Climate change adaptation has become inevitable in Asia, where rising temperatures, sea level rise, and extreme weather events have threatened lives, livelihoods, and development. With the rising global average temperature has reached 1.55°C above pre-industrial levels in 2024, Asia’s most vulnerable populations – such as fisherfolk, coastal and delta communities, and smallholder farmers – face growing risk. Despite the growing risk, adaptation finance remains fragmented and far from sufficient, compared to the USD 215-387 billion needed annually (Adaptation Gap Report, 2024). Understanding the limitation of public source of finance, closing the financing gap requires mobilizing the private capital, including through insurance and risk pooling mechanisms, regional financing platforms, and national development banks. To be effective in building resilience, adaptation finance must be accessible, locally grounded, and equity-driven.
Recognizing these circumstances, the Indonesia Research Institute for Decarbonization (IRID), together with Germanwatch, the Institute for Climate and Sustainable Cities (ICSC), LAYA-INECC, Greenovation Hub, and SLYCAN Trust, conducted the third knowledge-sharing session on the “Financing Adaptation in Asia” on 4 September 2025. The session explored innovative approaches that move beyond traditional public funding and to share lessons across different sectors and countries in financing adaptation.
Challenges in Adaptation Finance
Adaptation finance in Asia continues to face persistent challenges that hinder progress in achieving climate goals, particularly in building resilience. This is due to the fact that adaptation funding remains fragmented, often limited to project-based initiatives, and not yet fully aligned with national climate strategies. While public funding and international support are essential, relying on these instruments only, cannot close the growing finance gap. This underscores the need to unlock complementary sources of fund, particularly from the private sectors.
Second, unlocking private finance is critical to bridge the adaptation gap. The Place-Based Just Transition – Policy Baseline and Case Studies (2025) shows that there is investor networks across Asia who starting to integrate climate risk into the decision-making process and are calling for reliable climate data, transparent disclosure requirements, and mechanisms, that meaningfully engage private sector actors. However, many Asian countries continue to experience coordination and institutional gaps, as well as insufficient data that hinder the development of bankable adaptation projects. Several countries, including Japan, Malaysia, Thailand and China, have begun improving inter-ministerial coordination and piloting localized finance mechanisms However, scaling these initiatives remains challenging. Turning available climate risk data – that increasingly available now – into actionable investment pipelines will require stronger collaboration between data providers, governments, and financial institutions.
Third, risk transfer and insurance mechanisms remain underutilized despite their potential to manage residual climate risks. Despite Asia’s high exposure to natural disasters, insurance penetration across the region remains very low with the average rate of around 2-3% of GDP, compared to the global average of 7%. In countries such as Vietnam, the Philippines, Indonesia, and Bangladesh, the total insurance penetration in 2022 average are about 2.3% of GDP, including life insurance (1.6%) and non-life insurance (0.7%)[1]. Examples from Bangladesh, India, and Indonesia show how crop and index-based insurance can reduce post-disaster losses and provide timely liquidity for farmers. Yet, the limited affordability, the lack of bundling with existing social protection system such as subsidies and insufficient regional cooperation through risk pooling, continue to affect the effectiveness of insurance schemes. Therefore, building public trust and literacy around insurance and climate risk is essential to increase participation of the vulnerable communities.
Emerging Opportunities in Adaptation Finance
Despite the challenges, there are several emerging opportunities emerged to accelerate and scale up the adaptation finance in Asia. First, innovative national financing mechanisms are gaining traction. In Indonesia, for instance, the Indonesian Environmental Fund (IEF) has been managing diverse financial instruments, such as blended finance, outcome-based bonds, and disaster pooling mechanisms. IEF currently manages approximately USD 1.66 billion in grants, loans, and endowments to support climate action. IEF also manages a disaster pooling facility sourced from the state budget reached IDR 7.3 trillion (approximately USD 486 million), generating a cumulative return of IDR 1 trillion (USD 67 million) by mid-2025 (IEF, 2025). Similar with IEF, Sri Lanka’s has proposedNational Adaptation Fund, to manage climate finance for adaptation actions in accordance with the country’s needs and priorities. . The two countries show that nationally managed facilities could help countries to channel adaptation finance more efficiently and reduce dependence on fragmented project-based financing.
Second, stronger governance, transparency, and technical capacity are essential to maximize the effectiveness of these national financing mechanisms. Strengthening coordination across ministries, improving data systems, and enhancing institutional capacity will help to translate technical adaptation assessments into investable adaptation projects that deliver the measurable economic and social returns. Third, developing a robust enabling policy environment is the key to scaling up adaptation finance. Regulatory clarity, fiscal incentives, and risk-sharing mechanisms approaches can make adaptation projects more attractive to private investors. At the same time, inclusive financing approaches – such as insurance, pooled funds, and blended finance – must be ensured to be accessed by communities, particularly those that are most affected by climate change.
Looking ahead, countries in the region are encouraged to strengthen enabling environments for private sector participation by improving policy frameworks and national institutions that channel resources effectively. Expanding regional cooperation through risk pooling and knowledge-sharing can help to bridge the capacity gaps among countries and strengthen the collective ability to manage cross-border climate risks. In addition to that, innovative financing instruments should continue to be developed to complement limited public resources and ensure that funding adaptation action can delivers tangible resilience outcomes.
[1] From the presentation of Munich Climate Insurance Initiatives, UNU-EHS (2025).
