Less than 5 percent of total climate finance is dedicated to helping people, businesses, and countries adapt to the impacts of climate change, according to The Earthshot Prize’s latest report.

Published by The Earthshot Prize, in partnership with the Mastercard Center for Inclusive Growth and the U.S.-based Consultative Group to Assist the Poor, the report reveals stark disparities in how the money is allocated.

The study reports that under 17 percent of the adaptation funding was directed toward strengthening resilience at the local level. Of that, less than 1 percent benefits frontline communities most exposed to climate risks or Indigenous Peoples.

The funding shortfall exposes a critical gap for micro, small and medium-sized enterprises and community-driven ventures, which are often best positioned to implement effective solutions.

“Frontline innovators are delivering results, yet they remain chronically underfunded,” said Anuradha Bajaj, the report’s lead author. “The system isn’t broken—it’s unfinished. We must evolve how we define, de-risk and direct capital.”

Adaptation Undervalued, Local Resilience Overlooked

The 70-page report, Unlocking Critical Finance for Climate and Economic Resilience, highlights that while mitigation efforts — such as emissions reductions — dominate global funding, adaptation finance remains neglected.

Of the $63 billion in adaptation finance in 2021/22, less than 17 percent supported building local resilience, and a fraction of that targeted Indigenous or community-led initiatives.

“Adaptation is cost-effective and catalytic,” said Bajaj. “Yet it remains undervalued and underfunded by both public and private capital. That must change.”

A Dual Challenge: Capital for Innovators and Households

The report defines two interconnected frontlines: innovators and local communities. Entrepreneurs and MSMEs need early-stage, patient capital to develop and scale climate-smart products and services.

Meanwhile, low-income households need affordable financial tools, such as savings, credit, and insurance, to adopt and benefit from these innovations.

“Communities most at risk from climate impacts are also the least economically secure,” Bajaj said. “We must invest in both—the innovators building the solutions and the people living the solutions.”

Investment Gaps: $5–11 Trillion Annually

Global adaptation needs are estimated to be between $5 trillion and $11 trillion annually. Developing countries alone require $6.9 trillion per year to meet their goals in jobs, social protection, health and equality.

Yet the report finds that mid-sized enterprises seeking $50,000 to $5 million—the “missing middle”—are routinely excluded from investment due to rigid criteria, high transaction costs and scalability bias.

Innovation Hotspots: Where Climate and Economy Intersect

The report identifies five innovation hotspots driving both climate and economic resilience:

  • Sustainable agriculture & aquaculture – Ventures like Boomitra and Frontier Markets improve yields, restore land, and boost incomes.
  • Circular waste and water systems – Solutions such as S4S Technologies and M-taka convert waste into value.
  • Resilient infrastructure – Companies like SMV Green Solutions are building greener, more inclusive transport.
  • Risk reduction tools – Firms like RISCO offer parametric insurance tied to ecosystem restoration.
  • Energy and essential services – d.light and others expand solar and clean cooking access through pay-as-you-go models.

“These innovators are not waiting for permission. They are already delivering jobs, resilience and emissions reductions,” Bajaj said.

Featured Ventures: Proven Impact, Ready for Scale

Case studies in the report highlight investable solutions already generating measurable impact:

  • Coast 4C supports seaweed farming in the Philippines, protecting over 5,800 hectares of coastal zones and boosting incomes for 680 households — 77 percent of them women.
  • d.light has reached 160 million people in underserved communities with clean solar energy, avoiding 35 million kilograms of CO₂ emissions.
  • Eco Mensajería in the Dominican Republic has created over 1,000 green jobs through a zero-emissions delivery network using electric motorcycles.
  • Frontier Markets’ SLB:MK initiative empowers 1 million women in rural India to become climate entrepreneurs via smart agriculture, clean tech, and digital finance.

“These businesses demonstrate that inclusive growth and climate action are not in conflict—they reinforce each other,” said Bajaj.

Unlocking Finance: Beyond Capital Alone

The report calls for blended finance vehicles, outcome-based investments, and aggregation platforms to scale grassroots innovation.

It also urges governments and multilaterals to enable regulatory environments that prioritize local access and participation.

“Resilience demands more than money,” Bajaj noted. “It demands strategic partnership, data visibility, and policies that treat locally led adaptation as investable, not charitable.”

A Roadmap for Scale

The report ends with a blueprint for action: engage early with innovators, reform investment criteria, channel capital through trusted local intermediaries, and ensure climate risk is properly priced into financial models.

“We have a chance to reshape finance to serve people and planet,” Bajaj said. “The question is no longer whether we can. It’s whether we will.”

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