The US should shape the global climate adaptation market
Even as the U.S. has pulled back from many of its climate change commitments, it is simultaneously relinquishing leadership in areas set to save lives and position the country at the forefront of the emerging climate adaptation economy. As climate-related losses increase at home and abroad, public and private investment is projected to reach into the trillions of dollars to build resilience to the impacts of climate change that we are already experiencing.
But countries have also implemented more than 1,600 climate adaptation actions, from early warning systems and flood defenses to climate-resilient agriculture, water management reforms, heat-health action plans and ecosystem restoration. Roughly $46 billion was allocated to adaptation finance globally,
Despite these increases in adaptation investments, spending on damage still outpaces adaptation. The gap between damage and prevention is likely to widen unless resilience investment scales dramatically.
Behind the dollars, adaptation finance is a fragmented landscape shaped by institutional priorities. Climate adaptation is not a single market, but more like a set of parallel systems: public finance, development finance, household spending, insurance, philanthropy and private capital. Each is governed by different logics of value, risk, incentives and accountability This dynamic makes comparability very difficult. Therefore, what counts as “valuable” adaptation depends on the institutional lens applied and financial risk entailed.
Public budgets, concessional finance and multilateral development banks are the primary vehicles for funding climate adaptation. This model has been the status quo for decades; however, it is becoming unsustainable.Public resources are increasingly constrained relative to the magnitude of the problem, creating a structural paradox: Public finance is indispensable to adaptation in developing countries, yet insufficient on its own to meet rising needs.
Rather than a pessimistic conclusion, this can reframe public finance from a funding source into the enabling infrastructure that makes private participation possible.
Private finance has historically approached adaptation as a question of loss avoidance. Moreover, recognizing physical climate risk as financially material has not generated adaptive capacity in the broader economy. Several structural barriers reinforce this dynamic, including the lack of common definitions and metrics, long and uncertain payback periods, limited or indirect cash flows and the challenge of valuing avoided losses or widely dispersed co-benefits.
Adaptation finance cannot be unlocked by any single actor or instrument, and the most powerful role of public finance may be catalytic: de-risking investments and creating conditions for private participation.
Academic research and case studies on adaptation finance demonstrate that climate adaptation can generate value, but it is not yet clear whether existing financial frameworks are equipped to recognize it.
Analyses from groups like the World Economic Forum and Boston Consulting Group, along with McKinsey and others, are starting to frame climate adaptation and resilience as a growing value driver, with investable markers exceeding $1 trillion in the coming years. But for now, while adaptation-related markets are expanding, private capital tends to engage selectively and conditionally. Investment is most likely where risks are partially absorbed by public or concessional finance, returns are indirect but credible and projects are structured to aggregate demand or monetize co-benefits.
To fully unlock the available capital for climate adaptation, governments and international organizations can catalyze economic activity and innovation by using public finances to lower risk and attract more private investment, bundling small, local, or household-level adaptation and resilience efforts into investable portfolios, and reconciling public-good outcomes with private returns (for example, flood protection tied to infrastructure revenue). Green and climate-labeled debt instruments can also support scaling adaptation-focused securities in support of resilience investments
Developing novel insurance and risk transfer mechanisms such as expanding parametric insurance, catastrophe bonds and risk-pooling instruments can make climate risk legible and tradable for private capital, along with strengthening climate risk disclosure frameworks to provide more transparency in lending. But to accomplish this, an early and critical task will be to establish common definitions and metrics to reduce transaction and due diligence costs and create the preconditions for broader market participation.
The U.S. has long been the architect behind much of the world’s financial system. Washington has written the rules that govern multilateral lenders, shaped risk-pricing frameworks for insurers worldwide and left its institutional fingerprints across nearly every major market. When the U.S. signals that something matters, capital tends to follow. That influence is especially powerful in climate adaptation, where public dollars can unlock far larger pools of private investment and where clear standards can turn uncertainty into opportunity.
The climate adaptation economy is being defined now. We can pretend it is not happening and suffer the consequences, or we can bring the full strength of the economy to build a more resilient future where people, communities, and economies can thrive within rather than succumb to climate risk.
Marina Saguar Urquiola is a climate finance specialist and graduate student at the Columbia Climate School.Jeff Schlegelmilch is an associate professor of Professional Practice of Climate, and director of the National Center for Disaster Preparedness at the Columbia Climate School. He is author of “Rethinking Readiness: A Brief Guide to Twenty First Century Megadisasters” and co-author of “Catastrophic Incentives: Why our Approach to Disasters Keeps Falling Short.”
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