McKinsey Flags Cooling, Irrigation Adaptation Costs, FEMA Overhaul Confusion, Klarna's AI for Resilience Push, and More

Half of the entire US$1.2trn annual amount needed for climate adaptation would have to be spent on air conditioning and irrigation just to preserve today’s levels of protection against extreme heat and drought, according to new analysis from McKinsey Global Institute.

Of the US$1.2trn of estimated annual adaptation spending needs, US$568bn would have to cover heat stress solutions, like air conditioning, US$226bn to tackle drought risks, and US$115bn to address heavy rainfall flooding.

The study suggests that in a world warmed by 2°C above pre-industrial levels, simply maintaining current climate defenses would cost 2.5 times more than it does now — and 6.2 times more if global protection standards matched those of developed countries.

Today, about US$190bn is spent annually on measures to defend against extreme weather, enough to protect roughly 1.2 billion people. Extending developed-economy levels of protection to all 4.1 billion people currently exposed to climate hazards would require nearly triple that amount, or about US$540bn a year — and that is under current levels of warming.

The McKinsey report argues that while a “resiliency gap” remains between adaptation spending and actual needs, the case for boosting investment is economically strong. After analyzing 20 adaptation measures — including flood-proofing, sea dikes, irrigation, and fuel management — the authors say the benefits from avoided damages outweigh costs by at least 1.5 times today, and could rise to about seven times costs in a 2°C world.

Yet cost-benefit logic alone has not driven spending. McKinsey points to certain barriers to adaptation investment, including the burden on individuals to pay for their own climate defenses and strained government budgets for infrastructure spending. While economic growth could cover most future adaptation costs in high-income regions, large financing gaps are likely to persist in low-income countries, where protection could cost more than 2% of GDP.

Closing those gaps, McKinsey argues, will require scaling adaptation finance, and promoting clearer planning and prioritization as climate risks accelerate.

A federal judge barred the Trump administration from scrapping a climate adaptation grant program led by the Federal Emergency Management Agency (FEMA), dealing a setback to the White House’s efforts to curb disaster preparedness spending. In a ruling last Thursday, US District Judge Richard G. Stearns said the move violated federal appropriations law and FEMA’s statutory duty to reduce disaster losses, siding with 22 states that sued after the administration scrapped the grant program earlier this year. The Building Resilient Infrastructure and Communities (BRIC) program, launched in 2020, has directed roughly US$4.5bn to resilience projects such as flood barriers, building elevations, and evacuation planning. States say these investments have helped avert an estimated US$150bn in disaster damage over two decades. While the order bars FEMA from terminating the program or reclaiming its funds, it stops short of forcing the agency to issue grants, leaving uncertainty over whether stalled or approved projects will move forward. (New York Times)

US not-for-profit public power utilities and electric cooperatives are facing a deteriorating credit outlook as the cost of climate risk and resilience rises faster than customers’ ability to pay, S&P Global has said. In its 2026 sector view, the rating agency said utilities are having to ramp up capital spending to harden grids against wildfires, hurricanes, heat waves and extreme cold, while also replacing aging plants and striving to meet surging load growth. Together, these cost pressures have pushed retail electricity rates up 28% since 2022, nearly twice the pace of inflation. (S&P Global)

Global financial regulators have made progress addressing climate risks but continue to fall short on nature and social risks, according to WWF’s 2025 SUSREG Annual Report. This reviewed sustainable finance regulation and central bank activity across more than 50 jurisdictions covering nearly 90% of global GDP. It finds that while climate considerations are increasingly embedded in banking, insurance and capital markets supervision —particularly in Europe and parts of Asia-Pacific — nature-related risks such as biodiversity loss, deforestation, and water stress are still treated at a high level, with little translation into binding rules. (WWF)

