Financing climate adaptation: Looking beyond the budget for solutions

The climate crisis is no longer an abstract future threat. It is here and it is expensive. In his State of the Nation Address (SONA) on 13 February 2026, President Cyril Ramaphosa acknowledged the mounting toll of climate-related disasters. 

In January 2026, floods and severe weather were declared a national disaster after heavy rains battered Limpopo, Mpumalanga, KwaZulu-Natal, the Eastern Cape and North West. The flooding took a devastating toll, claiming 45 lives, displacing families and washing away roads, bridges and critical public infrastructure. In February 2026, severe drought and deepening water shortages in parts of the Eastern Cape, Western Cape and Northern Cape were also classified a national disaster, as dam levels dropped and pressure mounted on already fragile bulk water systems. At the same time, wildfires, particularly in the Western and Eastern Cape, scorched large areas of land and destroyed homes and livelihoods. 

This is disaster governance. Crises are classified as disasters to unlock funds. Emergency committees are established. Budgets are reshuffled. Finance diverts towards catastrophe.

Reflecting on these crises, it makes sense that when the Minister of Finance, Enoch Godongwana, delivered the budget speech and presented the proposed budget to Parliament earlier this week, he highlighted that it includes a proposed R5 billion in the contingency reserve to address disasters declared since October 2025. When floods, fires and drought devastate communities, government must act. But every reactive allocation comes at a cost. Money spent on relief is money not being spent elsewhere. The more extreme the disasters, the more urgently the fiscus chases crisis.

If we continue to prioritise recovery over resilience, we will remain trapped in a cycle of rebuilding what climate change will simply destroy again. Climate adaptation is often treated as the “nice to have” cousin of disaster relief. Yet this is precisely what could reduce future loss and damage.

The scale of the challenge

The numbers are sobering. According to the Climate Policy Initiative’s assessment of the South African climate finance landscape in 2025, the country requires approximately R499 billion per year to meet its combined climate mitigation and adaptation goals. But the average annual climate finance flows in 2022 to 2023 amounted to roughly R188 billion – a shortfall of over R300 billion.

Crucially, adaptation measures are underfunded. The Climate Policy Initiative’s analysis shows that only 11.3% of tracked climate finance supported adaptation activities.

In other words, we are investing very little in protecting communities from climate impacts that are already locked in.

This imbalance reflects global trends. Mitigation technologies such as renewable energy plants, electric vehicles and green hydrogen generate revenue streams. Investors can model returns. Carbon emissions have a metric, the tonne of CO₂; when the price for carbon is right, deals can be made. Adaptation, by contrast, focuses on avoided losses: fewer flooded homes, less crop failure, reduced heat stress. It is much harder to monetise what did not happen.

But for households facing food insecurity, job losses, unaffordable insurance; farmers watching crops fail due to droughts or flooding and officials scrambling to repair washed away roads, bridges and water systems, avoided loss is important.

Why adaptation struggles to attract finance

There are structural reasons that adaptation finance lags.

Firstly, adaptation projects often lack direct revenue streams. A restored wetland that absorbs floodwaters saves downstream communities millions but does not generate a cash flow that can easily repay investors.

Secondly, there is no universal metric for resilience equivalent to a carbon credit. Adaptation outcomes are context specific. For example, what builds resilience in Limpopo’s agricultural sector differs from what protects coastal communities in the Eastern Cape. This makes it difficult for financiers to compare, standardise and scale projects.

Thirdly, there is a time-horizon mismatch. Adaptation benefits may accrue over decades, while commercial finance typically seeks returns within five to 10 years. High upfront costs and slow ecological payoffs do not neatly align with private capital expectations.

Finally, many adaptation interventions are local and small-scale. For example, upgrading stormwater systems, climate-proofing clinics and restoring catchments. Managing multiple small projects carries high transaction costs relative to single, large infrastructure deals.

In a tight fiscal environment, these challenges make adaptation look like an unaffordable luxury. It is not. It is essential risk management.

Looking beyond the budget

If fiscal space is constrained, the answer cannot lie solely within the national budget.

In his SONA address, President Ramaphosa committed to forging stronger partnerships with like-minded countries and advancing Global South priorities, including debt relief, climate action and reform of global governance institutions. Our leadership within the G20 has positioned South Africa as a key voice in debates on sustainable finance and reform of the international financial architecture. One of South Africa’s priorities during its G20 presidency in 2025 was to scale up adaptation finance. This is not abstract diplomacy. It is directly relevant to how we fund resilience at home.

Globally, climate finance instruments are evolving. Concessional finance, blended finance structures, resilience bonds and ecosystem-based adaptation are increasingly being implemented. Multilateral development banks are under pressure to reform their balance sheets to crowd in more private capital while taking on greater risk.

For adaptation in particular, grant and concessional finance are critical. Unlike mitigation projects, adaptation will rarely be fully self-sustaining on a commercial basis. It requires public and philanthropic capital to absorb risk, extend time horizons and make projects investable.

South Africa can also innovate domestically.

One promising approach is to design investable landscapes, bundling multiple small-scale ecosystem-based adaptation projects into larger portfolios that are attractive to institutional investors. Instead of financing one wetland restoration at a time, we can structure catchment-wide programmes that combine water security, biodiversity and climate resilience benefits.

Financial instruments such as resilience bonds deserve serious exploration. Resilience bonds are designed to fund projects that reduce the impact of disasters like floods, while also leveraging private capital. 

Biodiversity credit markets, if carefully governed, may unlock additional resources for ecosystem restoration. Similar to carbon credits, biodiversity credits are tradable certificates representing verified environmental outcomes. In this case, the outcome is a measurable, additional and lasting improvement in biodiversity, rather than a reduction in greenhouse gas emissions.

Country platforms offer another pathway. The Just Energy Transition Partnership demonstrated how coordinated international support can mobilise concessional finance at scale. South Africa’s planned Just Adaptation and Resilience Investment Platform, showcased at COP30, could similarly align public, private and international finance around a pipeline of bankable adaptation projects.

From crisis response to strategic resilience: Why adaptation cannot wait

If adaptation remains sidelined because it does not fit neatly into traditional revenue models, we risk locking ourselves into ever-rising disaster recovery costs.

The recent declaration of disasters in multiple provinces should not only trigger emergency allocations. It should catalyse a shift in how we think about financing resilience.

South Africa has an opportunity to leverage its international leadership to push for reforms that expand access to concessional climate finance. At home, it can build pipelines of well-designed, scalable projects that crowd in blended finance.

The question should not be whether we can afford to fund adaptation in a constrained fiscal environment.

It is whether we can afford not to.

If we continue to treat adaptation as secondary to disaster response, we will keep rebuilding in the wake of each devastating flood and wildfire. If we invest strategically in resilience, drawing on global climate finance reforms and innovative domestic instruments, we can reduce future losses, protect lives and stretch our rands further.

Kirsten Pearson is a Climate Finance Researcher with the Climate and Natural Resources Programme at the South African Institute of International Affairs (SAIIA).