Bridging the Three Trillion Dollar Climate Risk Adaptation Finance Gap

The world faces a critical shortfall in climate adaptation finance, leaving economies, businesses, and communities exposed to escalating risks. This article examines the scale of the adaptation finance gap, the economic and strategic rationale for urgent action, and the ways technology-driven innovation can unlock new value. The importance of robust business models and credible financial projections for startups and investors seeking to turn climate risk into opportunity is explored, along with how informed, forward-looking decisions today will shape tomorrow’s resilience and growth.

Global Warming Trajectory and Escalating Climate Risks

The world faces a critical funding shortfall for climate risk adaptation, with billions of dollars needed annually to safeguard economies and communities against escalating threats. Global warming is now tracking at a rate that will likely surpass the Paris Agreement’s threshold of +1.5 °C above pre-industrial levels by the early 2030s, according to the Intergovernmental Panel on Climate Change (IPCC) Sixth Assessment Synthesis Report. [i] The IPCC also concludes it is becoming increasingly challenging to keep global warming below +2.0 °C by the end of the century. Each additional degree of warming will amplify multiple, simultaneous climate hazards worldwide.[ii]

As a result, the impact of climate change will accelerate, heightening exposure to physical risks, including more frequent extreme weather events, supply chain disruptions, and asset devaluation. These risks could, in turn, increase the likelihood of consequential risks, including large-scale displacement, forced migration, food and water insecurity, public health crises, and heightened geopolitical tensions, as communities and businesses struggle to adapt to rapidly changing conditions.

This escalating risk landscape linked to climate change underscores the need for proactive risk mitigation and adaptation strategies to safeguard assets, operations, and long-term value. Every fraction of a degree avoided through mitigation reduces future adaptation needs. However, geopolitical tensions and cuts in development assistance are constraining progress, leaving adaptation projects underfunded, according to the UNEP Adaptation Gap Report 2025.[iii]

Paris Agreement Commitments and the Cost of Adaptation

Climate risk adaptation is not a new concept. It is embedded in Article 7 of the Paris Agreement, which commits all signatories to collaborate on resilience measures. [iv] However, the scale of the challenge is immense. The UNEP Adaptation Gap Report 2025 estimates that developing countries will need to invest USD 310–365 billion annually in adaptation by 2035 (in 2023 prices).[v]

Funding these costs will require substantial support from developed countries. Developed countries have already pledged to finance adaptation investments;[vi] however, current financing flows fall short of the needed level. While annual needs are estimated at 310–365 billion,[vii] financing flows from developed to developing countries reached only USD 26 billion in 2023 (USD 35 billion including all sources). [viii]

This leaves a persistent adaptation finance gap—‘the difference between actually implemented adaptation and a societally set goal, determined largely by preferences related to tolerated climate change impacts and reflecting resource limitations and competing priorities’[ix]—of USD 284–339 billion per year through 2035. This equates to a USD 2.8–3.5 trillion cumulative adaptation finance gap over the 10 years 2025–2035 (in constant 2023 prices, excluding domestic and private finance flows).

COP30 Outcomes: Adaptation Takes Centre Stage

The 2025 UN Climate Change Conference (COP30) ended with mixed views on progress. Efforts to secure a binding roadmap for phasing out fossil fuels faced strong resistance and remain largely voluntary.[x] Instead, discussions on adaptation and resilience dominated the COP30 Action Agenda.[xi] Participating countries acknowledged ‘the significant need for adaptation finance, technology transfer and capacity-building for the formulation and implementation of national adaptation plans in developing countries’ in the COP30 Draft Decision (UNFCCC).[xii]

A voluntary initiative was launched to accelerate climate action, enabling countries to meet their existing emission-reduction commitments. Developed countries also pledged to at least triple their adaptation funding to USD 120 billion annually by 2035,[xiii] noting that some developing countries are already spending as much as 10% of their national budgets to address the impacts of climate change.[xiv]

However, even with this commitment, a substantial adaptation finance gap of USD 164–219 billion remains.

