Addressing the climate financing gap: Why Asia must build resilience as temperatures rise

THE global conversation around climate change has become increasingly complex in recent years. Geopolitical tensions, energy security concerns, economic competitiveness and technological change are now tightly intertwined with the sustainability agenda.

Against this backdrop, the physical realities of climate change continue to intensify. In Asia-Pacific, losses from natural disasters totalled US$73 billion (S$94 billion) last year, according to Munich Re. About 88 per cent of those losses were uninsured. Singapore, too, has felt the effects more directly, with temperatures in recent weeks reaching highs of 35 deg C.

For years, global climate action has focused on mitigation: reducing emissions to prevent the worst outcomes of climate change. That effort remains essential, but there is a growing recognition that mitigation alone is no longer enough.

This shift is especially pressing in Asia, which sits on the frontlines of climate risk. Many of the world’s most densely populated coastal cities are here. Heat stress is already affecting labour productivity in parts of South-east Asia, while water and food security challenges are also intensifying. 

Despite these rising risks, funding for climate adaptation still lags far behind financing for emissions reduction.

As Minister for Sustainability and the Environment Grace Fu noted at this year’s Committee of Supply Debate, greater climate impacts are coming.

The challenge ahead therefore involves two parallel priorities: continuing to reduce emissions as quickly as possible, while preparing economies and societies for risks that are now unavoidable.

In other words, if climate mitigation is about avoiding the unmanageable, then adaptation and resilience is about managing the unavoidable.

Managing rising climate risks

Building a sea wall, strengthening flood defenses, redesigning urban drainage systems or investing in heat-resilient infrastructure may not always produce a direct financial return. Instead, these investments are designed to prevent future losses, where the quantifiable impact could be much more in absolute terms.

That makes it more challenging to “price” such projects. Unlike revenue-generating assets, adaptation projects derive their worth from damage that may or may not occur in the future. This requires new ways of thinking about risk and capital allocation.

A report launched last month by DBS and the Climate Bonds Initiative, which examines how climate resilience finance can be scaled across Asia-Pacific, estimates that annual costs associated with physical climate risks for companies with significant operations in Asia are projected to reach US$336 billion by the 2030s. Yet, adaptation finance remains underfunded, highlighting the need to mobilise greater pools of capital.

Encouragingly, investor appetite is emerging. In 2025, the Tokyo Metropolitan Government issued the world’s first Climate Bonds Certified resilience-labelled bond, raising 300 million euros to finance flood resilience, coastal protection and critical infrastructure upgrades. The bond attracted more than seven times the amount of investor demand, demonstrating that well-structured resilience investments can attract strong market interest.

Increasingly, adaptation should not be viewed as a separate investment from the transition to a low-carbon economy, but as an integral part of it. A renewable energy project, for example, is only truly future-ready if it is designed from the outset to withstand the physical climate risks it will face over its lifetime, such as from heat stress or flooding.

Financing climate resilience

For financial institutions like DBS, this represents an important evolution of the sustainable finance agenda across Asia.

It means helping clients not only finance decarbonisation, but also strengthen the resilience of critical assets and infrastructure across sectors such as real estate, energy, transport, agriculture and digital infrastructure.

Multinational companies that are significant offtakers of agricultural commodities produced in the region are increasingly investing in agroforestry and drip irrigation to increase the climate resilience of their supply chains. Data centres sited in water-scarce regions are also raising capital to fund water recycling systems, as a forward-looking adaptation play.

The insurance sector will have a particularly important role to play. In some markets, regulatory caps on insurance premiums have led insurers to withdraw coverage altogether, creating availability gaps. In others, premiums have risen sharply, creating affordability challenges. Both outcomes have significant economic implications. When assets become difficult to insure, their value can decline – affecting households and businesses alike.

Assets that are designed to withstand physical climate risks are likely to be more resilient, insurable and better able to generate long-term cash flows, making them more attractive to lenders and investors.

Addressing these risks will therefore help improve the bankability and investability of such projects, but it will require an ecosystem approach. Governments can provide policy direction and public investment, financial institutions can mobilise private capital and structure financing solutions, while insurers can help design mechanisms for risk transfer. Researchers and climate scientists can provide the underlying data and modelling that inform this decision-making.

Innovating climate finance solutions

This effort will require new analytical capabilities – from physical risk assessments to climate hazard modelling – which DBS has already been building capacity in. It also calls for financial innovation to translate these insights into practical financing instruments, as well as engagements with clients on their exposure to climate risks and working with them to develop practical solutions – whether through advisory, risk management or new financing structures.

The question for Asia is no longer “Are you green enough?”, but “Are you adapted enough?”. Reducing emissions will determine the long-term trajectory of the planet – but strengthening resilience will determine how well economies and communities cope with the climate impacts already underway.

For Asia, getting this balance right will be critical. The challenge is immense. But so too is the opportunity to build systems that are not only cleaner, but also more resilient and better prepared for the future.

This article was written by Shilpa Gulrajani, head of Sustainable Finance, Institutional Banking Group, DBS.