Context and role of Ministries of Finance

More frequent and damaging extreme weather events are making adaptation an urgent fiscal priority for Ministries of Finance (MoFs). Floods, droughts, and other extreme weather events harm sovereign assets, increase public debt, and impair sovereign credit ratings, restricting access to finance (see Part A, The role of Ministries of Finance in navigating the transition to a low-carbon, climate-resilient, and nature-positive economy). Climate shocks generate budgetary pressure through disaster response, infrastructure repair, health costs, lost productivity, and social protection spending, making adaptation not only an environmental concern but also a core dimension of fiscal sustainability. 

By 2050, climate impacts could reduce average GDP per capita by 3%–15%, with people in low- and lower-middle-income countries already 4%–12% poorer due to temperature changes and sea level rise (Rising, 2026). In Pacific Small Island Developing States, coastal protection alone would cost 8–9% of GDP annually, depending on risk tolerance. For example, total annual public adaptation costs exceed 25% of GDP for Kiribati and are around 17% for Tuvalu and 14% for Vanuatu—far beyond the fiscal capacity of these countries (ESCAP, 2025). 

Adaptation finance has grown but remains severely inadequate 

Total adaptation financing was only around US$65bn in 2023 (CPI, 2025), far below estimated needs. The UNEP Adaptation Gap Report 2025 puts annual adaptation costs in developing countries at US$310bn per year by 2035, of which Least Developed Countries and Small Island Developing States account for US$36.7bn per year (UNEP, 2025). Parties at COP30 called for efforts to at least triple adaptation finance by 2035. 

National Adaptation Plans are a key tool to accelerate progress 

Formally established in 2010 under the Cancun Adaptation Framework, the National Adaptation Plans (NAPs) process enables countries, particularly developing countries, to identify and address medium- and long-term adaptation priorities (NAP Global Network, 2020). By analyzing current and future vulnerabilities, NAPs give MoFs a basis to prioritize adaptation options and to integrate adaptation into national planning, decision-making, and budgeting, increasing the resilience of public finances (ibid.). 

The updated NAP Technical Guidelines (LEG/UNFCCC, 2025) draw a distinction relevant to MoFs: 

• Managing climate risk by identifying hazards and reducing exposure. 

• Managing adaptation benefits through generating measurable returns in health, food security, employment, and resilience. 

Both lenses are needed: the risk lens prioritizes vulnerable populations and high-exposure geographies; the benefits lens aligns NAP priorities with national development goals and helps identify ”no-regret” options that reduce risks and improve lives regardless of future climate scenarios. Progress can be tracked through the Belém Adaptation Indicators (see Box F1a(iii).1). 

MoF involvement in NAPs has so far been limited, often coming only at the final stages of planning 

Only 79 NAPs have been communicated to the UNFCCC (NAP Global Network, 2026) and most countries remain focused on planning rather than implementation. Engagement is growing, however: the Coalition of Finance Ministers for Climate Action established an adaptation workstream in early 2022, with a first survey showing some members beginning to build adaptation into their policy analysis and tools (CFMCA, 2022).  

A more recent survey of 59 MoFs confirms this trajectory: 48% are now actively involved in shaping national adaptation and resilience plans, and a further 28% are considering it. However, 44% have not estimated public expenditure or financing needs for adaptation, so the financial implications remain unquantified in most countries (CFMCA, 2025a). 

MoFs have an important role to play in every stage of NAPs 

In particular, they can work with the lead agency, such as the Ministry of Environment, by leading or supporting the following processes as appropriate. 

Costing adaptation actions 

First, most NAPs identify adaptation priorities but stop short of costing them; of 58 submitted NAPs analyzed, only 33 indicate the cost of implementing adaptation actions (UNFCCC, 2024). This is partly because costing adaptation is genuinely difficult: benefits materialize as avoided losses rather than direct gains, attribution is hard to establish, and projections rest on uncertain scenarios. 

A structured approach helps. Cost estimation should cover three dimensions: the cost of implementing priority actions; the quantified return on adaptation investment, anchored in counterfactual modeling of fiscal exposure without action; and the broader benefits of adaptation including resilience dividends and co-benefits (LEG/UNFCCC, 2025). UNFCCC sectoral guidelines and the Collaborative Africa Budget Reform Initiative budget integration methodology provide practical guidance on how to estimate each of these dimensions across sectors such as agriculture, water, infrastructure, and health.  

Prioritizing actions 

Second, once costs and benefits are estimated, the question is how to compare and rank options. Cost–benefit analysis is appropriate where benefits can be monetized; multi-criteria decision analysis is preferable where quantification breaks down or where equity, social inclusion, and ecosystem co-benefits must be weighted alongside financial returns. In practice, the two are often combined, with monetary estimates feeding into a broader multi-criteria scorecard. Finally, because point estimates are unreliable under climate uncertainty, prioritization can benefit from sensitivity analysis across multiple scenarios and iterative review as projections and economic conditions change.  

Mobilizing private sector involvement and financing 

Third, engaging the private sector early in the NAP process builds awareness and alignment. It can act as both financier and implementer, supply data for monitoring and evaluation, and be consulted on barriers to private adaptation finance (IISD, 2022). MoFs are well placed to design enabling conditions, such as regulatory frameworks, risk-sharing instruments, and blended finance structures that make adaptation investments attractive to private actors.  

