Innovative finance solutions are emerging to address the impact of climate change on the most vulnerable, often overlooked, and least economically secure communities, a report from the Earthshot Prize finds.

The report, Unlocking Critical Finance for Climate and Economic Resilience (68 pages, PDF) is based on an analysis of over 2,200 innovations nominated for the Earthshot Prize and research of proven financial mechanisms. According to the report, climate adaptation financing—only 5 percent of all climate funding—falls short by not focusing more on local communities. Currently, local investments receive just 17 percent of those adaptation funds, even as studies have demonstrated that for every dollar invested in disaster risk reduction, $13 is returned in savings. Moreover, the report estimates that between $5 and $11 trillion is needed annually to effectively mitigate climate change and an additional $6.9 trillion is needed per year for developing countries to meet goals related to social protection, decent jobs, universal access to essential services, equality, and human rights.

According to the report, which was supported by the Mastercard Center for Inclusive Growth and includes contributions from CGAP, new adaptation models are already starting to make an impact on the ground, such as Coast 4C, an initiative working with seaweed farmers in the Philippines to restore marine ecosystems while generating inclusive economic growth. Additionally, the report reveals that new finance solutions are emerging to meet the funding gap, including blended finance structures that reduce risk and enable investment in underserved markets; community-based capital intermediaries like cooperatives and local financial institutions; parametric insurance and outcome-based finance models that reward measurable results; and carbon-linked revenue models that unlock new income streams tied to ecological outcomes. Two major opportunities outlined in the report include: bridge the mismatch between available capital and the funding needed to scale investable, high-impact solutions, particularly those led by micro, small and medium enterprises, at the intersection of climate and economic resilience; and ensure funding for resilience reaches locally-led solutions.

“Around the world, we know that there are innovations that support climate and economic resilience,” said Mastercard Center for Inclusive Growth executive vice president of global impact Payal Dalal. “Many of these solutions are led by micro and small enterprises in climate-vulnerable economies, who understand the challenges deeply. To make sure that these solutions can benefit everyone and be scaled sustainably, we are working to ensure these innovators are met with the capital, technical and wrap-around support needed to not only survive but thrive.”

(Photo credit: Getty Images/laddawan punna)