Fast‑tracking Net Zero by Building Climate and Economic Resilience

4. Climate adaptation efforts and investments need to be intensified

The year 2024 was the hottest year on record and the first in which average temperatures surpassed 1.5^°C above pre-industrial levels. The impacts of this are being felt globally with climate impacts mounting noticeably. Extreme weather events are becoming more intense and unpredictable, with drought, extreme precipitation, and floods increasing since the beginning of the century. The fire weather season has lengthened by 27% since 1979 (OECD, 2023[69]), and exposure to extreme heat (above 35°C) has risen by 11.3% (OECD, 2023[70]). Extreme weather events cause massive economic losses: in the United States, wildfires alone cost up to USD 285 billion annually (Thomas et al., 2017[71]), while excess heat and droughts in Europe in 2022 cost approximately EUR 40 billion (European Environment Agency, 2023[72]). Across OECD countries, each additional heat wave has been found to lower firms’ labour productivity by 0.2% (Costa et al., 2024[73]).

As the window to meet the Paris Agreement temperature goals continues to close, governments must take immediate action to tackle both the root causes and growing impacts of climate change. Recognising the urgency of setting clear adaptation targets to accelerate climate action, countries at COP28 in 2023 adopted targets to help assess progress toward the Global Goal on Adaptation. These targets provide a framework for evaluating the effectiveness of climate resilience efforts and guiding policy improvements. At the same time, investment remains well below what is needed to build resilience, and securing financing for adaptation continues to be a critical barrier to progress.

An iterative approach to climate change adaptation policymaking

Effective climate adaptation policymaking requires an adaptive, iterative approach that is continually adjusted to address evolving risks, ensuring that efforts to build resilience remain fit-for-purpose (Figure 17). A first step is conducting climate risk assessments (CRA) to identify vulnerabilities and exposure to climate impacts. This should be followed by policy planning and design, which includes developing National Adaptation Strategies (NAS) and National Adaptation Plans (NAP). Once policies are in place, implementation begins, integrating adaptation measures across sectors. The final step is measurement and evaluation, ensuring that policies are continuously refined based on their effectiveness. Regular updates to adaptation strategies and plans are crucial for maintaining resilience as climate conditions evolve.

Many countries are increasingly conducting climate risk assessments, but challenges persist in accurately evaluating exposure and vulnerabilities. These difficulties stem from data gaps and methodological constraints, which can hinder effective policy planning. Overcoming these issues requires improved data collection and the development of standardised assessment tools to ensure accurate and comprehensive risk evaluations.

Effective National Adaptation Strategies and Plans must include measurable and time-bound objectives based on CRAs. A whole-of-government approach is essential to co-ordinate adaptation efforts across different sectors and levels of government. Engaging a broad range of stakeholders, including local communities, businesses, and scientific experts, is vital for developing relevant and practical policies. Adequate funding and technical capacity are essential for ensuring successful implementation.

Figure 17. The adaptation policy cycle

Source: adapted from (OECD, 2024[74]).

Governments should move beyond planning to urgently prioritising implementation. Advancing the implementation of adaptation measures requires a combination of policy tools including economic incentives, regulatory measures, public awareness campaigns, and direct investments in climate-resilient infrastructure, such as coastal protection systems (OECD, 2024[75]).

A key challenge persists in measuring and evaluating adaptation efforts, with fewer than 40% of countries with NAP tracking their implementation (OECD, 2024[74]). Strong legislation mandating performance assessments, the use of indicators to track progress, and enhanced data collection can improve accountability and effectiveness. Strengthening these evaluation mechanisms will ensure that adaptation measures remain responsive and impactful.

