Unlocking Capital for Climate Adaptation: how financing costs exacerbate needs, and ways to address them in EMDEs

Key insights and comparative analysis from adaptation project case studies

Adaptation needs in emerging markets and developing economies (EMDEs) are rising rapidly, yet current financing assessments systematically underestimate the scale of the challenge. The cost of capital is a critical, but largely invisible, driver of adaptation outcomes in EMDEs. It shapes which projects are implemented, at what pace, and at what ultimate cost – especially for capital-intensive infrastructure projects. While international assessments focus on investment needs, they rarely account for financing costs, even though high debt and equity costs can more than double total project costs and prevent technically sound, socially essential adaptation projects from reaching financial close.  

Grants, concessional loans and risk-mitigation instruments significantly reduce financing costs by lowering interest rates, limiting reliance on expensive equity, and de-risking projects for private investors. Based on an analysis of 12 adaptation projects across six EMDEs, we highlight how heavily these projects rely on concessional finance to be financially viable. On average, public and concessional sources account for nearly 90% of project financing, above the levels observed for mitigation. In practice, concessional finance can reduce lifetime financing costs by several hundred million dollars for large infrastructure projects. However, this model faces hard limits: international concessional resources are declining, while domestic public budgets in EMDEs are increasingly constrained by debt and fiscal pressures.  

Against this backdrop, scaling up adaptation finance cannot rely on concessional finance alone. It requires improving project fundamentals by strengthening and diversifying revenue models, which in practice, comes with several challenges. Adaptation generates substantial economic and social value, often far exceeding its costs, but these benefits are rarely translated into predictable cash flows. The report highlights cost recovery models including public funding, user-based revenues, and public capture of private value as key tools to align who pays with who benefits, improve bankability, reduce the cost of capital, and mobilise private finance where appropriate. Nevertheless, the capacity of households and firms to absorb higher charges, which are still poorly quantified, also raises important concerns regarding affordability and social acceptability, all the more in least developed countries.  

Overall, this paper calls for a shift from headline finance targets towards strategies that fully integrate cost of capital considerations, combining concessional finance, revenue mobilisation, and structural reforms to unlock durable and scalable investment in climate adaptation in EMDEs.