Built to Adapt: Inclusive Financial Institutions in a Changing Climate
This Focus Note examines how inclusive financial service providers (FSPs) can adapt their strategy, risk management, and product offerings to remain financially viable, while strengthening client resilience in the face of increasingly frequent and severe climate shocks and stresses. The analysis draws on CGAP’s multiyear engagement with inclusive FSPs, including interviews with over 100 institutions, deep dives with dozens more, and case evidence from multiple countries, complemented by a broad review of academic and practitioner literature.
As climate threats intensify, this Focus Note argues that FSPs that do nothing or that respond to climate threats reactively risk hurting their clients and their business, while missing the opportunity to develop adaptation and resilience finance as a new and profitable line of business.
Instead, it advocates for a win-win alternative—a deliberate approach that strengthens client and institutional resilience in lockstep – achieved by:
- Using a physical climate risk assessment (PCRA) as a strategic decision and prioritization tool rather than a compliance exercise.
- Financing the climate risk ex ante using a risk-layering approach that combines optimal reserves, contingent finance, and meso-level insurance—offering a more cost-effective and resilient alternative to excess reserving.
- Iterating on existing product offerings, while actively exploring important additions such as recovery lending, contingent lines of credit, and anticipatory financing.
