Southeast Asia faces $25b annual climate adaptation shortfall
Spending lags rising risk as annual needs reach $84b by 2050, McKinsey said.
Southeast Asia is facing a widening gap between climate adaptation needs and actual spending, with current investment falling well below levels required to protect economies and populations from growing climate risks, according to research by McKinsey & Company.
The region currently spends about $12b a year on adaptation across infrastructure, cities and key sectors. However, it would need around $37b annually to reach protection standards seen in developed economies, leaving a funding gap of about $25 billion per year, the report said.
The shortfall is expected to increase over time, according to the 18 May report. By 2050, annual adaptation needs could rise to $84b, or about 1% of Southeast Asia’s projected GDP.
McKinsey & Company said the main issue is a mismatch between rising climate risks and insufficient investment in resilience.
The report found that nearly half of Southeast Asia’s land area and population are already exposed to at least one major climate hazard, including heat stress, flooding, drought, or wildfires.
It added that 23% of the population faces severe heat stress and 21% is exposed to river flooding, whilst coastal flooding affects about 3%, around double the global average.
At higher warming levels, exposure is expected to rise further with the report finding that at 2°C of warming, about 91% of the region’s population could face at least one climate hazard, compared with about 50% today.
Heat stress exposure is projected to rise to around half the population by 2050. Heatwave exposure could increase from 16% to more than 80%, whilst drought exposure is also expected to double.
The report said most future adaptation spending will go toward heat-related measures, which are expected to make up about 70% of total needs.
These include cooling systems, urban greening, and heat-reflective infrastructure.
Flood protection and other resilience measures make up the rest of required investment.
Current spending remains uneven with about $8.6b is directed to heat adaptation, whilst $2.2b goes to flood protection of the $12b spent a year, the report said.
McKinsey & Company said per capita adaptation spending in the region is about $18 per year. This would need to rise to around $56 today and $105 by 2050 to meet developed-economy standards.
Even if spending grows in line with GDP, only about 46% of future needs would be met, it added.
The report highlighted key barriers, including limited fiscal space, misaligned incentives between funders and beneficiaries, weak enforcement of building rules, and implementation challenges across fragmented geographies.
It added that most infrastructure in Southeast Asia by 2050 has yet to be built, creating an opportunity to embed climate resilience into future development.
Singapore was cited as an example of early action, having designated 2026 as its Year of Climate Adaptation, according to the report.
