From Bonds to Blended Finance: How a Diverse Range of Financial Instruments Are Financing Climate Adaptation and Resilience

This study sheds light on how 11 different types of financial instruments have mobilized capital for climate adaptation. It does so by analyzing the scope and characteristics of instruments used in 162 cases over the past decade. The study is primarily concerned with whether, and how, each financial instrument enables risk reduction or management — the two components of climate adaptation. This study also explores the level and sources of the mobilized capital, as well as the roles of different actors.

The cases included in this study were identified through mixed methods and compiled into a dataset for analysis. Relevant cases were first sourced from country members and institutional knowledge partners to the Group of Twenty (G20) Sustainable Finance Working Group (SFWG), a key stakeholder group for this study. To complement these recommendations, cases were also identified through a systematic literature review that combined risk- and instrument-specific search terms. Only cases launched since 2015 were included in the analysis.

This study aims to support public and private actors in navigating the current adaptation finance landscape, representing a first effort to connect different types of financial instruments with various physical climate risks, and illustrating the growing level of diversity in the adaptation finance landscape.

Key Findings:

• This study highlights the diversity of financial instruments used for climate adaptation. It compiles a dataset of 11 different instrument types used in 162 cases from 2015–25 to finance adaptation to six different types of physical climate risks.
• The financial instruments include blended finance, bonds, concessional and market-based loans, debt swaps, disaster risk financing, equity, grants, guarantees, insurance/risk transfer, and payment for ecosystem services.
• While countries at all income levels use virtually all instrument types, blended finance is most frequently used except in high-income countries, which rely relatively more on grants.
• Cases were tagged as financing physical risk reduction (64 percent), risk management (32 percent), or both (4 percent). The focus on risk reduction is likely because ex-ante investments often have high rates of return, whereas ex-post risk management instruments are more generally perceived as costs.
• Project- and country-specific financial instruments are uncommon. More common are instruments pooled through programs, funds, facilities, or mechanisms (75 percent of cases). Additionally, 47 percent of instruments targeted multiple countries in 2024, up from 16 percent in 2015.
• Given the need to scale up levels of adaptation finance worldwide, the market will benefit from continued innovation by funders, guarantors, implementing agents, and borrowers.

_{Preview image by 2016CIAT/Georgina Smith}