Low-income countries received just 15% of international climate adaptation finance between 2019 and 2023, despite being among the most climate-vulnerable and least able to take on new debt, according to a new report by the Foundation for studies and Research on International Development (FERDI). Total adaptation finance averaged US$40.1bn a year over the period, but only about US$6bn annually reached low-income countries, with the bulk flowing to middle-income economies through loans rather than grants. Regionally, Africa received the largest share of grants, while Asia dominated loan financing and overall volumes, led by India and Bangladesh. (Ecofin)

Vietnam and the UK have launched a five-year, £18.2mn (US$24.3mn) Climate and Ocean Adaptation and Sustainable Transition (COAST) program aimed at strengthening the resilience of Vietnam’s coastal communities and marine ecosystems. The bulk of funding comes from the UK government’s Blue Planet Fund, a £500mn (US$669mn) initiative supporting developing countries to protect the marine environment and reduce poverty. (OANA)

The African Development Fund has approved a US$21mn grant to upgrade roads and drainage in Djibouti, a country on the Horn of Africa susceptible to coastal flooding. The first phase of the project will rehabilitate seven kilometres of transport and drainage infrastructure in Djibouti city, using nature-based solutions to bolster resilience in an urban sprawl where nearly three-quarters of the country’s population now lives. Climate-proofing Djibouti’s urban systems is seen as critical for regional trade, since around 90% of Ethiopia’s maritime imports and exports move through the city’s ports. (African Development Bank Group)

A Trump-appointed panel set to recommend a sweeping overhaul of the US Federal Emergency Management Agency (FEMA) abruptly canceled a meeting scheduled last Thursday after its recommendations were leaked to the media, Politico reports.

A draft report from the FEMA Review Council, obtained by CNN, calls for cutting the agency’s workforce by 50%, rebranding it as “FEMA 2.0,” and replacing many existing aid programs with a block grant system designed to move money to states within 30 days of a major disaster declaration.

The proposal stops short of eliminating FEMA, despite earlier calls from the president and Homeland Security Secretary Kristi Noem. Instead, it seeks to refocus the agency on supporting states only during “truly catastrophic events,” while raising the threshold for federal assistance and leaving states to manage smaller disasters largely on their own. The council argues the changes would reduce bureaucracy and speed recovery, while critics warn the changes could weaken national preparedness as climate-driven disasters intensify.

At the center of the plan is a restructuring of disaster aid. Individual assistance would be consolidated into a single direct payment to survivors, capped by property value and level of need, while states would receive block grants with higher cost-share requirements. The report also proposes replacing FEMA’s Hazard Mitigation Grant Program with a two-stage funding model aimed at faster repairs followed by longer-term risk reduction, and pushing flood insurance further toward private markets with premiums tied more closely to actual risk.

One of the most contentious debates — whether FEMA should remain within the Department of Homeland Security — ended in favor of the status quo, preserving DHS control over the agency’s roughly US$25bn budget.

A bipartisan group of House lawmakers has introduced the Affordable Clean Water Infrastructure Act, legislation aimed at lowering the cost of wastewater, stormwater, and water quality upgrades in rural communities. The bill would strengthen the Clean Water State Revolving Fund, giving states more flexibility to subsidize local projects. It would further create a new carve-out for rural, small, and tribal water systems, unlocking long-delayed investments in aging infrastructure without adding new federal spending. (Congresswoman Kristen McDonald Rivet) 

The state of Maryland will launch a study to quantify the economic damage caused by climate change, aiming to put a price tag on the costs of extreme weather, heat-related health impacts and other climate-driven losses borne by taxpayers. The analysis, required under the state’s RENEW Act, is intended to furnish lawmakers with data to better understand how investments in climate resilience could pay off over time, and lay the groundwork for making major polluters more accountable for climate damages. (Governor Wes Moore)

Environment and Climate Change Canada has expanded its rapid extreme weather attribution system to cover rainfall events. Since June 2025, federal scientists using the system have analyzed 42 of Canada’s most extreme precipitation events and found that 39 were made more likely by climate change, with three events at least two to ten times more likely in today’s climate than in the pre-industrial era. The system compares modern climate conditions with those of the 1800s using climate models. Officials say the findings underscore growing flood risk and the need for preparedness as climate change continues to amplify extreme rainfall events nationwide. (Environment and Climate Change Canada)

