Too Indebted to Adapt?
Climate vulnerability, sovereign debt and the unequal costs of resilience
Kriti Johri
In this blogpost with OxCAN, Kriti Johri, a PhD scholar at National Law University, Jodhpur, interrogates how climate-finance structures deepen sovereign financial vulnerability, using Nepal and the Hindu Kush Himalaya as a case study of the unequal costs of resilience.
In late August 2026, a catastrophic flash flood surged through Nepal’s Hindu Kush Himalayan region, devastating communities, livelihoods and critical infrastructure in its wake. Subsequent scientific studies ascribed the immediate trigger to the collapse of massive rock and glacier ice, producing seismic-like energy before transforming into cascading flash floods and destructive debris. Long-term warming induced by climate change was identified as a significant destabilising factor, multiplying the already existing geological vulnerabilities due to glacial retreat and thawing permafrost. Such an enormous disaster reveals the limits of conventional adaptation models, as early warning systems proved inadequate to predict such calamity.[1]
When adaptation reaches a limit
Such constraints are also associated with significant financial implications. Nepal approximated physical and economic losses at over US$2.7 bn, while construction and rehabilitation costs are projected around US$4.8bn. Nepal sought US$20 m from the UN Fund for Responding to Loss and Damage, representing merely 0.7% of the estimated loss and 0.3% of the estimated recovery cost.[2] The disparity illustrates a considerable challenge for climate-vulnerable states: when adaptation measures do not prevent devastating losses, who bears the financial responsibility for recovery and how is it executed?
This inadequacy is not unique to Nepal. In its first funding-request cycle, the Fund garnered 176 requests worth nearly US$2.8 bn from developing nations seeking to recover from disasters like floods, storms and droughts.[3] Nepal’s crisis, thus, reflects a wider disparity between the magnitude of climate-related damages and the financial capabilities of current international frameworks to address the climate emergency. This disparity leaves vulnerable states with scant alternatives: allocate their already limited national assets, defer recovery, or resort to concessional or commercial borrowing. They face a challenging paradox - those most in need of investing in resilience possess the least fiscal space to do so. Adaptation demands expenditure at both stages of the climate risk continuum: firstly to mitigate a foreseeable harm and later to recover from unavoidable losses. When these expenses are equated with borrowing, climate vulnerabilities evolve into debt vulnerability, constraining the budgetary capacity for future adaptation. Ironically, this reinforces the risks that such expenditures were intended to mitigate.[4] IMF describes this tension as ‘impossible trilemma’: vulnerable states must increase investments for adaptation, maintain debt sustainability amid heightened borrowing costs and at the same time, mitigate higher sovereign-default risk due to delayed adaptation.[15]
Against this fiscal dilemma, the form in which climate finance is provided becomes crucial. The Prime Minister of Nepal, recently, called for greater grant-based assistance from the international community instead of imposing debt-based financial liabilities for climate recovery initiatives.[5] Grants, concessional loans and commercial borrowings might address reconstruction and adaptation but they distribute financial burden very differently. While grants do not require repayments, concessionary borrowings soften obligation by extending repayment tenures and with lower interest rates, and commercial borrowings increase fiscal vulnerability with higher interest and repayment costs. Climate finance is not classified as mere flow of capital. Its distributive consequences depend on factors like financial instrument, maturity, cost of capital, currency, conditionality and the ultimate risk-bearer.[16] Eurodad’s analysis of public climate financing has highlighted the presence of loan-centric mechanisms and their implications for debt sustainability in the global south.[6]
Asian Water Tower
The HindKush Himalayan region is revered as a water tower of Asia, nourishing major river systems of the Ganges, Indus and Brahmaputra that houses nearly 240 million people in the region and around 1.65 billion lives downstream sustained through its freshwaters.[8] Recent reports suggest that the rate of glacial ice loss has doubled since 2000, with a loss of 27 metres of ice thickness since 1975.[9] Rapid warming risks increase glacial instability, floods and glacial lake outburst events alongside continued depletion of snow and ice which alters longer-term timing and availability of freshwater flows. This is not just Himalayan problem, their effects cascade through shared river basins, affecting food systems, hydropower infrastructure and downstream communities. This shared ecology of region yields transnational benefits of climate adaptation measures undertaken by Nepal. Thus in transnational ecological systems, climate hazards and advantages of resilience may be mapped across borders; the financial liabilities necessary to build such resilient infrastructure, however, generally remain national.[10]
What Climate Justice requires?
This mismatch puts the question of climate justice to the centre-stage. To answer this, I draw on the IPCCC Climate Justice Framework, which identifies three interconnected dimensions: distributive justice, procedural justice and recognition. The distributive question concerns the concentration of physical and financial burdens of climate risk in a state that has comparatively limited responsibility for global emissions causing accelerated warming.