Tracking adaptation financial flows 

Fourth, MoFs are well placed to set up tracking systems. They may start with external finance where tracking of domestic and private finance is less established (IISD, 2022). Established public financial management instruments support this, notably climate budget tagging and tracking and disaster budget tagging; climate public expenditure and institutional review; and climate public expenditure and financial accountability. However, disaster budget tagging remains underused, methods are not standardized, and evidence on the real-world impact of tagging is limited (CFMCA, 2025a). The Belém Adaptation Indicators provide a results-based framework through collaboration between line ministries and statistical authorities (see Box F1a(iii).1).  

Mainstreaming NAPs into national planning and budgeting 

Fifth, MoFs are responsible for ensuring NAP priorities survive the annual budget negotiation cycle rather than remaining aspirational. This means working with line ministries to: 

• Integrate adaptation into sectoral budgets, ex-ante policy assessments, and public investment cycles (see Function 2, Reforming fiscal policies and Function 3, Financing the transition through reforming the financial system and instruments). 

• Map NAP priorities to mandates, budget submissions, and medium-term expenditure frameworks. 

• Use expenditure tagging frameworks such as the Collaborative Africa Budget Reform Initiative methodology or the OECD-DAC Rio Markers to identify climate-relevant allocations (see Function 2, Using the budget to drive transformation in all sectors of the economy). 

Embedding NAP priorities in the medium-term fiscal framework, which determines the aggregate resource envelope through measurable climate KPIs, is the most reliable mechanism for translating planning commitments into funded action (UNDP, 2025).  

Anchoring fiscal risk assessment in the NAP process 

Sixth, climate damage modeling can make the cost of inaction visible alongside the cost of investment, giving MoFs the analytical basis to justify adaptation expenditure. Macrofinancial modeling tools (e.g., GEMMES) show that without adaptation, climate impacts transmitted through agriculture, infrastructure, and labor productivity can generate GDP losses of several percentage points. As there are disproportionate effects on low-income households, reactive spending is no substitute for supply-side adaptation. Damage modeling can sit inside the MoF’s own macroeconomic framework. Analysis of the returns on adaptation investment, based on counterfactual modeling of fiscal exposure, can be built into NAP design (see Function 2, Managing the fiscal risks of cascading contingent liabilities and Function 3, Providing disaster risk finance and insurance for all). 

Climate shocks can increase demand for income support, unemployment protection, healthcare, and emergency assistance, while the transition process itself may create temporary income losses for affected workers, households, and enterprises. The same analysis can extend to social protection adequacy: stress-testing whether existing safety nets can absorb climate shocks and designing compensation mechanisms where they cannot. The NAP process can also be used to both evaluate whether existing social protection systems can respond to climate and transition shocks, and link adaptation planning with scalable, fiscally sustainable social protection mechanisms.  

Financing nature-based solutions 

Seventh, nature-based solutions offer cost-effective adaptation options that MoFs have a direct interest in financing. Measures such as mangrove restoration, wetland protection, and watershed management are inherently more flexible than hard infrastructure. Because ecosystems evolve naturally, nature-based solutions allow iterative adjustment over time as climate change intensifies, avoiding the expensive fiscal lock-in and high rebuilding costs of concrete and steel systems. This adaptive capacity reduces long-term liability, as rigid technical solutions risk creating a false sense of security that worsens economic exposure if they fail (UNEP, 2022b; IPCC 2022). 

Ecosystems also generate biodiversity co-benefits, strengthening NAPs’ coherence with National Biodiversity Strategies and Action Plans (see Function 1, National Biodiversity Strategies and Action Plans). MoFs can embed safeguards and monitoring into nature-based solutions, financing to guard against maladaptation risks such as the biodiversity or social risks of monoculture planting and land grabbing, which rise with the effects of climate change.  

Localizing NAP priorities to subnational and community levels 

Climate impacts are often felt first at the local level. However, capacity gaps, weak local data, and the absence of harmonized adaptation standards mean that subnational and community needs are routinely underrepresented in national budgeting processes. MoFs can account for this through decentralized financing mechanisms, localized risk assessment, and stronger subnational planning capacity. (LEG/UNFCCC, 2025; see also Box F1a(iii).2) 

Acting on these responsibilities requires a dedicated financing strategy 

The three building blocks of a dedicated financing strategy are: identifying the financing gap; mapping available sources (domestic public and private finance as well as international private and public climate funds); and developing the operational steps to access them, including capacity building, relationship development and project preparation (IISD, 2022). Risk layering provides the instrument logic: matching contingency reserves, contingent credit lines, sovereign insurance, and catastrophe bonds to the frequency and severity of shocks secures liquidity at lowest cost, while protection-gap analysis quantifies residual liabilities across government, business, and households (CFMCA, 2025a). 

The Belém Adaptation Indicators can further support mobilization by underpinning results-based finance and informing both resilience-focused sovereign bonds and blended finance structures. Taken together, these tools position the MoF not as a passive recipient of adaptation plans produced elsewhere, but as a central actor in designing, funding, and delivering the resilience investments that fiscal sustainability increasingly demands (Valdecantos and Espagne, 2025).