Why aren’t we investing more in climate adaptation?

Detailed summary

There are many proven ways to protect people and assets from extreme weather, and such measures often prevent economic losses worth many times their cost. But ensuring their implementation requires making them more affordable and creating innovative reven

As world leaders gather in Antalya, Turkey, for the United Nations Climate Change Conference (COP31), climate adaptation is high on the agenda.

The economic case for action is compelling. Measures ranging from flood defences to cooling and irrigation technologies can prevent losses—including property damage, lower productivity, and reduced agricultural yields—worth many times their cost. Yet the world invests only a fraction of what’s needed, leaving many people and assets inadequately protected from extreme weather.

The McKinsey Global Institute (MGI) found that the world spends approximately US$190 billion annually on 20 proven adaptation measures that protect against heat, wildfire, flooding, and drought. But this is just one-third of the US$540 billion needed to protect everyone exposed to climate hazards at developed-economy standards.

These measures could cost US$1.2 trillion per year when the world reaches 2° Celsius above pre-industrial levels, which current emissions trajectories suggest may occur by around 2050. But we estimate that the returns in avoided losses would be roughly three times the costs of these measures today, increasing to seven times the costs at 2°C of warming.

Clearly, economic benefits are not enough to guarantee investment. The problem is that what makes economic sense for society does not always make financial sense for the households, companies, and governments expected to act.

Consider the construction of a sea dike. It protects residents, businesses, property owners, and insurers from flood losses, but the public agency building it has no way to recover its costs, because a sea dike does not produce revenue. Similarly, a bank may struggle to finance an asset with no predictable cash flow.

Competing spending priorities, unclear benefits, misaligned incentives, and implementation challenges can constrain demand, while repayment risks, uncertain project performance, and the difficulty of making numerous small investments can impede…

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