Innovation and Use of Technology to Close the Adaptation Finance Gap

Scientific assessments confirm that the pace of temperature increase is accelerating, [xv] and the negative impacts of climate change rise disproportionately with each additional fraction of a degree.[xvi] A great deal of public communication focuses on the costs of adaptation and the funds required to finance them. Addressing the need for, and financing of, adaptation is critical, but it cannot rely solely on increased funding from wealthier nations; innovation must also play a central role.

In this context, it is essential to note that, beyond cost-reduction potential, adaptation investments already demonstrate compelling returns. Several studies by The World Resources Institute (WRI) underscore that resilience is both an imperative and a financial opportunity. In a WRI study of 320 adaptation investments across 12 countries, totalling USD 133 billion, between 2014 and 2024, the WRI found that each dollar invested in adaptation and resilience is expected to yield over USD 10.50 in benefits over a 10-year period through avoided losses, economic gains, and social/environmental returns. The average return on investment for the evaluated projects was 27%.[xvii]

Similarly, the UNEP highlights technology as a key lever to reduce adaptation costs in its Adaptation Gap Report 2025. An example is AI-driven tools that are emerging as promising solutions for granular climate-risk insights and precision strategies. [xviii]

Instead of increased financing, technology and innovation can help achieve more effective, cost-efficient results.

Turning the Adaptation Gap into an Investment Opportunity

Where there is significant risk, there is opportunity. With accelerating global warming, the marginal benefit of adaptation investments is increasing: every dollar spent now can avert exponentially greater losses in the future. That is because physical climate risks, e.g., heat, floods, storms, and drought, are rising in a non-linear relationship to temperature rise.

As baselines worsen, the expected frequency and severity of risk events increase exponentially. That means the marginal benefit of adaptation (e.g., drainage upgrades, resilient siting, climate-smart operations, localised climate intelligence) is also growing exponentially. Each dollar spent now averts larger future losses, stabilises operations, and protects asset values. In capital budgeting terms, adaptation converts volatile cash-flow profiles into more predictable ones, improving risk-adjusted returns and potentially unlocking cheaper debt and insurance.

This dynamic strengthens the economic rationale for ambitious adaptation action, as higher upfront costs are increasingly justified by the scale of risk reduction and avoided damages.

Applying the Logic to Climate Adaptation

A growing body of research demonstrates the tangible value of timely climate intelligence and adaptation investments. Consider a farmer in a rural tropical region who receives an SMS warning about imminent heavy rainfall. By postponing the harvest, the farmer can avoid crop spoilage. The impact of this type of service has been studied, with positive results.

In Africa Development: Impact of SMS Weather Forecasts on Maize Production in Benin (2021), researchers conducted a randomised controlled study of 331 maize farmers across six villages in Benin. Those receiving weather-related information via mobile phone messages reported, on average, lower labour costs (by 27 per cent), improved productivity (by 28 per cent), and higher income estimates than the control group.[xix]

A 2025 study, Social & Digital Media Discourse: Impact of SMS-Based Systems on Nigerian Crop Farmers, found further support for weather information by SMS. Through a controlled experiment, researchers compared two groups of Nigerian farmers: an intervention group of 100 farmers who received SMS-based agricultural information and a control group of 100 farmers who did not. The experiment revealed significant improvements in precision farming techniques, e.g., fertiliser application, crop management, and pest control, among those who received SMS-based agricultural information, compared with the control group.[xx]

Strategic Opportunity for Tech Innovators in Adaptation Finance

The adaptation finance gap is a global challenge that creates an opportunity for innovative, fast-paced tech startups. Companies that can deliver scalable solutions that translate climate benefits into clear monetary terms will be better positioned to attract investment and drive adoption. However, technical ingenuity is not enough. Success will also require robust business models and the ability to quantify and communicate the future economic value of risk mitigation. From an investor perspective, capital invested today must be justified by credible projections of avoided losses, reduced funding costs, and enhanced financial resilience.

