Across the Global South, communities are responding to the impacts of climate change. Yet, the public and private financial systems designed to support climate adaptation continue to overlook these same communities. Local actors are too often left on the sidelines of investment decisions that directly affect their futures – despite possessing deep knowledge of their ecosystems, vulnerabilities, and strengths. 

While adaptation finance is increasing, much of it is still not reaching the local communities most exposed to climate risks. These communities are not always the direct recipients of private sector finance, yet they are often deeply affected by climate impacts that, in turn, can disrupt supply chains, workforce stability, and the long-term viability of beneficiary businesses. Despite this, funding structures are often short-term, inflexible, and developed without meaningful input from those on the ground. Capturing local perspectives and learning from community-led resilience strategies is essential to designing adaptation investments that are both effective and sustainable. 

In February 2025, local leaders, financial institutions, and development actors came together for the “Bridging the Gap” workshop—co-convened by SouthSouthNorth (SSN), UNEP FI, British International Investment (BII), and the International Institute for Environment and Development (IIED) and the Adaptation & Resilience Investors Collaborative (ARIC). The workshop served as a platform for local actors to speak candidly about the barriers they face—and the changes required. 

From participation to power: What local voices are telling us

• Climate finance is still out of reach for local actors: Most funding mechanisms remain inaccessible, with high transaction costs, limited flexibility, and short investment horizons—particularly in private finance. These constraints prevent local communities from investing in long-term, climate-resilient solutions tailored to their realities.
• Finance often overlooks community-wide resilience: Private investments typically focus on individual businesses or households, without accounting for the broader social and environmental ripple effects. This fragmented engagement risks undermining collective resilience, especially in the face of systemic climate impacts.
• Local knowledge is undervalued in decision-making: Financial processes continue to follow top-down models, often sidelining local governance systems and cultural insights. This disconnect weakens the relevance, impact, and sustainability of adaptation efforts on the ground. 

These challenges aren’t one-off problems—they point to deeper issues in how adaptation finance is designed and delivered around the world. 

Locally led adaptation: Practical solutions from those who know best

While many problems remain, solutions are emerging—from the communities themselves and from collaborative efforts between local actors and financial institutions. However, with climate change advancing rapidly, accelerating action is essential. To fully drive meaningful change, it is crucial for key principles to be embraced and implemented swiftly.

Key principles for change include: 

• Co-develop with communities: Move beyond one-way consultation to co-create resilience strategies with local actors. This includes systematically assessing risks to communities during project planning—aligned with frameworks like the EU and Climate Bonds taxonomies—and ensuring alignment with national and local government priorities.
• Embed resilience in investment decisions: Integrate physical and systemic climate risks into investment processes to support long-term viability. This also means supporting financial inclusion and outreach, especially in underserved regions, to ensure resilience is built from the ground up.
• Enable inclusive access and long-term engagement: Design finance instruments that are accessible, flexible, and tailored to local contexts, while also building lasting relationships through trusted intermediaries, mutual capacity-building, and long-term partnerships.

As local organizations consistently emphasize, inclusion is not just an ethical necessity—it provides an important foundation for effective, scalable, and sustainable adaptation. 

The role of financial institutions

Financial institutions have a central role to play in transforming the adaptation finance landscape. By integrating local perspectives into project design, risk assessments, and monitoring frameworks, they can: 

• Improve the effectiveness and longevity of their financing; 
• Anticipate and reduce financial and reputational risks; 
• Drive innovation by supporting context-specific adaptation approaches and supporting the development of adaptation solutions. 

For banks, insurers, investors, and development finance institutions, the challenge is to move beyond business-as-usual—to rethink how capital is deployed, whose voices are prioritized, and what resilience truly looks like. 

Local voices can no longer be an afterthought in adaptation finance. Their leadership, experience, and solutions are key to building resilience where it matters most. 

At UNEP FI, we are helping financial institutions embed climate adaptation into their strategies, risk frameworks, and investment portfolios—in ways that include and empower local communities.

Find out how banks can set targets to grow adaptation finance in the Principles for Responsible Banking’s guidance, the world’s first blueprint on setting targets for climate adaptation, developed by a working group of 27 signatories to the Principles for Responsible Banking, in conjunction with the Just Transition Finance: Pathways for Banking and Insurance, Just Transition Finance: Pathways for Banking and Insurance which provides financial institutions with practical recommendations and examples of emerging practices on how to embed just transition considerations in adaptation finance. A group of financial institutions is piloting both guidances — look out for the result of these projects coming soon.  

Discover how insurance can play an important role in scaling finance for adaptation and resilience. UNEP FI’s collaboration with the V20 group of climate vulnerable countries aims to create more climate resilient economies by supporting insurance and credit solutions for medium, small and micro enterprises through the Sustainable Insurance Facility. 

Development finance: Climate risk mitigation will also require concessional finance – development finance institutions are working with UNEP FI to develop the tools necessary to scale up finance for adaptation in emerging markets and developing countries through the Adaptation & Resilience Investor Collaborative.