This also introduces a monetary dimension to the North–South dichotomy. Climate finance can shift the burden of climate response towards states with limited financial resources and historical responsibility, particularly where climate-sensitive developing nations are compelled to incur debt to mitigate damages they have minimally caused.[7] Procedural justice concerns whether climate-vulnerable states and affected communities have participation and influence in decisions governing access to finance, funding ceilings, project priorities and choices between grants and debt-based instruments. Recognition requires adaptation models to account for particular vulnerabilities, knowledge and lived experiences of mountain and downstream communities rather than uniformly approaching climate risk.[11]
The Himalayan case however, raises a spatial question. While distributive climate justice condemns unequal responsibilities, vulnerabilities and capacity, the transboundary character of adaptation draws attention to the geographical distribution of benefits generated by resilience. [11] This creates a further distributive dimension. Beyond the existing asymmetry between responsibility and vulnerability, another mismatch arises where costs of resilience are concentrated to one state but the adaptation benefits expands across borders. Therefore, the geography of adaptation benefits may not converge with the geography of adaptation finance.[11]
Equity in climate financing relates to whether the process of financial assistance considers varying responsibilities, financial capacity and vulnerability rather than solely focusing on the allocation of resources from global north to global south.[7][11] Recent deliberations in the IPCCC process suggest differences between developed and developing nations over the characterization of climate funding as either investment flows or assistance distinguished by accountability and capability.[12] The underlying question is therefore not only of allocation and agency, but also about financial architecture- the institutional rules through which risks, obligations and decision -making power are distributed.
Resilience depends not just on physical infrastructure and ecological systems, but also on local and indigenous knowledge, community capacity, scientific monitoring, education and participation. Knowledge itself, including glacier observations, hydrological data, forecasts and cross-border warnings, can function as climate infrastructure in the rapidly changing Himalayan environment.[1][10][11] The principle of CBDR-RC is relevant for allocation of mitigation obligations, as well as building architecture through which climate responses is financed.
Therefore, a proportional strategy for climate finance would take into account responsibility, capacity and vulnerability, while also considering the form of climate harm and geographical distribution of benefits derived from adaptation. Where the benefits are substantially transboundary, proportional approach may support extending financing responsibility beyond territorial state.
Financing Just Resilience
A just financing response must address more than adequacy. Long term adaptation may justify highly concessional finance where investments involve substantial upfront costs, long time frames and public benefits that do not generate immediate financial returns. By contrast, inevitable loss and damage, generally present a stronger case for debt-free support.[14] Where resilience measures produce transnational benefits, their financing may require regional co-financing and collective risk-sharing rather than stress balance sheets of individual sovereign states.[16] Regional early-warning systems, glacier observation, hydrological data and basin-level risk reduction are therefore not merely national adaptation expenditures. If adaptation protects ecological systems and freshwater resources whose benefits cross borders, why should national borrowing remain the default means of financing a regional public good?
Conclusion
Nepal’s crisis, though, exposed the physical limit to adaptation; the financing dilemma exposed another. Climate risk may be globally produced, ecological vulnerabilities may transcend across borders and the benefits of resilience may be regional, while financial liabilities remain concentrated within individual states. A climate-finance system may mobilise substantial capital and still remain unjust in its architecture.
A just architecture demands more than financing adaptation. It must ensure that financial responsibility bears some proportionality for the risk, capacity to respond, vulnerability and benefits generated by adaptation. Costs, risks and responsibilities are distributed proportionately so that those responsible least for climatic changes do not have to carry physical as well as financial consequences of surviving those changes, a failing in which climate finance risk converts environmental vulnerability into financial vulnerability.
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World Weather Attribution, Rapid Warming in the Himalaya Exacerbates Geohazard Cascades Beyond Adaptation Limits (Sept. 17, 2026), https://www.worldweatherattribution.org/rapid-warming-in-the-himalaya-exacerbates-geohazard-cascades-beyond-adaptation-limits/.
Ministry of Foreign Affairs, Gov’t of Nepal, The Ministry’s Regular Press Briefing—11 September 2026 (Sept. 11, 2026), https://mofa.gov.np/content/1884/the-ministry-s-regular-press-briefing--11-september/; Aruna Chandrasekhar & Josh Gabbatiss, Analysis: Nepal’s $20m ‘Loss-and-Damage’ Claim Only Covers 0.7% of Flood Costs, Carbon Brief (Sept. 22, 2026), https://www.carbonbrief.org/analysis-nepals-20m-loss-and-damage-claim-only-covers-0-7-of-flood-costs.
