Why Smart Climate Adaptation Investments Deliver Huge Payoffs

Climate change is increasing both the frequency and intensity of extreme weather events, a trend that experts predict will continue. This phenomenon poses the most significant risks to the most vulnerable communities and regions. However, existing climate adaptation strategies are not meeting the necessary standards to address these challenges effectively.

The World Resources Institute (WRI) presents a compelling case for investing in climate adaptation and resilience. It highlights that such investments are not only essential but also economically sound, with potential returns as high as ten times the initial investment.

Moreover, investing in climate resilience across all sectors is not only profitable but also delivers broad benefits to communities, including improved health, safety, and livelihoods. Unfortunately, many of these benefits are not monetised, leading to an underestimation of the true value of investing in climate adaptation and resilience.

WRI’s study, “Strengthening the Investment Case for Climate Adaptation,” examined 320 climate adaptation projects in 12 countries: Bangladesh, Brazil, China, Colombia, Ethiopia, Ghana, India, Kenya, Senegal, South Africa, Uzbekistan, and Vietnam.

The report evaluates the scale and composition of benefits from investments in adaptation approved by MDBs and international climate finance institutions between 2014 and 2024, covering four sectors – agriculture, health, water, and infrastructure.

These sample countries include diverse regions, population sizes, and income levels. Collectively, they represent 48% of the global population and are, on average, moderately vulnerable to climate change, according to the Notre Dame Global Adaptation Index (ND-GAIN).

The study notes that every dollar invested in climate adaptation is expected to generate over $10.50 in benefits over a ten-year period. The climate adaptation investments analysed in the report totalled over $133 billion and projected a return of $1.4 trillion in benefits.

However, the other benefits generated through these investments were not monetised, suggesting that the expected return of $1.4 trillion is a significant underestimate.

Triple dividend of the resilience framework

So, where do these other benefits come from? According to the study, the triple dividend of the resilience framework captures the three sources of these benefits: avoided losses (first dividend), induced economic development (second dividend), and social and environmental benefits (third dividend).

For instance, the high rate of return (ROI) for health and disaster management results from reduced deaths (the first dividend), while the high returns in the sustainable agriculture and forestry subsectors are based on poverty reduction (the second dividend) and mitigation co-benefits (the third dividend). Infrastructure-related adaptation projects, including those in energy, transport, and urban areas, generate benefits across all three dividends.

Avoided losses and induced economic development are dividends that offer the highest returns on investment (ROIs). Economic development, social, and environmental benefits work not only as co-benefits but are also key features of effective climate adaptation interventions. Additionally, half of the evaluated investments have generated mitigation benefits, showing a connection between climate adaptation and GHG reduction goals.

Recommendations from the report:

• Multilateral banks (MDBs), development finance institutions (DFIs), and governments need to increase their awareness and ability to calculate the added benefits of climate adaptation investments, as well as identify high-return investments in various sectors, to inform investment design in other countries and regions.
• Adaptation investment narratives should be revised to include the other dividends and benefits they generate. Multilateral Banks should take the lead in increasing the standards for adaptation investment design and appraisals, including the monetisation of climate adaptation investments’ co-benefits and increasing the transparency and accessibility of adaptation finance data.
• Incentivising private finance by emphasising the’ high and tangible economic benefits of adaptation investments.
• Strengthening the system for collecting, monitoring, and evaluating data on climate adaptation investments, both actual ones and forecasts, as well as improving the quality and comparability of economic appraisals. Existing initiatives, such as the AdapTDR, and approaches, like the UK’s Green Book, can help MBDs and DFIs achieve this.

Download the report, “Strengthening the investment case for climate adaptation: A triple dividend approach”, by browsing the link in the “Sources” section below.