Climate adaptation in Southeast Asia must be treated as an economy-wide investment opportunity rather than a cost, as the region faces a widening gap between the money needed to prepare for climate impacts and the capital currently flowing into resilience.
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Speaking at the Malaysia edition of Unlocking capital for sustainability 2026 in Kuala Lumpur on 23 July, Edward Vrkić, United Nations Development Programme (UNDP) resident representative to Malaysia, Singapore and Brunei Darussalam said Association of Southeast Asian Nations (Asean) economies are currently spending around US$3.2 billion annually on climate adaptation and will need an estimated US$422 billion cumulatively by 2030 to prepare for the impacts of climate change from extreme weather events.
Vrkić, who has held senior diplomatic and advisory roles across the Asia-Pacific for decades, cited the latest data showing that only 17 per cent of global climate finance is directed to adaptation. Of that amount, just 2 per cent of tracked adaptation finance comes from the private sector.
While mitigation projects such as renewable energy and electric vehicles can often demonstrate relatively clear revenue streams and measurable emissions reductions, the benefits of adaptation investments are frequently realised through losses avoided rather than immediate income generated, he suggested.
“Mitigation is more bankable,” Vrkić said, while delivering his opening address at the forum. “It is easier to say we are reducing greenhouse gas emissions by driving an electric vehicle or by putting solar panels on a roof, than we are from investment in adaptation projects [such as] flood defenses, paved roads. I hear this all the time. This view is a lack of imagination among the private sector.”
He warned that failing to invest in adaptation could be far more expensive, citing Malaysia’s 2021 floods, which caused an estimated RM8 billion (US$1.95 billion) in damage and wiped out around RM9.5 billion (US$2.32 billion) in economic losses. Only around 35 per cent of those affected had insurance, and premiums are expected to rise further as insurers increasingly factor climate risk into their pricing, he added.
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It is easier to say we are reducing greenhouse gas emissions by driving an electric vehicle or putting solar panels on a roof … than we are from investment in adaptation projects [such as] flood defenses, paved roads…This view is a lack of imagination among the private sector.
Edward Vrkić, resident representative to Malaysia, Singapore and Brunei Darussalam, United Nations Development Programme (UNDP)
The challenge is particularly acute for Malaysia’s micro, small and medium-sized enterprises (MSMEs), which form a critical part of the economy but often struggle to access capital for climate and nature-related projects.
Vrkić said around 60 per cent of climate or nature-focused MSMEs in Malaysia face difficulties securing finance. Among the barriers identified were arduous application processes, insufficient funding, limited investor interest and a lack of track records that would establish companies as reliable and bankable.
The financing gap is especially pronounced in the “missing middle” — businesses seeking between RM100,000 (US$24,000) and RM3 million (US$733,000) in capital. This segment, Vrkić said, is also where much of the innovation in the economy is generated.
On the other side of the market, at least half of investors and financial institutions cited a lack of bankable projects, insufficient data and concerns about returns as major barriers to providing capital, he added.
Overcoming this impasse would require a shift in how adaptation is valued, Vrkić said, noting that rather than viewing resilience spending as a sunk cost, investors and policymakers should consider the value of avoided losses and the protection of existing assets.
The degradation of natural systems costs the global economy around US$2.7 trillion annually, equivalent to approximately 2.3 per cent of global gross domestic product (GDP), according to World Bank data.
At the same time, only around US$220 billion a year is spent on restoring nature-based systems, as opposed to US$7.3 trillion flowing annually into sectors and industries that continue to have a detrimental impact on the environment, based on this year’s UN Environment Programme report.
Vrkić also pointed to the growing convergence between climate and nature finance, arguing that ecosystems such as forests, water systems and other natural assets should increasingly be considered part of the infrastructure underpinning economic activity.
“Climate adaptation is economic investment, not a cost,” he added.
Building bankability for adaptation
Speakers at the opening panel on building bankability for national adaptation. From left: Noor Akmar Shah Mohd Nordin, project director, Malaysia National Adaptation Plan (MyNAP); Supun Nigamuni, managing director, Control Union Malaysia; Esther An, chief sustainability officer, City Developments Limited; Zakiah Mat Esa, chief sustainability officer, Bank Pembangunan Malaysia and SME Bank Malaysia and moderator Yin Wei Chong, head of sustainable finance and innovation, UNDP. Image: Eco-Business
Establishing a pipeline of investable projects was a key theme at the forum’s opening panel on building bankability for national adaptation, where speakers argued that the challenge is no longer whether adaptation should be financed, but how resilience projects can be structured to attract private capital.
Malaysia’s National Adaptation Plan (MyNAP), which is currently under development, is expected to play an important role in establishing the pipeline of projects.
Noor Akmar Shah Mohd Nordin, project director for MyNAP, said the plan is intended to be a practical framework rather than another policy document, with financing mechanisms embedded into its design from the outset.
He said the plan is being developed across five priority sectors – water and coastal resources, public health, forestry and biodiversity, infrastructure and cities, and agriculture and food – and will use climate vulnerability and risk assessments to quantify climate impacts and translate them into financing needs.
It is expected to provide clearer estimates of investment requirements over the short, medium and long term, covering not only disaster recovery but also preparedness and preventive measures before climate-related events occur.
For financial institutions, however, the focus is increasingly shifting towards preparing projects that are only marginally bankable and helping them become investable.
Zakiah Mat Esa, chief sustainability officer of Bank Pembangunan Malaysia and SME Bank Malaysia, said initiatives such as the Climate Finance Innovation Lab – an accelerator under the industry platform led by financial regulators, Malaysia’s Joint Committee on Climate Change (JC3) – are helping project developers strengthen commercial viability before connecting them with financiers, while catalytic capital can de-risk projects and crowd in private investment.
Drawing on the bank’s experience in financing energy transition projects, she said similar blended finance approaches could be applied to adaptation, with development finance institutions assessing projects not only on financial returns but also their wider economic and social benefits.
While catalytic capital can improve project bankability, investors will also need confidence that adaptation benefits can be measured consistently.
Supun Nigamuni, managing director of Control Union Malaysia, who also spoke on the panel highlighted that the industry must develop more robust data and verification frameworks if adaptation is to become a recognised investment asset class.
Unlike mitigation projects, where emissions reductions can be measured relatively easily, adaptation investments are based on future climate risks that are inherently more difficult to quantify.
“The challenge is how we can create adaptation into a bankable asset class,” he said, highlighting the need for reliable climate data, harmonised methodologies and independent verification so investors can compare risks and assess projects with confidence.