The European Commission is preparing to roll back more of the bloc’s environmental rulebook in a new “omnibus” proposal aimed at cutting business red tape, according to a draft seen by Reuters. The package would ease pollution and waste reporting requirements by allowing companies to use a single, simplified environmental management system across all sites and drop mandatory “transformation plans” to align industrial sites with climate goals. It would also end water and energy reporting for livestock and fish farms. Brussels argues the changes could cut administrative costs by about €1bn (US$1.2bn) a year and help meet its goal of reducing corporate reporting burdens by 25% by 2029. (Reuters)

Klarna has launched a new global program aimed at applying artificial intelligence to solve climate adaptation challenges, targeting communities most exposed to climate risks. 

The payments and digital banking firm said its AI for Climate Resilience Program will support innovators using AI to turn environmental data into practical tools for food and water security, public health and disaster preparedness.

Among those chosen for the program are: SEEDS, an Indian start-up using AI and satellite data to speed up the provision of disaster relief after climate-related catastrophes strike; Acres of Ice, which is transforming excess winter water into artificial glaciers for mountain agriculture; and Geotek Water Solutions, a Nigerian company using AI to locate hidden groundwater in drought-prone regions.

The selected organizations will receive funding alongside 18 months of tailored mentoring, technical support, and strategic guidance, drawing on Klarna’s experience embedding AI across its own operations. The program follows a global call that attracted more than 1,200 proposals, with strong participation from Africa, India, and Latin America. Klarna said the initiative builds on its broader climate and nature funding efforts, which have directed more than US$24mn to over 100 projects since 2021.

Earth Observation company ICEYE is partnering with Munich Re–owned Risk Management Partners to expand access to its satellite-based flood intelligence to  reinsurers, insurers, and corporates. From January 2026, ICEYE’s Flood Archive and Flood Early Warning products will be available through Munich Re’s Location Risk Intelligence Events feature, giving users access to near-real-time forecasts and measured flood extent and depth before, during and after disasters. (ICEYE)

Adaptation tech fund Mazarine Climate has made its second investment in Bluesonde, a US-based water-quality monitoring start-up. The company deploys special solar-powered buoys that gather high-resolution data on important water variables — including temperature, dissolved oxygen, pH, turbidity, and chlorophyll — and streams it to users via LTE network or satellite. Bluesonde’s tech is aimed at utilities, port authorities, aquaculture operators, and smaller organizations seeking real-time environmental visibility. (Mazarine Climate) 

Japan’s NEC Corp. is partnering with climate analytics start-up ClimateAi to jointly develop commercial climate adaptation solutions spanning agriculture, supply chains, finance and insurance. The tie-up combines ClimateAi’s long-term climate risk and adaptation forecasting with NEC’s agritech, AI, and data analysis to quantify the return on investment of adaptation measures — a major barrier to scaling adaptation finance. The move builds on a 2025 pilot model, deployed in Africa to gauge the effectiveness of various adaptations on cacao and rice growing. (NEC Corp.)

Conventional approaches to indicators and metrics undermine urban climate adaptation (npj Urban Sustainability)

Amazon forest faces severe decline under the dual pressures of anthropogenic climate change and land-use change (PNAS)

Increased rainfall-runoff drives flood hazard intensification in Central Himalayan river systems (Scientific Reports)

Projections of global road risk exposed to landslides under climate change (Communications Earth & Environment)

Essential hazard-resistant features for seismic performance of wood-frame housing where building regulation is uneven (International Journal of Disaster Risk Reduction)

Climate laws and green finance: The value of legal commitment (ADB Economics Working Paper Series)

The global environment outlook, seventh edition: A future we choose (UN Environment Programme)

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Louie Woodall
Editor