Publications

Without strong financial systems to support climate adaptation and resilience, there is a growing risk that FSPs will retreat from high-risk areas, worsening financial exclusion and deepening inequality. Supporting climate goals requires a systematic approach to building financial systems that can respond to the breadth of climate risks and the needs of various customer segments. Limited private sector investment in climate adaptation and resilience stems from uncertainty about which types of investments are effective and the value their returns bring. Governments and development funders therefore play a vital role in enabling, incentivizing, and complementing the private sector. While many are already strengthening financial systems’ resilience, current efforts often overlook the importance of inclusion for climate risk management at the grassroots level. This gap is not due to a lack of commitment, but rather to limited resources and tools for identifying market gaps and designing effective interventions.

This paper outlines how governments and development funders can leverage financial and nonfinancial tools to foster inclusive financial systems that enhance climate adaptation and resilience. It lays out a framework that defines three key roles they can play, and identifies relevant interventions. Finally, the paper introduces a diagnostic process to guide effective action for building financial systems that are inclusive, climate resilient, and climate-responsive. 

This paper is produced by CGAP.