Pietro Sette, Research Director
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From prolonged droughts to devastating floods, water has become the defining frontier of climate risk. Over the past decade, extreme weather has disrupted economies worldwide, damaging infrastructure, eroding ecosystems, and exposing the limits of global preparedness.
The scale of the challenge is already immense. Water-related disasters, including floods, caused more than 8,500 deaths, displaced over 40 million people, and resulted in approximately USD 550 billion in economic losses in 2024. These figures highlight how water-related risks are not only humanitarian crises but also systemic financial shocks that affect national budgets, supply chains, and asset valuations.
Despite the scale of these impacts, capital flows remain overwhelmingly tilted toward mitigation rather than adaptation.
In fact, in our latest GSS Bonds Market Trends Report, just 1.8% of global Green, Social, and Sustainability (GSS) Bond proceeds since 2018 have been allocated to adaptation projects. Yet, as the data show, the cost of inaction already exceeds the cost of financing the solutions.
Over the past years, climate adaptation financing from Green Bonds has been clearly driven by public entities, which accounted for more than 96% of issuance between 2020 and 2024. This reliance on the public sector mirrors climate finance broader trends: according to the Climate Policy Initiative (2025), public actors contributed to 90% of global adaptation flows in 2023.
Adaptation is not only underfunded in the GSS bond market, but it is also heavily dependent on public financing, as private investors tend to favour mitigation projects with clearer revenue streams and more measurable returns.
Water infrastructure stands at the centre of this adaptation imperative. In the Netherlands, NWB Bank has issued more than EUR 10 billion in Water Bonds to finance flood protection, dike reinforcement, pumping stations, and wastewater treatment projects. These initiatives are strengthening the country’s resilience to sea-level rise and extreme rainfall, with a national target of full flood-defence compliance by 2050.
These risks highlight the potential damage of inaction. The need for climate adaptation has never been more urgent. However, while adaptation is emerging as a focus of climate policy, the financing for such initiatives remains well below expectations. The United Nations Environment Programme (UNEP) estimates that adaptation costs will reach hundreds of billions of dollars annually by 2030, particularly in emerging economies.
However, current public and private investment in adaptation remains insufficient. This financing gap limits how much governments can do to prepare for climate impacts, leaving populations exposed to escalating risks. Closing this gap requires innovative financial mechanisms that channel investment toward resilient solutions.
In Indonesia, sovereign Green Bonds have mobilised USD 12.5 billion to fund flood control systems, irrigation networks, and water storage facilities. These projects not only safeguard communities from climate-related hazards but also protect agricultural productivity and food security across one of the world’s most climate-exposed regions.
Such initiatives demonstrate that adaptation finance can be integrated effectively within existing Green Bond frameworks. Transparent use of proceeds, measurable outcomes, and public co-financing have made these instruments attractive to long-term investors seeking stability and impact.
The regulatory foundations are also in place. The EU Taxonomy formally recognises climate adaptation as an environmental objective, while the EU Green Bond Standard (EuGBS) provides a framework for issuers to report and verify adaptation-related activities. However, implementation remains slow, and private capital continues to lag behind public funding.
To close this gap, financial innovation will be essential. Blended finance structures, guarantees, and first-loss tranches can reduce perceived risk and crowd in private investment. At the same time, better reporting on metrics such as area of land protected, number of beneficiaries, and estimated reduction in damages will improve comparability and investor confidence.
For investors, water and resilient infrastructure represent more than an environmental priority. They are long-duration, income-generating assets that contribute directly to financial stability and risk management.
Supporting adaptation is no longer just about protecting the planet; it is about protecting portfolios and ensuring economic resilience in a warming world.