As climate risks accelerate, those who rigorously assess and act on future risks today will emerge stronger. Realising the opportunities at the intersection of environmental impact and commercial value demands informed, forward-looking decisions now.

How Várri Consultancy Can Assist

At Várri Consultancy, we partner with innovative technology companies and forward-thinking investors to navigate the intersection of risk management, finance, and technology. Our expertise spans:

• Strategic risk and financial advisory for organisations navigating complex, high-growth, or regulated sectors, including clean energy and technology.
• Business model development and validation, helping clients articulate and quantify how climate-related or sustainability benefits can translate into measurable financial outcomes, e.g., reduced credit risk and cost of funds, improved access to capital, or insurance advantages.
• Investment due diligence and transaction support for investors and founders, drawing on deep experience in financial structuring, risk assessment, and regulatory compliance.

Our track record includes supporting a leading solar energy investment firm in the MENA region. Várri Consultancy advised on and implemented a structured approach to investment committee decision-making, established robust internal processes, and delivered staff training in financial crime compliance and financial due diligence. These initiatives enabled the firm to demonstrate tangible business value to stakeholders and successfully attract external investment.

Whether it is a tech startup seeking to scale a solution or an investor looking to unlock new sources of value in adaptation finance, Várri Consultancy offers the insight, analytical rigour, and practical experience to help them succeed in this rapidly evolving landscape. For tailored advice on climate risk, adaptation finance, or business model innovation, or to discuss how we can support your organisation or startup, please contact Várri Consultancy.

Sources

[i] Hoesung Lee and José Romero (eds.), Climate Change 2023: Synthesis Report — Contribution of Working Groups I, II and III to the Sixth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC 2023).

[ii] ibid.

[iii] Henry Neufeld and others, Adaptation Gap Report 2025: Running on Empty (UNEP 2025) 2.

[iv] Paris Agreement [2015] UNTS 54113 art 7.

[v] Henry Neufeld and others (n iii).

[vi] Paris Agreement [2015] UNTS 54113 art 2(1)(c) and 9(3).

[vii] Henry Neufeld and others (n iii).

[viii] Henry Neufeld and others (n iii).

[ix] Anne Olhoff and others (eds), The Adaptation Gap Report 2014 (UNEP 2014) xii.

[x] Fiona Harvey, ‘‘Fossil Fuel Giants Finally in the Crosshairs:’ Cop30 Avoids Total Failure With Last-Ditch Deal’ The Guardian (London, 25 November 2025).

[xi] ‘Global Climate Action Agenda at COP 30 Outcomes Report’ (2025) UNFCCC Advanced Unedited Version accessed 25 November 2025, 5.

[xii] UNFCCC, ‘Draft Decision -/CP.30’ (Advance Version, 2025) accessed 25 November 2025.

[xiii] Lisandra Paraguassu and others, ‘COP30 Seals Uneasy Climate Deal That Sidesteps Fossil Fuels’ Reuters (Belém, 23 November 2025) accessed 25 November 2025.

[xiv] Fiona Harvey (n x).

[xv] Hoesung Lee and José Romero (eds.).

[xvi] ibid and UNEP, Adaptation Gap Report 2025.

[xvii] Carter Brandon, ‘Strengthening the investment case for climate adaptation: A triple dividend approach’ (2025) World Resources Institute Working Paper v 1.1 June 2025 accessed 25 November 2025.

[xviii] Henry Neufeld and others (n iii) 58.

[xix] Rosaine N Yegbemey, Aline M Aloukoutou and Ghislain B D Aïhounton, ‘The Impact of Short Message Services (SMS) Weather Forecasts on Cost, Yield and Income in Maize Production: Evidence from a Pilot Randomised Controlled Trial in Bembèrèkè, North Benin’ (2021) 46(1) Africa Development 163.

[xx] Samuel Sunday Ameh, Nathan Oguche Emmanuel and Kelly Ajonina Mbong, ‘Impact of SMS-Based Systems on Crop Farmers in South Experimental Study’ (2025) 6(1) Social & Digital Media Discourse 22.