Advancing Climate Adaptation in Asia-Pacific

For decades, Asia-Pacific has focused on spurring growth, building its cities, expanding industry and connecting markets. Now an equally important task is emerging: protecting what has been built, and the people who live and work within it. The region has an opportunity to embed adaptation early as it continues to invest in urbanization, transportation, energy systems and industrial upgrading.

New research from the McKinsey Global Institute, Advancing adaptation: Mapping costs from cooling to coastal defenses, is a first-of-its-kind geospatial analysis of global adaptation needs. The world already spends roughly $190 billion a year on 20 tried-and-true adaptation measures, such as air-conditioning, irrigation and coastal defenses to protect against heat, drought, wildfires and flooding.

That spending protects around 1.2 billion people at developed-economy standards. But more than four billion people live in places exposed to climate hazards, leaving roughly three billion people unprotected. Closing that gap would require about $540 billion annually, or an additional $350 billion.

No region accounts for more of this shortfall than Asia-Pacific at around $210 billion annually, which is nearly 60% of the global total. In practical terms, that means many of its denizens remain unprotected. Only 10% of Indians exposed to heat stress currently have air conditioning, and just 15% of coastlines exposed to flooding in other emerging Asian economies like Bangladesh, Thailand and the Philippines are defended by sea dikes.

Under current emissions trajectories that project warming will reach 2°C above preindustrial levels by around midcentury, annual adaptation costs globally could rise to $1.2 trillion worldwide. Some 60% of that investment is needed in Asia-Pacific. Within the region, India and China are together home to about a third of those exposed to climate hazards globally at 2°C and so sit at the center of the adaptation equation.

This may seem like a high price tag, but the economic logic is compelling. Under a 2°C scenario, the benefits of adaptation could outweigh its costs by as much as seven to one. Cooling protects labor productivity and human health. Irrigation reduces crop losses and protects yields. Sea dikes shield coastal assets. Adaptation is not merely defensive spending—it is an investment in sustaining economic progress.

One Region, Many Adaptation Paths

All parts of Asia-Pacific will face adaptation needs, but they are far from uniform. Recognizing these distinctions is critical for planning and financing adaptation. Advanced Asian economies such as Australia, Japan and South Korea may prioritize flood defenses, irrigation and underground power lines. In contrast, India and other emerging Asian economies will benefit most from expanded cooling. China may need to invest in flood protection and irrigation, in addition to cooling.

The mismatch between exposure and protection is starkest in India. More than 90% of its population already lives in areas exposed to at least one major climate hazard. Yet India’s current annual adaptation spending is around $15 billion, only about 10% of what’s needed to protect the people and assets at developed-economy standards against today’s hazards. Much of the shortfall relates to heat stress, which weighs on labor productivity across sectors from agriculture to construction and manufacturing, posing risks to growth. At 2°C of warming, nearly all of India’s population could be exposed to at least one hazard, and protecting them could exceed $200 billion annually.

China faces a different but equally complex challenge. A large share of exposed people and assets is concentrated in urban and coastal areas, including megacities like Shanghai, Shenzhen and Guangzhou. The country has already implemented many measures, for example, protecting 65% of its coastline exposed to flooding. All told, it spends about $50 billion annually on adaptation, around half of what would be required to achieve developed-economy protection levels today. At 2°C of warming, annual spending would need to exceed $250 billion to fully protect all exposed populations.

Much like India, other emerging Asian countries face a substantial resiliency gap. Today, only about 10% of what’s needed for cooling is in place, compared with more than 60% in China and advanced Asian economies. As warming approaches 2°C, as much as 80% of emerging Asia’s landmass could be exposed, versus roughly half today. Combined with rapid urbanization and population growth, that shift could push adaptation costs above $150 billion annually across these emerging economies, more than ten times current spending.

In advanced Asian economies, on the other hand, flood defenses are more extensive, irrigation systems are better developed, wildfire protection is more advanced, and cooling penetration is higher. Today, these economies already cover about 60% of the costs needed to achieve developed-economy levels of protection. With anticipated economic development in the region, it could cover nearly all of the $40 billion per year needed by 2050, although of course such spending is by no means guaranteed. Challenges to adaptation implementation remain, even in these economies.

Why Adaptation Gaps Exist—and How to Bridge Them

Adaptation may be cost-effective, but it competes with other priorities—and its benefits show up in what doesn’t happen. Homes are not swept away. Productivity is maintained. Many of the gains come in the form of avoided losses, which can be hard to value.

Adaptation also requires complex coordination across households, businesses and governments. Without clear frameworks laying out accountability mechanisms and aligning incentives, implementing measures and attracting financing can be difficult.

That said, the Asia-Pacific region has begun to act. In Victoria, Australia, more than 500 kilometers of power lines have been buried underground to reduce the risk of wildfire ignition. China has launched place-based urban resilience initiatives, including “sponge city” and “climate-adaptable city” pilots, to address flooding from excessive rainfall. In India, Ahmedabad launched South Asia’s first heat action plan, pairing early warning systems with practical steps to protect vulnerable residents.

These efforts can be expanded. The starting point is strengthening understanding of climate hazards and the benefits of adaptation and creating the right incentives to drive action—from improved building standards to financial and technical assistance that helps suppliers adapt.

Another priority is embedding adaptation into infrastructure and urban development decisions from the outset to help reduce future retrofitting needs and implementation complexities. Opportunities abound for such planning. Every new power plant, transit system or housing project that ignores future climate shifts risks incurring unforeseen costs.

Capital markets can also play a larger role. Blended finance, resilience bonds and insurance-linked securities can help crowd in private capital. Tokyo’s certified Resilience Bond, for example, directs funds to projects like flood defenses and burying power lines.

Regional collaboration can help enable adaptation. Climate hazards don’t respect borders—countries that are geographically contiguous often face similar risks. And supply chains are deeply interconnected, with extreme weather in emerging Asian countries affecting businesses in advanced Asian economies, and beyond. Collaboration to share learnings, scale adaptation solutions and financing across borders could lower costs, accelerate deployment and improve outcomes.

Adaptation in Asia-Pacific is a good buy, yielding large-scale payoffs. The choice facing the region is not whether to buy, but when and how. Deliberate, strategic investment in adaptation today can anchor the next chapter of Asia’s growth story.

Gautam Kumra is chairman of McKinsey’s offices in Asia, based in Singapore. Mekala Krishnan is McKinsey Global Institute Partner, based in Boston.