PAYNE INSTITUTE COMMENTARY SERIES: VIEWPOINT

By Jamal Saghir and Ede Jorge Ijjasz-Vasquez

October 13, 2025

Context

Small Island Developing States (SIDS) are increasingly affected by the growing impacts of climate hazards, including tropical cyclones, storm surges, increases in temperature, heatwaves, droughts, coastal and riverine flooding, changing precipitation patterns, and sea level rise among others. Disasters cost SIDS approximately 18% of their gross domestic product (GDP) on average, significantly higher than the world average of around 3%.  More than 10,000 deaths associated with climate-related events were recorded in SIDS between 2000 and 2022. An estimated 38% of these deaths are attributable to climate change. Annually, economic losses of US$1.7 billion can be attributed to climate change in SIDS (from 2000 to 2022). This constitutes 0.8% of the collective GDP of SIDS.[1] The highest economic loss attributed to climate change occurred in 2004 and amounted to 9.5% of GDP. For these small, largely undiversified economies, such losses are enormous.

International adaptation finance flows to SIDS are only 0.2% of global climate finance and must grow six-fold to meet assessed needs. Our recent research highlights that the US$12 billion in annual finance need is very large for SIDS economies but represents only 1.2% of all global climate finance and 4% of all global Overseas Development Assistance (ODA).

Until now, international adaptation and mitigation efforts have paid insufficient attention to these vulnerable island nations. International adaptation finance flows to SIDS are only 0.2% of global climate finance and must grow six-fold to meet assessed needs. Our recent research highlights that the US$12 billion in annual finance need is very large for SIDS economies but represents only 1.2% of all global climate finance and 4% of all global Overseas Development Assistance (ODA).

Note: Analysis is based on EM-DAT disaster damage records, using regional average FARs. Analysis includes 38 United Nations Member SIDS, excluding Singapore and Nauru. All figures are in $ billion (2020).
Source:  Panwar, V. et al. (2023). “The Costs of Inaction: Calculating climate change-related loss and damage from extreme weather in Small Island Developing States.” London: ODI https://odi.org/en/publications/calculating-loss-and-damage-from-extreme-weather-in-sids/ 

In this commentary summarizing the key findings of our latest 2025 Global Center of Adaptation (GCA) report on the State and Trends in Adaptation we review the large and increasing climate risks faced by island nations, the urgent need to close the financing gap, and the opportunities within key sectors to build resilience. [2]

Why Focus on Small Island States?

The group of 39 small island countries typically gets less attention from the global climate change and adaptation communities. Small island developing states (SIDS) are home to 65 million people and are found in the Caribbean; the Pacific; and the African, Indian Ocean, and South China Sea. Some are comprised of low-lying islands, formed by coral atolls that rise above the ocean waves. Others contain towering peaks. These nations are biologically rich and varied, harboring 40% of the world’s vital coral reef ecosystems and 20% of the total global biodiversity.

SIDS face many challenges. The most urgent is their extreme vulnerability to the consequences of climate change. Their collective greenhouse gas emissions add up to less than 1% of the global total, yet they are disproportionally likely to suffer from its impacts. Rising seas threaten to submerge communities in the Maldives and Marshall Islands, while increasingly powerful storms are taking an enormous human and economic toll, destroying or damaging ports, roads, hotels, airports, and other critical infrastructure from Tuvalu to Grenada. In 2017, Tropical Cyclone Maria destroyed most of the infrastructure in Dominica, causing estimated damages of nearly US$1.5 billion, 225% of the nation’s annual GDP.

Moreover, this vulnerability to climate change is exacerbated by challenging financial conditions in many of these nations. The financial indicators in more than 70% of the SIDS show impending or deepening debt crises. Seven countries are already nearing “debt distress,” with debt-to-GDP ratios of more than 100% – putting them on the verge of being unable to fulfill their financial obligations. As a result, many small island nations are unable to make the investments in capacity-building, adaptation, and resilience that are necessary to protect their people and economies in an uncertain future.