Aruna Chandrasekhar & Josh Gabbatiss, Analysis: Nepal’s $20m ‘Loss-and-Damage’ Claim Only Covers 0.7% of Flood Costs, Carbon Brief (Sept. 22, 2026), https://www.carbonbrief.org/analysis-nepals-20m-loss-and-damage-claim-only-covers-0-7-of-flood-costs.
Constance de Soyres, Emmanuella Obeng & Joanne Tan, Climate Shocks, Debt Defaults and Investment in Climate Adaptation—Squaring an Impossible Trilemma, IMF Working Paper No. 2026/128 (2026), https://www.imf.org/en/publications/wp/issues/2026/06/23/climate-shocks-debt-defaults-and-investment-in-climate-adaptation-squaring-an-impossible-577218; Gerhard Kling et al., Climate Vulnerability and the Cost of Debt, Oxford Open Economics (2025), https://academic.oup.com/ooec/article/doi/10.1093/ooec/odaf003/8236479.
Reuters, Nepal Seeks Grants, Not Loans, for Flood Recovery After Deadly Glacier Disaster (Sept. 25, 2026), https://www.reuters.com/business/environment/nepal-seeks-grants-not-loans-flood-recovery-after-deadly-glacier-disaster-2026-09-25/.
Eurodad, Why Do Governments in the Global North Need to Provide Climate Finance to the Global South?, https://www.eurodad.org/why_climate_finance.
Sinan Ülgen, How Deep Is the North-South Divide on Climate Negotiations?, Carnegie Endowment for International Peace (Oct. 6, 2021), https://carnegieendowment.org/research/2021/10/how-deep-is-the-north-south-divide-on-climate-negotiations; Alexander Thompson, The Politics of Climate Finance: Bridging the North-South Divide, Mershon Center for International Security Studies, https://mershoncenter.osu.edu/politics-climate-finance-bridging-north-south-divide.
International Centre for Integrated Mountain Development, The Hindu Kush Himalaya Assessment, https://www.icimod.org/hkh/.
International Centre for Integrated Mountain Development, Hindu Kush Himalaya Glaciers Losing Ice at Double the Rate Since 2000, New ICIMOD Report Confirms (Mar. 18, 2026), https://www.icimod.org/press-releases/hindu-kush-himalaya-glaciers-losing-ice-at-double-the-rate-since-2000-new-icimod-report-confirm/.
Katherine Browne et al., Multilateral Adaptation Finance for Systemic Resilience: Addressing Transboundary Climate Risk, Stockholm Environment Institute (2022), https://www.sei.org/publications/multilateral-adaptation-finance-systemic-resilience/.
Intergovernmental Panel on Climate Change, Climate Change 2022: Impacts, Adaptation and Vulnerability, ch. 1 (2022), https://www.ipcc.ch/report/ar6/wg2/chapter/chapter-1/.
Third World Network, North-South Divide on Climate Finance vs. Investments at IPCC (Mar. 11, 2025), https://www.twn.my/title2/climate/info.service/2025/cc250302.htm.
United Nations Framework Convention on Climate Change, Introduction to Climate Finance, https://unfccc.int/topics/introduction-to-climate-finance.
United Nations Environment Programme, Adaptation Gap Report 2025: Running on Empty (2025), https://wedocs.unep.org/items/b547996e-14ee-4f1c-a6d4-b811dd373ae9; Siobhan McDonnell, The COP27 Decision and Future Directions for Loss and Damage Finance: Addressing Vulnerability and Non-Economic Loss and Damage, 32 Rev. Eur., Comp. & Int’l Env’t L. 416 (2023), https://onlinelibrary.wiley.com/doi/10.1111/reel.12521.
Constance de Soyres, Emmanuella Obeng & Joanne Tan, Climate Shocks, Debt Defaults and Investment in Climate Adaptation—Squaring an Impossible Trilemma, IMF Working Paper No. 2026/128 (2026), https://www.imf.org/en/publications/wp/issues/2026/06/23/climate-shocks-debt-defaults-and-investment-in-climate-adaptation-squaring-an-impossible-577218
James Thuo Gathii, Adebayo Majekolagbe & Nona Tamale (eds), Transforming Climate Finance in an Era of Sovereign Debt Distress (Sheria Publishing House, 2023).
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Kriti Johri is a PhD scholar at National Law University, Jodhpur, researching sustainable investment, climate finance and ESG governance, with prior experience at India’s Ministry of Environment and Oxford’s Smith School. An IMI-certified mediator with 11 years of professional experience, she also trains and works in mediation and ADR.
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