Development finance institutions (DFIs) are increasingly seen as key actors in scaling climate adaptation and resilience (CAR) finance. Their mandates, networks, and catalytic capital position them to mobilize investment, support innovation, and build the financial ecosystems needed to reach climate-vulnerable households, MSMEs, and farmers.
Yet even when CAR capital is mobilized and parts of the climate finance “pipework” — that is, the systems and processes that enable capital to flow — are being improved, clients aren’t necessarily becoming more climate resilient. Capital may flow to financial institutions to expand lending for climate-resilient agriculture, for example, but there is often little visibility on whether this ultimately helps farmers better withstand climate shocks or recover from them. We still have a limited understanding of the extent to which these investments are improving resilience for end clients, or whether this information is consistently used in investment decisions.
There is a gap between DFI impact intent and how resilience outcomes are measured for end clients, and how that information is used to inform key investment decisions such as origination, due diligence, and investment structuring. So, why does this gap exist, and what can be done to close it?
The intent-vs-outcomes gap
Several barriers in how CAR finance is channeled through funds and financial institutions help explain why this gap persists.
Long and indirect impact pathways
Delivering development outcomes through intermediated finance is inherently complex. When DFIs invest through funds and financial institutions, they do not directly control end-client engagement, product design, or service delivery.
Diverse business models and large portfolios create multiple pathways through which resilience outcomes may emerge — for example, when CAR finance supports agricultural lenders, microfinance institutions, or insurers serving climate-vulnerable clients. This can make it difficult to aggregate results across the portfolio or understand how different investments contribute to improved resilience for different end clients, especially when outcomes emerge through diverse pathways and are difficult to measure consistently.
Impact intent does not always cascade into operational guidance
Many DFIs have incorporated adaptation and resilience within their climate strategies, often through climate finance targets or adaptation eligibility criteria. However, these ambitions are typically framed at a strategic level — for example, in terms of strengthening adaptive capacity or supporting vulnerable populations. This does not always translate into clear operational guidance for how the fund managers they invest through should integrate resilience outcomes into origination, structuring, or engagement with financial institutions.
As a result, funds and financial institutions may default during due diligence to eligibility-based assessments — for instance, determining whether an investment qualifies as climate adaptation — rather than embedding an evidence-based assessment of the likelihood of resilience outcomes into investment decisions, and into subsequent investment management decisions.
Current incentives across the capital chain reinforce this dynamic when actors are primarily rewarded for mobilizing climate finance, meeting portfolio financial allocation targets, or demonstrating eligibility under climate taxonomies, rather than for allocation to investments with high outcomes potential or for generating evidence on whether and how different investments actually strengthen resilience outcomes for end clients.
A bias toward adaptation activities without systematically linking them to resilience outcomes
Because adaptation activities are typically easier to define and track than resilience outcomes, investment decisions may be weighted toward what qualifies as adaptation activity. This could include financing climate-resilient irrigation or drought-tolerant crops, where the economic case is often more straightforward to assess. This can happen without a systematic assessment of the intervention’s potential to strengthen resilience for households, firms, or communities, which are harder to evidence or price. This reflects a broader dynamic in which investments with clearer financial returns or more easily demonstrable results are prioritized over those with less certain but potentially significant resilience outcomes.
Where greater attention is needed
To turn mobilized CAR finance into measurable resilience gains, DFIs need to focus on four key areas that make resilience outcomes more relevant and usable for investment decisions across the capital chain. They also highlight the need for approaches that are feasible within existing data and cost constraints.
1. Clearer articulation of resilience outcomes definitions and associated metrics
Efforts to help translate high-level climate resilience ambitions into more decision-relevant outcome definitions, metrics, and data collection approaches for financial-sector investments are growing. For example, initiatives such as BII’s Adaptation & Resilience Measurement Framework and UNEP FI’s Adaptation and Resilience Toolkit provide practical guidance and indicators to help financial institutions assess adaptation and resilience outcomes. Clarifying which resilience outcomes investments aim to influence — such as improved recovery from climate shocks or more stable livelihoods — can help guide both investment decisions and measurement approaches.
2. Integrating resilience considerations into investment decisions
Embedding resilience information at key investment decision points — such as origination, due diligence, and portfolio review — can help ensure that outcomes information is actually used in investment practice. CGAP is exploring how investors can integrate outcomes considerations into investment decisions across the capital chain — even when outcomes data remains partial or imperfect.
3. Incentives and transparency for resilience outcomes
Strengthening both incentives and transparency for resilience outcomes — including expectations to assess potential resilience outcomes and report on results over time — can help ensure that outcomes information relevant to investment decisions is generated and used in practice. Emerging initiatives such as the Investors Resilience Challenge developed by DFIs through the Adaptation and Resilience Investors Collaborative aim to create common criteria and strengthen incentives for mobilizing and tracking adaptation and resilience investments, with emerging efforts to introduce measurable targets, though their alignment with resilience outcomes is still evolving.
4. Learning from investment practice
As CAR finance expands, learning from the practical experience of managing investment portfolios can play an important role in strengthening both resilience strategies and measurement approaches. Examining how and to what extent specific investments — such as agricultural lending or climate risk insurance— influence resilience outcomes can help investors better understand which financial services most effectively support households and businesses facing climate shocks.
As DFIs scale CAR finance, the opportunity is to better understand how mobilized capital strengthens climate resilience for households, MSMEs, and farmers facing climate shocks — but real progress will depend on using these insights to shape investment decisions.
