Grants are useful for a range of adaptation actions where it is hard to generate a financial return. These include capacity-building activities, piloting new adaptation innovations, high-risk investment settings or projects where there are considerable non-financial benefits. In contrast, loans and other debt instruments can often support larger investments, for example for scaling out of successful pilot projects or for building adaptation and resilience into general development investment. To date, a large proportion of international climate finance for adaptation in developing countries, especially in Sub-Saharan Africa and Oceania, has been grant led, sourced from OECD public funds, indicating that in many instances financing via loans is either considered too risky by the commercial investment sector or it has been hard to demonstrate sufficient return on investment.
IPCC
Climate Change 2022: Impacts, Adaptation and Vulnerability
IPCC Report