This is an extract from a recent report “Scaling adaptation finance in Southeast Asia” Published by IEEFA. This extract provides an overview of why adaptation activities have struggled to secure financing, identifies key barriers in Southeast Asia, and explores avenues and opportunities to help scale investment.
Climate finance has historically focused on mitigation, with most funding directed toward renewable energy, energy efficiency, industrial decarbonization, and other efforts to reduce greenhouse gas (GHG) emissions. In contrast, adaptation finance — which supports measures to manage the unavoidable impacts of climate change by building resilience through measures such as flood management, coastal protection, and climate-resilient infrastructure — has received far less attention and investment. With global temperatures setting new records every year, the world is experiencing a marked rise in the frequency and intensity of climate-related disasters. The impacts of climate-related disasters are particularly severe in Asia. The region faces some of the world’s highest exposure to floods, typhoons, and heatwaves, and is home to large coastal populations and climate-vulnerable sectors such as agriculture and fisheries. Between 2000 and 2023, Asia recorded average annual direct economic losses of USD75.7 billion from climate events or 40% of the global average, reflecting both the region’s physical vulnerability and the scale of assets at risk. Southeast Asia faces recurring floods and storms that impose significant fiscal burdens, strain public infrastructure, and disrupt livelihoods. Asia is warming at twice the global average due to its extensive landmass. Despite mounting climate risks, adaptation investment in the region remains far below what is needed.
Why adaptation projects have struggled for capital
-The absence of clear, consistent revenue streams
A critical barrier to scaling up adaptation projects is the lack of clear and consistent revenue streams. Unlike mitigation initiatives, such as renewable energy or energy efficiency projects, which generate predictable cash flows through power sales or cost savings, most adaptation measures focus on reducing vulnerability and preventing future climate-related losses. While adaptation benefits can be significant, they are often indirect, taking the form of avoided losses or societal benefits that are difficult to quantify and realized only over the long term. This uncertainty makes it challenging to attract private investment, as traditional investors rely on measurable returns within defined payback periods. Consequently, adaptation projects typically rely on grants and concessional financing. There has been limited progress in incorporating forward-looking resilience benefits into financial appraisal and investment decision-making, in part because adaptation is still widely framed as a cost rather than a source of economic value and returns. Macroeconomic analysis highlights the potential scale of avoided losses. However, these figures are rarely incorporated into investment appraisal frameworks, project-level valuations, or risk pricing methodologies used by public financiers and private investors. Avoided losses and resilience benefits are typically treated as non-cash, uncertain, or external to balance sheets, and are therefore excluded from cost-benefit assessments and credit risk evaluations. Conventional appraisal tools are also inadequate for capturing long-term, probabilistic, and systemic benefits, such as reduced revenue volatility, lower default risk, and improved asset durability. As a result, adaptation investments remain undervalued in capital allocation decisions.
-Small scale and fragmentation of adaptation projects
Adaptation projects are often fragmented and small-scale, reflecting localized climate risks and community-level needs. This fragmentation limits efficiency, increases transaction costs, and makes it challenging to develop investment pipelines large enough to attract institutional capital. Globally, a range of dedicated funds support adaptation initiatives, particularly in developing countries, where the average climate finance project size is about one-third of that in developed economies. These funds provide support through instruments such as grants, concessional financing, co-financing, equity, and guarantees. Notable examples include the Least Developed Countries Fund and the Adaptation Fund, which have committed USD2.1 billion and USD1.5 billion in grant financing, respectively. In Asia, regional and subregional efforts are underway to scale up adaptation finance. Key initiatives include the Asian Development Bank’s (ADB) Community Resilience Financing Partnership Facility, which provides USD189 million in grants and technical assistance for community-led adaptation projects, and the Association of Southeast Asian Nations (ASEAN) Catalytic Green Finance Facility, which, with commitments of USD2.4 billion, helps de-risk investment by covering upfront costs and mobilizing private capital. These initiatives aim to improve the bankability of adaptation projects. However, the scale of such programs remains insufficient relative to the region’s vast adaptation needs.
