Southeast Asia may face climate risks as it underinvests in adaptation: IEEFA

The region faces fiscal pressures and reliance on international financing amongst other structural barriers.

Southeast Asia received $27.8b in total climate finance between 2018 and 2019, of which adaptation accounted for 12%, according to an Institute for Energy Economics and Financial Analysis (IEEFA) report.

Direct economic losses from climate events in Asia averaged $75.7b per year between 2000 and 2023, representing 40% of global losses. Global adaptation finance reached $65b in 2023, or 4% of total climate finance flows.

“Closing the adaptation financing gap requires treating it as a core national development and economic priority, integrated into long-term planning, budgeting, and policy frameworks. Investors should move beyond seeing it solely as a cost and incorporate forward-looking resilience risks and benefits into financial appraisal, investment strategies, and project evaluations,” Ramnath N. Iyer, IEEFA's Sustainable Finance Lead, Asia, said.

IEEFA flagged structural barriers in Southeast Asia include fiscal pressures and a reliance on international financing, the report said.

International and regional investors provided 66% and 28%, respectively, of blended climate finance commitments in the region between 2018 and 2023, whilst domestic sources contributed 6%.

Adaptation projects had a disbursement ratio of 66%, compared to 98% for development finance, as approvals face obstacles from a lack of data and unclear revenue streams.

The Association of Southeast Asian Nations taxonomy update aims to provide technical screening criteria for adaptation, said Shu Xuan Tan, Sustainable Finance Analyst of IEEFA, Asia.

China and Vietnam, however, exclude adaptation from the environmental objectives of their taxonomies, the report said.

The report also recommends adaptation bonds and debt-for-resilience swaps to attract private capital. The Tokyo Resilience Bond, a $354.7m (EUR300m) issuance, received bids seven times its size. Debt-for-resilience swaps can fund adaptation programmes whilst reducing fiscal pressure on vulnerable nations.

(EUR1 = US$1.18)