Source: State and Trends in Adaptation Report 2025 based on World Bank. n.d. “International Debt Statistics.” https://www.worldbank.org/en/programs/debt-statistics/ids. Developing States. based on World Bank. n.d. “International Debt Statistics.” https://www.worldbank.org/en/programs/debt-statistics/ids.

Large and Increasing Climate Risks

Small island states have always faced perils that are greater than those in other, less exposed, countries, such as tropical cyclones, storm surges, floods, and droughts. But now, the danger is increasing even more because of climate change.

Climate change is raising ocean temperatures, providing additional fuel for stronger cyclones and hurricanes. It also is causing sea levels to rise. Between 2030 and 2050, sea levels are expected to climb by 5–10 cm, doubling the frequency of floods in the Indian Ocean and Tropical Pacific nations. In the Caribbean, sea levels are projected to rise by one meter by the end of this century, which could be catastrophic for many coastal communities.

Higher sea levels are already making storm surges more deadly, flooding communities, destroying shorelines and coastal infrastructure, and damaging the coastal ecosystems that provide both biodiversity and protection from storms. If the world fails to curb climate emissions (as in the IPCC’s high-emissions RCP8.5 scenario), some Pacific atoll islands will likely be submerged under wave-driven flooding by the 2060s, threatening their very existence.

Increasing Finance for Adaptation

To quantify the level of investment in adaptation measures needed to reduce climate risks in SIDS and to estimate the resulting benefits, GCA undertook a rigorous macroeconomic analysis of six representative island states: the Comoros, Maldives, and Mauritius in the Indian Ocean; Fiji and the Marshall Islands in the Pacific; and Barbados in the Caribbean. The analysis used a Green Economy Model (GEM) and reliable, comprehensive, open-source databases to calculate costs and benefits under different climate scenarios and socioeconomic pathways.

Small island states are particularly vulnerable to climate impacts, not just because of their geographic locations, but also because their economies are highly dependent on tourism and trade. A severe storm that destroys or damages such critical infrastructure and assets as ports, hotels, and pristine beaches can therefore cripple economies for months or years after the event. Even if the world limits the global temperature rise to 1.5°C, the GDA modelling shows that SIDS will suffer climate-related losses of more than US$200 billion by 2050.

Using a bottom-up approach to calculate adaptation needs and benefits, the modeling shows that an investment of between US$54 billion and US$127 billion will cut climate damage as a share of GDP for these countries by more than 50%. Even using a discount rate of 10%, the benefit-to-cost ratio is surprisingly high – 6.5 for the Maldives and 5.6 for Barbados.

Overall, the benefits are 3.53 to 15.73 times larger than the costs, depending on the climate scenario and specific adaptation investment. Constructing or retrofitting roads and buildings to withstand fiercer storms is expensive, for example, with a lower return on investment. In contrast, expanding renewable energy, such as with distributed solar photovoltaic generation, is particularly cost effective because of the multiple benefits it provides. In addition to improving climate resilience, renewable energy replaces expensive fossil fuel imports and cuts energy spending, slashes air pollution and greenhouse gas emissions, and improves health. Similarly, resilience measures that improve economic and labor productivity, such as climate-smart agriculture and air-conditioned workplaces, also have high returns.

The Challenges of Closing the Finance Gap

Existing frameworks for climate and development finance are falling far short of the need in these highly vulnerable countries. The 39 SIDS are receiving just over US$2 billion annually in international public climate finance, with 67% going to just 10 countries. The amount needs to be increased at least six-fold to US$12 billion and spread more widely among all the countries, based on SIDS’ own estimates.

Source. UN Tourism (2024) International Tourism in Small Island Developing States (SIDS). https://www.unwto.org/sustainable-development/small-islands-developing-states

Substantial barriers stand in the way of providing this urgently needed support. Many climate finance mechanisms are not designed with SIDS in mind, nor do they take into account the unique situations and needs of the island nations. In addition, many nations lack the institutional capacity to measure and report physical climate risks, to track adaptation financing, and to transparently report that financing. Further constraints include the long distances between island nations and major global markets, which hamper trade; high finance transition costs; and the lack of historical climate data.

