Rethinking Resilience: Adapting to a Changing Climate

Rapid income growth is the single most powerful instrument for making an economy more resilient to climate change. With higher incomes, households can save and smooth consumption and avoid distress sales when hit by shocks. They can invest in risk-reducing measures (such as houses that are less flood-prone and seeds that are drought-resistant) and they are better able to diversify livelihoods away from climate-exposed activities. They can access credit and markets that speed recovery. Estimates suggest that globally a ten percent increase in per capita output reduces the number of people vulnerable to climate shocks by around 100 million, and that higher incomes considerably attenuate the mortality effects of climate hazards.

Reliable public information has been underemphasized by government in favor of advocacy about climate action. Uncertainty paralyzes people, firms and governments. People and businesses in poorer, more exposed countries face deep ambiguity about when, where, and how hard climate will hit. The poor tend to be the most averse to ambiguity, often responding in ways that are less than optimal. Poor people are prone to over-insure against minor risks, underinvest in profitable activities, or cling to increasingly precarious ways to make a living just because they are familiar.

Governments in poor countries also tend to be ambiguity-averse, simultaneously overbuilding to protect public structures and Uncertain about what actions are most beneficial, people may forgo affordable and useful adaptation efforts under-investing in warning systems. Reliable and accessible information—modern weather stations, regularly updated forecasts, accurate flood maps and timely early warnings—converts unknowable peril into manageable risk. It prompts good decisions by people and the emergence of market insurance.

The returns to reliable public information are staggering. Early-warning systems can have benefit-cost ratios of about 9:1. A single day’s notice can cut expected damages by a third. But it is not just about early-warning systems. In India, farmers who received accurate, longer-range monsoon forecasts shifted planting and increased profits. Sadly, the information architecture is weakest where it may be most needed: Sub-Saharan Africa has 1.5 weather stations per million people, India 3, Germany 13, and the US 217. In some low-income settings, a one-day forecast is less accurate than a seven-day forecast in rich countries. Fixing these gaps—observations, modeling, and last-mile dissemination—amplifies the effectiveness of other investments in resilience.

Robust insurance markets are a major component of any resilient economy. Even with rising incomes and better information, some risks are too big or too correlated for economic agents to shoulder alone. Market-based insurance exists to pool such risks across people, places, and states of the world, turning unlikely but high-cost “tail” events into manageable losses. When insurance markets work well, they speed up recovery, prevent poverty traps and encourage productive risk-taking. When they don’t, disasters lead to debt and destitution.

Formal insurance penetration is thin across much of the developing world. About 265 million insurance policies were sold in developing countries in 2020, 95 percent were in China and India—where coverage is heavily subsidized and often bundled with credit. Index insurance—payouts triggered by rainfall, river levels, or pasture “greenness”—has promise but faces friction. Load factors – additional costs—are high (typically 50 to 70 percent), and “basis risk” means payouts may miss actual losses, damping demand. Markets also tend to shy away from tail events: in India, for example, products have drifted from extreme-event coverage toward higher-frequency but more moderate payouts over time.

Public policy can help by investing in data and catastrophe models, regulating for transparency and consumer protection, and providing catastrophic backstops—without dulling price signals. In the Horn of Africa, for example, satellite images are used to trigger payments to pastoralists before livestock losses mount, shifting behavior from crisis replacement to pre-shock protection.

Public investment to improve infrastructure so that it can withstand larger variability in climatic conditions and extreme events is necessary, but it is seen by too many policymakers as sufficient. Resilience has been equated with government-led adaptation, and such adaptation has been equated with infrastructure—especially the concrete kind—and post-disaster bailouts. The result: a defensive approach that overemphasizes protective works and after-the-fact relief and undermines the economic policies that make economies resilient. This approach can backfire.

Protective works often entice people and capital into harm’s way—Jakarta’s seawall, for instance, would likely concentrate settlement behind it and double its social cost once delayed migration is counted. Climate uncertainty compounds the problem. Fixed assets built for yesterday’s probabilities can become stranded or prohibitively expensive to maintain.

This is not an argument against investing in public infrastructure to make it more durable in the face of a changing climate. It is an argument for putting it in its proper place. Pipes, pylons and pavements are most effective when embedded in a system that prices risk and informs decisions—so that a bridge is built in the right place to the right standard, and the neighborhood around it is zoned and insured accordingly.

Social protection programs are justifiably seen as necessary for resilience. But social protection interventions need to be designed with care so that they complement rather than work against the other components of a comprehensive approach to resilience.

Consider northern Kenya, where herders shifted from cattle—the first to die in a dry spell—to camels, which can go weeks without water and survive steep weight loss. That pivot wasn’t scripted by a government department or a multilateral agency; it was driven by prices and traders, with Somali intermediaries opening markets for camels and camel milk. As demand deepened, Kenya’s camel herd rose from roughly 800,000 in 1999 to 3.6 million by 2022, a market-led adaptation that fit the new climate reality.

This is a different approach than rushing in to replace lost income or restock dead cattle after every drought. Asset replacement can trap households in fragile livelihoods and drain public budgets. Better policy interventions give people the option to adapt. The World Bank’s De-risking, Inclusion, and Value Enhancement of Pastoral Economies program in the Horn of Africa—known as DRIVE—is one such example. DRIVE uses mobile platforms and index insurance to move from protection and liquidity. Such interventions can ensure adequate feed and water for core breeding stock so herds can recover. They can guarantee timely payouts based on pasture indices. And they can reduce frictions in trade and finance so farmers can shift more smoothly to hardier species of seed—or leave the place or the profession altogether when that is the wisest option.