-Lack of standardized metrics for measuring benefits
Unlike typical financial profit calculations, the diversity of adaptation activities and outcomes makes it challenging to apply a single standardized metric to measure benefits. Adaptation impacts are highly localized and context-specific, reflecting the unique vulnerabilities of specific regions or communities. In contrast, mitigation projects can be assessed using clear and comparable measures, such as carbon dioxide equivalent reductions or energy-efficiency gains. Adaptation benefits are evaluated in terms of avoided climate-related losses, including fewer lives lost during floods, reduced economic damage from extreme weather events, less frequent service disruptions, and improved livelihood security. These outcomes are difficult to quantify using traditional financial metrics and cannot be expressed in a universal measure. Consequently, the lack of standardization complicates impact assessment, project comparison, and performance benchmarking for investors. Several initiatives aim to address this gap. In 2019, multilateral development banks (MDBs) introduced the Climate Resilience Metrics framework, which evaluates adaptation on two levels, guided by four core principles: the quality of project design and project results. The World Bank’s Resilience Rating System (RRS) similarly assesses projects along two dimensions: whether a project identifies climate risks, integrates adaptation measures, and remains economically viable, and the extent to which it strengthens the resilience of communities or sectors. However, given the wide range of adaptation activities across different scales and project lifecycles, a single universal metric remains unrealistic. Adoption has therefore been limited, with only 21 projects (with a total investment value of USD2.92 billion) rated by the RRS between 2021 and 2022.
Key barriers to scaling adaptation finance in Southeast Asia
-Weak national adaptation planning
National adaptation planning provides countries with a structured approach to assess climate risks, determine priorities, and integrate adaptation measures into national development and sectoral policies. Recognizing the importance, the National Adaptation Plan (NAP) process was established at COP16 in 2010, with initial guidelines established at subsequent conferences to support countries in identifying medium- and long-term adaptation needs and implementing related strategies according to seven thematic targets, namely water, health, biodiversity, food, infrastructure, poverty, and heritage. As of September 2025, 144 countries had initiated the NAP process, and 67 developing countries had formally submitted their plans. Among the proposed NAPs, the leading sectors aligned with these targets are agriculture and food systems, ecosystems and biodiversity, and water and sanitation. developing countries advanced 116 single- or multi-country adaptation and cross-cutting projects for implementation under the Green Climate Fund (GCF), which represents USD6.91 billion in financing
In Southeast Asia, progress on NAPs remains uneven, despite most countries facing significant challenges from floods and storms. Among the seven countries that have submitted their plans, Cambodia, Thailand, and Timor-Leste were frontrunners, proposing their NAPs as early as 2021. Indonesia, Laos, Vietnam, and the Philippines followed with submissions in 2024 and 2025, while the remaining countries’ plans are still under development. The comprehensiveness of these plans varies. Some NAPs, such as those submitted by Cambodia and Vietnam, remain broad and highlevel, while countries like Laos and the Philippines outline more detailed, feasible measures across priority sectors and assign responsibilities to relevant agencies with clear timelines. As NAPs are intended to serve as strategic roadmaps that translate adaptation priorities into actionable programs, countries with less detailed plans seem ill-prepared. A strong, detailed plan that provides clear guidance on strategic priorities, helps identify sectors and areas requiring the largest resource allocation, and fosters better coordination across agencies and sectors. Significantly, such plans are also likely to help investors identify, assess, and mobilize investment opportunities effectively.
Figure 2 shows a clear disparity in adaptation preparedness across Asia. Singapore, South Korea, and Japan are well prepared for their climate risks, while Cambodia and Thailand indicate low adaptation preparedness. Other ASEAN countries, including Indonesia, Vietnam, and the Philippines, fall in the middle, which highlights uneven progress and the need to strengthen adaptation planning and implementation across the region.