Some small efforts are underway. Given the importance of beautiful beaches and shorelines for the tourist industry, for example, a company called Reefscapers has been able to raise funds from both international hospitality businesses and small donors to restore coral reefs in the Maldives. In Fiji, a private sector company, Matanataki, has created an investment fund, supported by multilateral banks, conservation groups, and others, to provide finance and technical support to improve resilience in waste management, fisheries, agriculture, and tourism. And in Tonga, the World Bank has launched a “Safe and Resilient Schools Project.”

Opportunities

The Blue Economy

Small island nations are renowned for their spectacular beaches, lagoons, coral reefs, mangrove forests, and other natural resources. These resources not only support some of the world’s richest and most biodiverse ecosystems, but they also create a “blue economy” that is essential for the nations’ economic health and future growth.

Climate change is a growing threat to this blue economy. In the Caribbean alone, island nations are projected to lose up to 3,900 km² of land to rising seas and erosion by 2050, with estimated economic losses of US$406 billion to US$624 billion. Higher ocean temperatures and ocean acidification are bleaching coral reefs and harming highly productive coastal and marine ecosystems, threatening economically valuable fisheries. Extreme storms damage hotels and resorts, keeping tourists from visiting for months afterward. It is necessary, therefore, for small island nations to slow and prevent coastal erosion, and to better protect tourism and fisheries, which are the two key industries for the blue economy.

Combatting Coastal Erosion

Coastal ecosystems are being threatened by sea level rise, destructive practices like poorly regulated sand mining, more powerful waves, and more extreme storms. The resulting losses are taking a huge human and economic toll. A World Bank study estimated that coastal degradation in Benin, Côte d’Ivoire, Senegal, and Togo adversely affected 1.4 million people in 2020.[3] In a worst-case scenario, the disappearance of sandy beaches in Mauritius could cost the nation US$100 million per year by 2060 in lost tourist revenue. And in Jamacia, the loss of mangrove forests, which protect coasts from storms and waves, would increase damages to residential and industrial property by nearly 24%, or more than US$33 million annually, the World Bank estimates.

There is an urgent need, therefore, for island nations to first understand and monitor the extent of coastal degradation, using such tools as citizen science monitoring and geospatial analysis. Then they must work to preserve or expand existing ecosystems, such as by restoring mangroves and coastal wetlands, and revegetating dunes.

Protecting and Growing Tourism

Tourism-related revenues are central to the economic development and survival of small island nations. In 2023, tourism was responsible for 12.6% of their GDP, about three times higher than the average in developed economies. Extreme weather events exacerbated by climate change threaten this economic driver, causing both immediate and long-lasting effects. When Cyclone Pam hit Vanuatu in 2014, for example, the tourism sector suffered 26% of the total losses, and most major hotels were forced to close for up to six months to repair the damages. Moreover, storms can harm tourism even when there is no actual damage. After hurricanes Maria and Irma cut a destructive swath across one-third of Caribbean islands in 2017, the number of visitors to the remaining undamaged islands dropped by hundreds of thousands. The tourism sector is also under threat from slow-onset climate impacts, such as sea level rise, heat waves, coral bleaching, and ocean acidification.

Small island state governments can play a critical role in protecting this valuable industry by helping to enhance the resilience of resorts and other supporting infrastructure, conserving and restoring natural ecosystems, and improving disaster risk management and insurance.

Sustainable Fisheries

Fisheries are also essential for the economies of SIDS. They provide food, export revenue, and income, and contribute to the culture of both rural and urban communities. The total catch has grown significantly since the 1990s, peaking at nearly 2 million tons in 2019, more than half of which is tuna and tuna-like species taken from marine waters. About half of the fish are exported, with a value of about US$3 billion in 2022.

