $4255–have received over $40 billion in adaptation financing. What is puzzling is that an equal amount has been spent on mitigation, despite the fact that these countries emit very low amounts of carbon. Low-income countries are in need of adaptation finance more than anything else, including investments in steady, cheap and reliable sources of power that can supply homes, schools and businesses with electricity on a continuous basis.

Climate Adaptation Works

We know how to adapt to climate, and therefore, the investments necessary to assist poor countries in tackling weather and climate events. As my colleague, Patrick Brown, writes:

Humanity has never been close to sufficiently adapted to any climate. Our historical climate, far from being benign and nurturing, was indifferent and often hostile to our well-being, and this is why history is rife with examples of devastating climate impacts on society.

At the same time, humanity has had tremendous success strengthening our defenses against the climate's inherent hostility faster than negative impacts from climate change have materialized. This climate adaptation (as opposed to climate change adaptation) is not a new phenomenon related to United Nations reports or initiatives of local governments. Rather, it is a continuation of humanity's inexorable impetus to reduce our vulnerability to our environment, driven largely by economic development and technological progress.

Investments in infrastructure are particularly significant. The migration of populations from rural regions to cities has brought with it a shift from unpaved roads and mud houses, which are vulnerable to storms and flooding, to more infrastructure. Improved sanitation and clean drinking water reduce illness and disease in the aftermath of such events. Better irrigation has reduced the frequency of crop failures resulting from droughts. Refrigeration keeps food from spoiling on its way to markets, and air conditioning helps people keep cool during heat waves. Water control, fertilizer, good weather forecasts, cold storage and reliable transportation are central to robust food supply chains that are resilient to drought and variations in temperature.

To better cope with storms and floods, poor countries need to pave roads, construct dikes, and build resilient homes, schools, and hospitals. Resilient structures require concrete and steel, as well as building codes and regulatory standards. Emergency warning systems must be put in place to save lives. The factors that make people resilient to natural climate variability are the same as those that build resilience to climate change. We know how to harden societies against climate extremes. The challenge in the development finance space is to establish practices that are both evidence-based and accountable to the beneficiaries of development projects.

A clear working definition of climate adaptation coupled with rigorous assessment is important, but staff at multilateral development banks remain under pressure to prioritize ambitious mitigation targets, in keeping with the preferences of their richest shareholders. As such, there is a risk of crowding out adaptation projects in the most vulnerable countries.

Multilateral banks must build trust with poor countries by acknowledging that adaptation to climate is a serious undertaking requiring substantial resources. Adaptation projects must be chosen in close consultation with client countries and must incorporate indigenous knowledge where possible. Furthermore, best practice case studies in areas such as weather forecasting, irrigation, and flood control offer evidence-based examples of climate adaptation at scale.

Green growth will require the MDBs to make substantial investments in energy, including in baseload power that may require the use of fossil fuels. Financing cheap and reliable energy is far more important than formulating net zero goals in poor countries that barely consume any electricity at all. Investments in climate adaptation must be assessed for outcomes, both qualitatively and quantitatively. For all the hype, there is still no independent evaluation of the climate portfolio of the World Bank. All of the multilateral banks must invest in rigorous and independent assessments of projects to understand how they might help countries adapt to a changing climate.