By James Rising, Nick Godfrey, Paul Watkiss, Swenja Surminski, Daniela Baeza Breinbauer, María Paula Gutiérrez Hurtado, and Maria João Pimenta. Supported by the Coalition

A new report, led by the Grantham Research Institute, supported by the Coalition of Finance Ministers for Climate Action, provides a groundbreaking new synthesis of the economic and fiscal risks arising from physical climate change and the economic case for investing in adaptation. The report combines the results of nearly 300 studies and more than 6,000 unique estimates of the consequences of climate change and adaptation investments, with case studies from six countries.

The report underscores two urgent needs. First, Ministries of Finance and economic decision-makers must invest in building their analytical capabilities to identify and assess physical climate risks and to benefit from the opportunities offered by proactive adaptation. Today, only one in four Ministries of Finance reports conducting analysis of public expenditure and financing needs for adaptation and resilience. Second, the research community and international organisations must enhance data and quantitative analysis to improve understanding of physical climate risks and to rigorously assess the role of adaptation investments in reducing the risks and their economic and fiscal consequences.

Macroeconomic risks and climate impacts

The macroeconomic impacts of climate change are difficult to quantify accurately but are already significant and growing rapidly. By 2050, climate change could reduce income for the average person, measured in terms of GDP per capita, by between 3 and 15% due to rises in local temperatures, changes in sea level, and some climate tipping points, based on a rise in global average temperature of 2.2-2.8°C relative to a pre-industrial climate, and assuming no further increases in adaptation and resilience.

In low- and lower-middle-income countries, people are expected to be disproportionately affected by climate impacts, experiencing a loss of 8 to 18% of GDP per capita on average, with some likely to face losses exceeding 20% of GDP per capita by 2050. In addition to these outcomes are the substantial impacts expected from changes in other extreme climate-related events, such as flooding, wildfires and drought. As such, these findings likely constitute significant underestimates of the overall impacts of climate change on GDP per capita.

Losses of aggregate welfare – both market and non-market losses, expressed as a percentage of GDP per capita – are projected to reach 8 to 19% by 2050, driven by changes in global average temperature of 2.2–2.8°C, accounting for some climate tipping points and assuming no further increases in adaptation and resilience. A rise in the frequency of extreme weather events could persistently push inflation higher. Climate change is also expected to increase unemployment and drive up inequality in the absence of further increases in adaptation and resilience.

Demands on fiscal spending to respond to climate impacts are already significant in some countries, and in the absence of further increases in adaptation and resilience, they are expected to rise further due to rising government expenditures and declining revenues. Adding to this, sovereign credit ratings are increasingly at risk due to climate change impacts, which could affect borrowing costs and fiscal stability if further actions on adaptation and resilience are not taken.

Benefits of adaptation

Adaptation investments can yield substantial returns at the macroeconomic level, especially given the broad co-benefits and opportunities they create. Adaptation investments can yield a ‘triple dividend’, preventing losses, stimulating economic activities, and providing social and environmental co-benefits.

The report finds that the median economic benefit-cost ratios are around 4:1. The economic benefits of investing in adaptation are also likely to support macroeconomic stability and have benefits for the responsible use of public finances. Early, strategic adaptation investments not only help avoid losses but can also drive economic prosperity.

Sectoral and economy-wide benefit-cost ratios in developing countries, by region

Notes: Estimates are based on studies available within each region. Economy-wide estimates (shown in red bars) combine benefit-cost ratios based on each country's sector-specific cost needs. The adaptation costs used to weight the benefit-cost ratios are from UNEP (2025) but apply only to non-Annex I countries. The human health 75th percentile for South Asia is 40, based on available studies, but clipped for clarity of the other estimates. Note that countries include only developing countries, as defined by the UNFCCC as non-Annex I countries. Based on data from the UNEP Adaptation Gap Report (UNEP, 2025).

Source: Rising et al. (2026).

Opportunities for Ministries of Finance

Public leadership will be crucial to help countries proactively manage the economic and financial risks of climate change and to push for investment in adaptation. The role of Ministries of Finance and other economic decision-makers is important in proactively incorporating climate risks within their macroeconomic and budget projections and capital investment planning processes. This also extends to analysing the opportunities to invest in adaptation, and the potential macroeconomic and fiscal benefits this can support.

To be effective, these assessments need to be strategically integrated into national development plans, medium-term expenditure frameworks, and budget allocations to enable investment. Ministries of Finance need to build their analytical capabilities to make this happen.

Supporting Ministries of Finance

The funding community has a critical role in helping to support and incentivise proactive adaptation. They can facilitate access to financial responses to disasters, such as contingency funds, credit lines, and insurance. Priority measures include integrating risks into Debt Sustainability Analyses.

Finally, the research community needs to provide better tools and data for effective policymaking. Advances should address the gaps that still feature in most economic risk estimates, including tipping points, non-marginal changes, cascading and simultaneous risks, and systemic risk. There is also a need to bolster the evidence base for adaptation returns to increase the availability of well-quantified ex-post adaptation data.

Read the report: "The macroeconomic case for investing in climate adaptation": https://www.lse.ac.uk/granthaminstitute/publication/the-macroeconomic-case-for-investing-in-climate-adaptation/