This industry is being threatened by both climate change and overfishing. Higher temperatures and ocean acidification are damaging coral reefs and other crucial habitats, for example. Under the high-emissions climate scenario (RCP8.5), fish harvests in the Pacific could drop 20% by 2050 and up to 50% by 2100. Moreover, an estimated 75% of Pacific Island communities dependent on coastal fisheries will be unable to meet their food security needs by 2030.

To improve the resilience of the fishing industry, countries should set limits on fishing based on changes in the distribution and abundance of commercial species; diversify livelihoods; leverage Marine Protected Areas as an adaptation measure; integrate aquatic food systems in Nationally Determined Contributions (NDCs); and continue investing in research to better understand the impacts of climate change on fisheries. The commitment to protect 30% of the planet’s oceans by 2030 will be an invaluable tool to adapt fisheries to a rapidly changing climate.

Making Changes in Key Sectors

Transport

Transportation networks in SIDS are highly vulnerable to natural hazards and the growing impacts of climate change. These impacts have enormous consequences, especially when maritime transport is disrupted. In the Pacific, for example, the damage to Vanuatu’s main port from Tropical Cyclone Pam in 2015, caused US$10.08 million in revenue losses from canceled departures of cargo and cruise ships. Countries must not only upgrade roads, bridges, runways, ports, airports, and other transport infrastructure, but also mainstream climate resilience into their design, maintenance, and operation.

Energy

The typical pattern of generating electricity at centralized fossil fuel powerplants and delivering that electricity with overhead transmission lines makes island countries’ energy systems particularly vulnerable to the increasing impacts of climate change. The best solution is replacing imported fossil fuels with clean, domestic, and cheaper sources of energy. The many benefits include greater resilience, lower levels of national debt, reduced pollution and improved health, and more sustainable development. Realizing these benefits will require both new policies, such as support for renewable generation, and changes in system planning, such as moving from Integrated Resource Plans (IRPs) to Integrated Resource and Resilience Plans (IRRP).

Water

Small island nations typically rely on combinations of groundwater, surface water, rainwater harvesting, and, in a few cases, desalination. But nearly all are already experiencing some level of water stress, and some, such as Dominica, Grenada, and Saint Vincent and the Grenadines, face serious water shortages during the dry season. Climate change will make these shortages even more challenging. Meanwhile, rising seas are causing saltwater intrusion into groundwater and aquifers.

Paradoxically, most island nations have sufficient water resources to meet their needs. But they face numerous problems delivering that water efficiently and sustainably. Deteriorating water infrastructure means that substantial amounts are lost in the distribution system – and additional large amounts are delivered but not paid for.  Reducing levels of non-revenue water is thus one of the most cost-effective steps that island nations can take. It is best done through a comprehensive policy framework.

Agriculture and Food

Despite the growth of urban areas in small island nations, most of their populations still live in rural areas and depend on subsistence agriculture and fisheries. This predominance of small-scale, local food production, along with the limited investment in new technologies, make these food systems more vulnerable to climate change.

The resilience of smallholder farmers and agricultural communities can be increased both by reviving indigenous practices and by implementing new approaches and technologies, such as drip irrigation or switching to crop varieties more resistant to drought.

Increasing Resilience in SIDS

To take advantage of the many opportunities to build resilience in individual sectors – and to make the best use of available adaptation finance – island nations need effective strategies and planning. SIDS should clearly outline their priority sectors in strategic adaptation documents, develop sector plans, calculate the financial needs for adaptation measures to help attract finance, strengthen monitoring and evaluation, and modernize national data infrastructure.

Today’s youth face a future with greater environmental uncertainties and economic instabilities, with the potential loss of their environmental heritage and traditional employment. There is a need to improve education and raise school enrollment rates in SIDS to better prepare young people for a more uncertain future. One innovative project that combines education, adaptation, and sustainable business is the Eda Davara Marine Sanctuary at Kohua Beach in the Central Province of Papua New Guinea, which was established by a group of biology students. This sanctuary contains a 500-meter-wide mangrove forest that shields the coastal community from storm impacts and is being protected, restored, and used for research by the students. The sanctuary offers eco-tourism adventures and brings in school children to learn about mangroves, seagrasses, and ecology.

