Empowering Adaptation: How South Asia’s People and Firms Can Tackle Climate Risks

A comprehensive research led by the World Bank’s Office of the Chief Economist for South Asia in collaboration with the 21st Century India Center at the University of California, San Diego draws heavily on new data from the South Asia Climate Adaptation (SACA) surveys, which were conducted across India, Bangladesh, and Pakistan. Financial and analytical backing was also provided by institutions such as the Global Facility for Disaster Reduction and Recovery (GFDRR) and the UK’s Foreign, Commonwealth & Development Office. With contributions from economists and policy researchers from Yale, Georgetown, and other leading institutions, the report delivers an incisive, data-driven analysis of how households and firms are experiencing and responding to escalating climate threats, and how policy can amplify their efforts.

The World’s Most Vulnerable Region Under Stress

South Asia faces an acute and growing climate crisis. By 2030, nearly 1.8 billion people, 89 percent of the region’s population, are expected to be exposed to extreme heat, and 462 million will be vulnerable to severe flooding. Already, the region experiences the highest annual number of people affected by natural disasters across all emerging markets and developing economies. This climate stress is compounded by poverty, high population density, and extensive dependence on agriculture. Governments in the region are struggling with high debt burdens and limited fiscal space, reducing their ability to fund large-scale adaptation initiatives. As a result, much of the responsibility for climate resilience has shifted to individuals and private enterprises. Encouragingly, adaptation efforts are widespread: 80 percent of households and 63 percent of firms have taken at least one adaptation action in recent years. Yet these efforts are primarily basic; households raise floors or dig ditches, while firms install fans or seal buildings. Far more effective adaptations, such as investing in climate-resilient technologies, weather insurance, or relocating away from high-risk areas, remain rare and inaccessible to most.

Why Don’t People and Firms Adapt More Effectively?

The report identifies multiple bottlenecks preventing more robust adaptation. Chief among them are limited access to credit, poor availability of actionable climate information, and behavioral misperceptions. Many households and firms underestimate future risks because they rely on recent experiences rather than long-term scientific forecasts. For example, households in flood-prone zones expect less flooding than what expert models project, especially if they haven’t recently experienced a flood. Similarly, firms tend to over- or underestimate the number of heatwave days ahead, with better-educated and more experienced managers aligning more closely with climate models. These beliefs matter: firms expecting future shocks are 30 percent more likely to have adapted than those who do not. The report also notes a significant digital and managerial capability gap. Firms with modern management practices and digital tools are more resilient, while those lacking these features are slower to adapt. For rural households, land tenure insecurity is a critical constraint. Those who own their land are significantly more likely to invest in long-term, productivity-enhancing technologies like climate-smart seeds or irrigation.

The Costs of Inaction and the Promise of Market-Led Adaptation

A dynamic macroeconomic model adapted for this report forecasts that rising global temperatures could lower South Asia’s GDP by 7 percent by 2050, 50 percent higher than the average loss across other developing regions. This is largely because of the region’s already high average temperatures and its dependence on heat-sensitive sectors such as agriculture and construction. However, there is also a path forward. Market-led or “autonomous” adaptation by firms and households, if adequately supported, could offset about one-third of these losses. This means enabling households and businesses to shift resources toward less vulnerable locations, crops, or sectors. Additional public investments in directed adaptation, such as climate-resilient agricultural research or flood defense infrastructure, could further mitigate long-term losses. In the agricultural sector alone, even a 10 percent adoption rate of resilient practices by 2050 could offset a tenth of projected climate damages.

Turning Knowledge into Action: A Policy Agenda for Resilience

The report emphasizes that climate-specific interventions must be paired with broader development strategies to generate “double dividends”, that is, policies that reduce climate vulnerability while promoting inclusive growth. Priority actions include investing in weather forecasting systems, early warning infrastructure, and climate-smart technologies. Expanding access to formal financial services, especially for small businesses and landless farmers, is crucial. The report also recommends scaling up adaptive social protection systems that can respond to weather shocks quickly and effectively. For cities, integrating climate risk into urban planning, improving drainage infrastructure, and protecting green spaces are key. Regulatory reforms can also play a transformative role. For instance, easing rigid labor laws and simplifying business compliance can allow firms to reorganize their workforce and supply chains in response to heat or floods. Crucially, the report cautions that some well-intentioned infrastructure investments, like embankments or irrigation canals, can lock households into high-risk zones and delay needed migration or structural transformation. Every intervention should therefore be subject to rigorous cost-benefit analyses to avoid maladaptation.

The report provides not only a grim diagnosis of South Asia’s climate vulnerabilities but also a hopeful, evidence-based roadmap for adaptation. Its core message is clear: while governments may lack the fiscal space for sweeping interventions, they can still enable transformative adaptation by making markets work better, fixing distortions, and strategically investing in the systems that help households and businesses help themselves. With the right mix of tools, information, and public support, South Asia’s path to resilience is within reach.