-Weak project pipelines and limited bankable proposals
Most adaptation projects struggle to secure funding and timely disbursement due to complex application procedures, stringent criteria, and limited institutional capacity. These challenges are reflected in international public adaptation finance, which recorded a relatively low disbursement ratio of approximately 66% between 2017 and 2021, compared with a 98% disbursement ratio for overall development finance. Key reasons cited were low grant-to-loan ratios and limited understanding of adaptation policies among decision-makers. In many cases, adaptation project proponents do not have access to high-quality climate-risk assessments, hydrological studies, engineering designs, or socio-economic analyses that demonstrate how the proposed intervention will reduce vulnerability. Without this evidence, quantifying benefits, evaluating cost-effectiveness, or justifying the scale of investment required is challenging. Development banks and climate funds report that a large proportion of adaptation proposals are rejected or require extensive restructuring due to insufficient data, unclear baselines, or poorly articulated change theories. Institutional capacity constraints such as fragmented mandates across agencies, weak inter-ministerial coordination, and unclear roles between national and subnational authorities further undermine the planning and execution of adaptation investments. Therefore, even when funding is available, there are few mature, bankable adaptation projects.
-Limited fiscal capacity and competing priorities
Most ASEAN countries are developing economies with diverse national priorities, and their capacity to fund climate initiatives varies significantly. For several governments, fiscal space is minimal. The pandemic further strained public finances, as recovery efforts through extensive stimulus and relief measures drove up public debt across the region (Figure 3), leaving limited room for discretionary spending. Hence, climate budgets are minimal or even absent in some countries. Similar to the NAPs, which remain incomplete or unavailable in parts of the region, not all ASEAN countries have dedicated adaptation budgets or clear financing strategies (Table 4). Malaysia, the Philippines, Singapore, and Vietnam have earmarked public funding for adaptation, albeit at relatively modest levels, while other countries rely predominantly on international financing sources. Such external funding is often complex to access, uncertain, and subject to shifting global priorities, as evidenced by recent cuts to ODA. The absence of predictable, domestically anchored funding streams constrains long-term planning, weakens implementation capacity, and leaves countries more exposed to climate- and disaster-related shocks, particularly as the frequency and intensity of extreme weather events increase.
–Inadequate development of blended finance mechanisms
Blended finance is a key mechanism to align commercial investment with adaptation and resilience outcomes. Combining concessional finance with commercial capital can reduce risk, extend investment horizons, and make projects viable that would otherwise be excluded. Blended finance is established as a credible funding source for climate solutions. Convergence, a global blended finance network, calculated a 1.2 times increase in the blended finance raised for climate purposes in 2024 compared to 2023, and of the total USD18.3 billion, climate-related funding represented almost 80% of total blended finance. However, a large part of the funds are likely to have gone towards renewable energy and other climate mitigation efforts, with no division specified for adaptation purposes. Thus, even where risk-sharing structures exist, private capital remains reluctant to invest at scale because the underlying return profile is weak. The structure of many blended finance deals also suggests that considerable effort is still needed. Investors frequently seek impact-labeled or green opportunities, yet rarely allocate a portion of their capital to the non-repayable support required to de-risk projects operationally and ensure delivery against climate objectives. Without targeted technical assistance, investments may proceed but fail to strengthen resilience, address environmental risks, or reach vulnerable populations.
-Heavy reliance on international sources for blended finance
Blended climate finance in Southeast Asia remains heavily dependent on external capital. Between 2018 and 2023, international and regional investors accounted for 66% and 28% of investment commitments, respectively, with only around 6% on average contributed domestically. This highlights the insubstantial role of local capital markets. Vietnam and Singapore are notable exceptions, where targeted policy frameworks have successfully mobilized domestic capital. In Vietnam, the introduction of the feed-in tariff policy in 2020 catalyzed significant domestic financing for solar projects, demonstrating the sector’s capability given a conducive environment. In Singapore, local participation has been driven by large volumes of green and sustainable bond issuances.
The limited role of domestic capital is largely structural. DFIs, MDBs, and multi-donor funds account for the largest share of blended climate finance transactions. Their role is essential for de-risking projects and scaling activity, but continued dominance has entrenched reliance on international financing rather than catalyzing sustained domestic capital mobilization. Government leadership is likely to be a critical differentiator in Asia. Overall, the risk of continued reliance on external climate finance is increasing, while the availability of overseas concessional capital that has traditionally underpinned blended climate finance in Southeast Asia may be constrained. The region faces heightened vulnerability if international public finance does not scale up at the required pace. Without stronger mobilization of domestic capital, climate investment will slow, project pipelines will shrink, and progress toward national climate targets will stagnate.