As small island nations work to adapt to the impacts of climate change, one key barrier is the lack of institutional capacity. Governments need more detailed climate data, more information on areas and ecosystems at risk, stronger abilities to predict damaging events and to provide early warnings, and greater capacity to explore and procure innovative financing instruments. Regional efforts are needed to meet these challenges. One promising tool for increasing capacity is the “Local Climate Adaptative Living Mechanism,” which has been piloted first in Tuvalu. The approach channels climate finance to local governments and communities but includes performance-based measures to ensure that the grants are being used effectively. Localities that perform better receive larger grants, creating incentives to get the most cost-effective results.

The most common traditional approach to protecting communities, ports, and other valuable assets from disasters like floods has been to build hard structures, such as levees, breakwaters, or sea walls. In many cases, however, natural resources and ecosystems are much more cost-effective than “hard” solutions. They also offer multiple additional benefits, such as supporting fisheries and tourism, protecting freshwater supplies, increasing biodiversity, reducing heat island effects, providing recreational opportunities, and helping to preserve cultural practices. For small island nations, such Nature-based Solutions (NbS) include restoring mangrove forests, protecting coral reefs, maintaining or restoring wetlands and forests, and adding more green spaces to urban areas.

Conclusion

The challenges posed by climate change in the SIDS are immense, affecting health, ecosystems, agriculture, infrastructure, and cities, with the most severe impacts on vulnerable communities. Moreover, this vulnerability to climate change is exacerbated by the challenging financial conditions in many of the nations. The financial indicators in more than 70% of the SIDS show impending or deepening debt crises. Yet, despite the growing scale of these disasters, they often struggle to capture the public and political attention they deserve.

Increasing international adaptation finance flows will not only help SIDS avoid major losses from climate shocks, but will also bring important economic benefits for communities, financial benefits for businesses, and substantial environmental and social benefits, particularly to the most vulnerable. Adaptation thus should not be seen as being separate from the development paths of small island nations, but rather as being integral and essential to economic growth and prosperity.

References

[1] Global Center on Adaptation. 2025. State and Trends in Adaptation Report 2025: Small Island Developing States. Rotterdam.
[2] Data and statistics in this Commentary are all extracted from analysis of authors of GCA State and Trends in Adaptation Report 2025: Small Island Developing States and various sources used and listed in the GCA report
[3] World Bank. 2019. “The Cost of Coastal Zone Degradation in West Africa.”https://documents1.worldbank.org/curated/en/822421552504665834/pdf/The-Cost-of-Coastal-Zone-Degradation-in-West-Africa-Benin-Cote-dIvoire-Senegal-and-Togo.pdf

ABOUT THE AUTHORS

Jamal Saghir

Professor of Practice, Institute for the Study of International Development, McGill University
Jamal Saghir is a Professor of Practice at the Institute for the Study of International Development at McGill University, Montreal, Senior Fellow at the Payne Institute, Colorado School of Mines, Senior Advisor of Several international organizations, Board member of several organizations and former Director at the World Bank Group, Washington DC.
https://www.linkedin.com/in/jamal-saghir-96453097/
X (Twitter): @Jamalsaghir3

Ede Jorge Ijjasz-Vasquez
CEO and Founder, Eigen Impact Consulting
Ede Jorge Ijjasz-Vasquez is the CEO and Founder of Eigen Impact Consulting, Senior Non-resident Fellow at the Brookings Institution, Senior Advisor of Several international organizations, Board member of several foundations working on land rights, ESG and water and former Senior Director for Sustainable Development and Infrastructure at the World Bank Group, Washington DC.
https://www.linkedin.com/in/edeijjasz/
Twitter: @Ede_WBG

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