A new study by Standard Chartered has found that emerging markets could face significant economic losses if they do not invest in measures to adapt to the effects of climate change. The study, called “The Adaptation Economy,” examined the need for climate adaptation investment in 10 markets, including China, India, Bangladesh, and Pakistan. It revealed that without investing a minimum of $30 billion in adaptation by 2030, these markets could face projected damages and lost GDP growth of $377 billion, which is over 12 times that amount.
The study’s projection is based on the assumption that the world will successfully limit temperature rises to 1.5°C, in line with the Paris Agreement. If temperatures were to rise by 3.5°C, the minimum investment required would more than double to $62 billion and the potential losses would escalate dramatically.
Examples of climate adaptation projects include creating coastal barrier protection solutions for areas vulnerable to flooding, developing drought-resistant crops, and implementing early-warning systems for natural disasters. India is projected to benefit the most from adaptation investment, requiring an estimated $11 billion to prevent climate damages and lost growth of $135.5 billion in a 1.5°C warming scenario, resulting in a thirteen-to-one return for the Indian economy from investment in climate adaptation. China could avoid an estimated cost of $112 billion by investing just $8 billion, and Kenya could avoid costs of an estimated $2 billion by investing $200 million in adaptation.
|Market||Minimum investment required (1.5°C)
|Economic benefit (USD)|
|India||10.6 billion||135.5 billion|
|China||8.1 billion||111.9 billion|
|Indonesia||4 billion||39 billion|
|UAE||2.7 billion||31.5 billion|
|Nigeria||1.5 billion||19.9 billion|
|Bangladesh||1.2 billion||11.6 billion|
|Egypt||900 million||8.6 billion|
|Vietnam||600 million||8.9 billion|
|Pakistan||600 million||7.6 billion|
|Kenya||200 million||2.2 billion|
The study also highlights that even if the world’s nations achieve the goals of the Paris Agreement, measures to adapt to climate change must be pursued alongside the global decarbonization agenda, with the banking sector playing a critical role in unlocking finance. The $30 billion investment required for adaptation represents only slightly more than 0.1% of the combined annual GDP of the 10 markets in the study and is much less than the estimated $95 trillion that emerging markets require to transition to net zero using mitigation measures.
Additionally, the study surveyed 150 bankers, investors, and asset managers and found that just 0.4% of the capital held by respondents is currently allocated to adaptation in emerging markets where investment is needed most. However, 59% of respondents plan to increase their adaptation investments over the next 12 months, and on average, adaptation financing is expected to rise from 0.8% of global assets in 2022 to 1.4% by 2030.
Marisa Drew, Chief Sustainability Officer at Standard Chartered, said that the report makes it clear that regardless of efforts to keep global warming as close to 1.5C as possible, we must incorporate climate-warming effects into our systems and adapt to its reality. She added that all nations must adapt to climate change by building more resilient agriculture, industry, and infrastructure, but the need is greatest in emerging and fast-developing economies with a disproportionate risk of exposure to the negative effects of rising temperatures and extreme weather. Drew also emphasized that adaptation is a shared necessity and that inaction creates a shared societal burden of exponentially increasing cost. She emphasized that the financial sector has a crucial role to play in directing capital towards adaptation and creating proof points to demonstrate that investing in adaptation can be a commercially viable and attractive proposition for the private sector.