Avenues and opportunities
Tapping the bond market: There has been increased interest in adaptation and resilience bonds as tools to channel capital explicitly toward climate resilience. These instruments ring-fence proceeds for adaptation projects, helping issuers make these needs more visible and investable. The Tokyo Metropolitan Government issued the Tokyo Resilience Bond, the first bond to be certified under the Climate Bonds Standard. The Standard enables investors and intermediaries to assess the climate credentials and environmental integrity of bonds, incorporating the Climate Bonds Resilience Taxonomy to define what constitutes a resilient investment. The EUR300 million issuance, expected to carry an A+ rating in accordance with Japan’s sovereign rating, was oversubscribed seven times, signaling strong investor demand for credible resilience-focused instruments. It also highlighted their potential to bridge the adaptation financing gap. For Southeast Asian countries, Tokyo’s example offers a replicable model for scaling adaptation finance. Sovereigns can leverage internationally recognized standards to enhance credibility and attract a broader pool of global investors. When combined with development bank credit enhancements or guarantees — particularly for countries with weaker sovereign ratings — such instruments can provide a practical pathway to attract private capital and finance priority climate resilience projects.
Integrating adaptation in taxonomies: A sustainability taxonomy establishes a common language and classification for defining sustainable investments aligned with a jurisdiction’s goals. It provides a clear and consistent framework for identifying environmentally sustainable economic activities, reducing ambiguity and ensuring a shared understanding among stakeholders. Standardized criteria enable comparability across entities and over time, strengthen credibility by limiting mislabeling, and support more informed decision-making. Globally, more than 50 governments have developed taxonomies, operating at both regional and national levels. In Asia, these frameworks are primarily introduced at the national level to guide markets and channel investment more efficiently toward countries’ climate and development goals. However, since they reflect national circumstances, the classification of certain activities varies. Climate change adaptation is recognized as an environmental objective in most Asian taxonomies, with the exceptions of China and Vietnam. However, the classification criteria for adaptation are either not fully defined or are presented mainly through qualitative descriptions, lacking the detailed technical screening criteria and thresholds that typically apply to mitigation activities. This ambiguity limits clarity on what qualifies as a climate change adaptation activity and reflects the inherent challenge of developing quantitative, context-specific adaptation metrics.
Exploring innovative financing tools such as debt (for nature) swaps: Debt swaps are increasingly used to help heavily indebted countries raise funds for climate-related projects. Typically, a country repurchases higher-cost debt and replaces it with cheaper financing, often facilitated by a development bank. In ASEAN, Indonesia and the Philippines have implemented several debt-for-nature transactions, with financing reaching up to USD30 million for Indonesia and USD40 million for the Philippines. Through several agreements with the United States (US) under the 1998 Tropical Forest Conservation Act(TFCA), Indonesia has reduced debt service obligations to the US while funding climate projects. Previous swaps saved nearly USD70 million, primarily for rainforest conservation, while a more recent USD35 million transaction supported coral reef protection and preservation. The Philippines has also executed several debt-for-nature swaps, redirecting tens of millions of dollars in debt payments toward various conservation programs. Notably, these debt-for-nature swaps were undertaken specifically under US legislation. Current shifts in US climate policy may make further progress under these laws more challenging in the near term. To sustain momentum, other governments and multilateral institutions should draw on the TCFA’s success and develop similar support for debt-for-nature or debt-for-climate mechanisms.
Recommendations and conclusion
Develop coordinated and coherent NAPs with dedicated budgets: Countries with more detailed and operational NAPs — those that define priority sectors, responsible agencies, and implementation timelines — are better positioned to identify investment needs and channel finance effectively. In Southeast Asia, however, many NAPs remain high‑level or under development and are not consistently integrated with fiscal frameworks or medium‑term expenditure plans. This undermines coordination and weakens the pipeline of well‑prioritized projects. All countries in the region need to upgrade NAPs into comprehensively valued, implementation‑oriented documents that explicitly guide sectoral policies and public investment decisions. This requires using climate‑risk assessments to develop targeted programs. Adaptation measures should be systematically embedded in new projects rather than treated as optional enhancements vulnerable to fiscal pressures. Dedicated and predictable budget allocations are essential to translate adaptation plans into action. Anchoring adaptation spending in national budgets signals government commitment, strengthens accountability, and reduces the risk of deferral under fiscal pressure. Consistent budgetary support shifts adaptation beyond planning exercises, enabling agencies to implement priority projects at scale and deliver tangible resilience outcomes.
