By Msizi Khoza, Managing Executive ESG at Absa Corporate and Investment Banking (CIB)
Brazil has called on nations to prioritize honouring previous pledges ahead of COP30.
Climate adaptation financing was a major talking point at COP29 in Baku, Azerbaijan. Developed nations agreed to take the lead in raising the $300 billion required to start addressing the adaptation needs of especially poorer countries that are more vulnerable to adverse weather risks caused by rising temperatures.
In simple terms, adaptation seeks to reduce the vulnerability of social and ecological systems to climate change impacts and enhance their resilience and capacity to cope with these changes.
At Glasgow in 2021, rich nations pledged to assist developing nations and raise about $40 billion a year by 2025. However, the gap between commitments made and reality remains significant. Also, the bulk of these financial commitments goes towards mitigation and cutting emissions instead of adaptation.
Africa is particularly vulnerable to climate-driven water challenges due to its reliance on rain-fed agriculture, rapid urbanisation, and limited investment in resilient infrastructure.
In April 2022, more than a third of KwaZulu-Natal’s annual rainfall fell within 24 hours, killing over 400 people and crippling water treatment plants and drainage networks.
Stormwater systems designed for gentler rainfall patterns were overwhelmed, contaminating supply lines and paralysing municipal services – with losses exceeding R20 billion.
More recently, in the Caribbean, Hurricane Melissa, a Category 5 storm, made landfall in Jamaica with sustained winds above 298 km/h, destroying homes, public infrastructure, and water systems. The scale and speed of the storm underscored the growing volatility of extreme weather events in both intensity and frequency.
The timing of the Hurricane, making landfall on the eve of COP30 in Belém, proved prescient: it mirrored the very urgency island nations have long voiced in demanding stronger adaptation finance commitments.
At the moment, developing countries receive less than 1/10th of the finance that they will need to adapt and cope with climate change. The 2025 Global Adaptation Gap Report, published annually by the UN Environment Programme (UNEP), describes the world as “Running on Empty” when it comes to adaptation finance. It highlights a severe “adaptation finance gap,” stating that developing countries need an estimated $310 billion to $365 billion per year for adaptation by 2035, while current international public finance was only $26 billion in 2023.
According to the Report, based on 2023 prices, the adaptation finance needs in Sub-Saharan Africa alone were estimated at $51 billion annually, while countries in South Asia, Latin America, and the Caribbean need a combined $156 billion each year to meet their adaptation needs.
The main issue with adaptation is that there typically are no dedicated cash flows that accrue, that can honour debt obligations. So, inherently, it becomes a more difficult problem to resolve using traditional financing instruments and methods.
According to the UN Environmental Programme, the adaptation finance needs of countries differ by income level. Low-income countries tend to focus heavily on agriculture and food, alongside energy and transportation.
Lower-middle-income countries prioritise infrastructure, water supply, and agriculture and food, with health and sanitation gaining importance. Upper-middle-income countries, on the other hand, prioritise agriculture, but forestry, ecosystem and biodiversity, and water supply, also receive significant attention.
What developing countries are doing now is using non-concessional loans that attract higher debt service costs to address their adaptation needs. These are now making up a growing chunk of international public adaptation finance, raising the sovereign debt levels of vulnerable nations, especially here on the African continent.
It’s estimated that developing nations have a $4 trillion annual financing gap and a debt burden of $1.4 trillion they are currently servicing.
Infrastructure development is a cornerstone of economic growth, facilitating trade, improving access to essential services, and creating employment opportunities. However, if this infrastructure is not climate-resilient, it risks becoming a stranded asset or a source of increased vulnerability.
The debate on the importance of building climate-resilient water infrastructure to protect communities against shocks caused by climate change is often couched in technical jargon that sometimes fails to calculate the immense human and infrastructure costs when the eventuality occurs.
Developing countries need innovative financing solutions to readily address adaptation financing and protect critical infrastructure from the ravages of climate change without having to rely on expensive money.
So, what innovative financing models can be replicated across the continent to meet adaptation needs?
In South Africa, the National Treasury has announced it’s in talks with lenders to set up a Credit Guarantee Vehicle (CGV) for Infrastructure in 2026, initially capitalised at R10bn, to make it easier to partner with the private sector to de-risk investments as the country embarks on an ambitious R1.8 trillion infrastructure investment drive.
This model can be replicated across the continent to crowd-in investments into critical water infrastructure by the private sector instead of countries having to resort to sovereign loans for adaptation needs.
Climate shocks are intensifying, necessitating a paradigm shift in Africa’s approach to infrastructure development. By prioritising climate-resilient design, mobilising innovative financing, and strategically deploying infrastructure that supports both resilience and development objectives, African nations can safeguard their economic progress and build a more sustainable future.