Regional disparities in exposure to climate risks call for tailored, place-based adaptation strategies. For instance, cities with more than 250,000 inhabitants are on average 3°C warmer than their surrounding areas due to the urban heat island effect, which causes more severe heatwaves in densely populated areas (OECD, 2023[76]). Some urban centres are 5-7°C warmer than their surrounding areas. Subnational governments play a crucial role in implementing local climate policies and managing infrastructure investments, but resource constraints and technical skills gaps often hinder their efforts. Effective co‑ordination between national and local governments, innovative financing mechanisms, and improved access to climate finance are essential to ensure that adaptation strategies work for all regions. By addressing these challenges, governments can enhance climate resilience and safeguard communities against the growing impacts of climate change.

Financing adaptation efforts

Global annual investment needs for adaptation are projected to be in the hundreds of billions of dollars, with developing countries alone requiring between USD 215 billion and USD 387 billion per year this decade (UNEP, 2023[77]). Estimated adaptation investment flows, at USD 76 billion in 2022, fall short of projected needs (CPI, 2024[78]). Climate finance mobilised by developed countries for adaptation in developing countries reached USD 32.4 billion in 2022 (Figure 18), on track to meet the Glasgow Climate Pact's goal of doubling adaptation finance from USD 19 billion (2019 levels) by 2025 (OECD, 2024[79]). However, annual investment needs for adaptation in developing countries are an order of magnitude greater.

Figure 18. Adaptation finance for developing countries provided and mobilised in 2016-2022 per component

Note: The sum of components may not equal totals due to rounding.

Source: (OECD, 2024[79]).

To bridge this gap, investment frameworks must be adjusted to encourage climate adaptation. This entails establishing effective regulations and creating an enabling environment that attracts adaptation-focused investments. National adaptation plans should include comprehensive funding strategies that connect financing needs with appropriate public and private sources (Figure 19), ensuring a co-ordinated approach to addressing financial shortfalls.

Integrating climate adaptation into public spending requires green budgeting frameworks and updated project appraisal tools that factor in uncertainties and non-market benefits of adaptation, as well as macro‑structural and fiscal models that integrate climate considerations, applied across all levels of government. Targeted financial support and policy coherence are also necessary to align public and private sector incentives, thereby mobilising private sector investments into climate adaptation.

Improving transparency and standardisation in financial disclosures can help align financial markets with climate resilience objectives. Governments play a key role in setting disclosure requirements, facilitating better data access, and, in some regions, developing credible taxonomies to classify and promote adaptation investments. By 2023, 70 countries, including 30 OECD Members, had developed climate‑related finance guidelines which typically include considerations for adaptation (OECD, 2024[4]). These steps enhance investor confidence and direct funding toward climate-resilient projects.

Figure 19. Finance sources, mechanisms and adaptation investments

Note: Colours indicate domestic public (yellow), international public (green) and private (blue) sources of finance.

Source: (OECD, 2024[80]).

Assessing the alignment of finance with climate resilience goals remains challenging, however, as it requires not only an assessment of physical risks and how these relate to financial flows and assets, but also an appraisal of efforts to adapt to or minimise those risks through public policy and financial sector actions. While assessments of physical risk to financial assets and flows are emerging, more accessible and granular data is needed to better reflect the location-specific nature of climate hazards. Better reference points for national and local adaptation policy efforts are also necessary to more accurately assess the alignment of finance with climate resilience goals.

Insurance and risk transfer mechanisms are essential for managing climate-related physical risks. Through risk-based pricing, they encourage risk reduction while offering financial protection. However, significant coverage gaps persist, particularly in high-risk areas where insurance may be unavailable or unaffordable. Governments and financial institutions should develop targeted programmes to improve accessibility and affordability of climate risk insurance, ensuring broader financial protection.

Developing countries are particularly vulnerable to climate impacts due to their geographic exposure and limited investment capacity. These nations face numerous barriers to accessing adaptation finance, necessitating increased international support. Climate finance providers can help scale up adaptation funding for developing countries through 1) evaluating the alignment of their spending plans with climate finance goals; 2) supporting domestic efforts to create an enabling investment environment; 3) enhancing development practices for efficient finance delivery; 4) leveraging public and blended finance to attract private investments; and 5) exploring innovative financing sources such as carbon markets.