Build and bolster project preparation and local implementation capacity: Low disbursement ratios for adaptation funds relative to overall development finance, and the small share of proposals approved, point to weaknesses in adaptation project preparation, especially among municipalities and sectoral agencies closest to climate impacts that often lack technical and institutional capacity. These gaps in climate‑risk analysis, design, and socio‑economic assessment result in frameworks that prevent concepts from becoming financeable projects. Resilience planning should therefore be assisted by dedicated, well‑resourced project preparation and implementation support facilities focused on adaptation. This would lead to better‑designed projects with clear results and impact that meet the requirements of multilateral development banks and climate funds. Strengthening local capacity for implementation and monitoring helps build a track record and enables easier identification of credible project pipelines.
Calculate and incorporate the full economic value of adaptation in financial decision‑making: Chronic under‑investment in adaptation stems from a narrow financial valuation of benefits, which focuses mainly on avoided losses and ignores wider economic, social, and environmental gains. Including avoided damages and economic disruptions, induced economic development, and co‑benefits such as improved health, ecosystem services, and connections with environmental mitigation would more accurately reflect the real financial and societal returns. These returns are highly valued by investors and financiers, as evidenced by the performance and valuations of businesses involved in adaptation, as well as the potential commercial opportunities in this area. A complete economic evaluation requires updating appraisal guidelines for public investment, development bank lending frameworks, and corporate capital budgeting and disclosure practices to explicitly recognize forward-looking resilience benefits. Improving and widely applying existing adaptation metrics and rating systems will help investors compare opportunities, track performance, and justify allocating capital to adaptation resilience in proportion to its actual economic and social returns.
Strengthen adaptation taxonomies, metrics, and disclosure: The dominant perception that adaptation benefits are “hard to measure” continues to constrain investment, despite evidence that adaptation projects can deliver attractive economic rates of return when full benefits are counted. This highlights an urgent need to accelerate the development of practical, interoperable adaptation criteria and outcome indicators. Sustainable finance taxonomies that account for and credit measures related to adaptation can play a crucial role in mainstreaming these criteria and thereby facilitate financing and investments. The ASEAN taxonomy is currently being updated to reflect these requirements and, if designed comprehensively, can clarify and ease the flow of finance into adaptation projects in the region, while serving as an example for other regional taxonomies.
Reorient financial instruments toward resilient development and adaptation: International public finance and external concessional flows cannot meet Southeast Asia’s adaptation needs on their own, particularly given constrained fiscal space and looming reductions in official development assistance. Blended finance is widely promoted as a solution, but remains skewed toward mitigation, with adaptation receiving a smaller share of transactions and mobilizing less private capital per unit of concessional funding. Consequently, there is a strong case for reorienting blended finance to directly target adaptation and resilience outcomes, rather than treating them as secondary components within climate portfolios. Concessional windows, guarantees, and first-loss tranches should be calibrated to the risk and revenue characteristics of adaptation projects, with dedicated provision for grant-funded technical assistance, safeguards, and monitoring. Even modest allocations can substantially improve climate impact and financial performance. Development banks and DFIs can play a pivotal role by structuring facilities that bundle smaller, localized adaptation measures into larger portfolios aligned with national priorities and crowd in commercial lenders. The strategic use of capital markets is also crucial to systemically integrate adaptation into bond issuance, including through emerging instruments such as adaptation and resilience bonds. While still nascent in Southeast Asia, these instruments have gained traction in developed markets and demonstrate evidence of strong investor demand when supported by clear use-of-proceeds frameworks and credible impact reporting. Implementing these measures at scale offers countries a credible way to address climate change impacts, minimizing losses while enhancing economic and social opportunities.
Access the report here