Authors: Hamza Abdullah, Hamnah Shakeel-Nagi, Alastair Mayes (CCFLA); Sejal Patel (International Institute for Environment and Development – IIED)
Introduction: Financing urban heat resilience cannot wait for South Asia’s urban poor
Record heat in South Asia has created life-threatening heat stress in many cities, where extreme temperatures intersect with rapid urbanization and precarious living and working conditions. In Delhi, temperatures lingered around 50°C in 2024, forcing informal workers, such as construction laborers, factory workers and street vendors, to continue working outdoors despite heat-related illnesses, which could otherwise result in a decline in income. In recent years, Dhaka has also witnessed soaring temperatures, and among those most affected is a garment worker, who had little choice but to work under extremely hot conditions inside her factory – experiencing severe discomfort, nausea, headaches, and vomiting. Similar stories of loss and damage have emerged from Karachi, where a heatwave broke records in 2024, leading to 427 fatalities due to dehydration-induced organ failures and cardiac arrests.
These lived experiences are a stark reminder of how extreme heat is becoming a deeply unequal urban crisis in South Asia. By 2030, heat stress is expected to result in global productivity losses of USD 2,400 billion, with a disproportionately heavy impact on South Asia. Up to 75% of India’s workforce is in heat-exposed jobs, and the country could contribute to 34 million of the projected 80 million (about 40%) of global job losses due to heat-stress-related productivity decline.
These challenges are even more pronounced for women living and working in informal conditions. Their vulnerabilities are compounded by strenuous labour performed with little social protection. In Bengaluru, for instance, 61% of waste pickers are women, who, according to a recent study by Heat Watch, reported intense heat stress while working long hours outdoors, with 72% reporting muscle cramps, 62% exhaustion, 37% dehydration, and an average weekly income loss of 14% (~USD 5.7) due to heat stress. Additionally, cultural norms often confine women to indoor spaces, where they must contend with precarious housing made from materials that trap heat indoors and a limited water supply. Many rely on unclean cooking fuels, which further increase heat and smoke exposure inside the home. Further, the burden of unpaid domestic labour adds to their physical and emotional strain. As a result, women working and living in informal conditions are left with little respite from extreme heat, whether indoors or outdoors.
Figure 1: From heat-exposed labor on construction sites (left, center), to informal settlements built of precarious materials (right), South Asia’s urban poor bear the brunt of extreme heat. Sources: Creative Commons (left, center); author (right).
Despite the urgency to act against extreme heat, adaptation finance flows remain scarce in South Asian cities. Of the meagre USD 10 billion in tracked global urban adaptation finance in 2021-22, South Asia received less than 10%. This is a stark mismatch, given that the region inhabits more than 25% of the world’s population and is one of the most climate-vulnerable areas globally. This chronic underfunding means a rapidly urbanizing South Asia remains insufficiently prepared to withstand the increasing frequency and intensity of extreme heat events. The cost of this inaction is already at play. A recent report by the IFRC offers a bottom-up perspective from vulnerable communities across South Asia and beyond, detailing how heat disrupts health, weakens social systems, and triggers ripple effects across infrastructure.
Figure 2: South Asia, among the most vulnerable regions to extreme heat, received just USD 700 million out of USD 10 billion in tracked global urban adaptation finance in 2021-22 (Source: CCFLA).
As extreme heat rises, the demand for cooling is expected to increase, too, presenting challenges of maladaptation and accessibility for the urban poor. According to India’s Cooling Action Plan, this demand is projected to increase eightfold by 2037.¹ For those who can afford it, air conditioning (A/C) is increasingly seen as a necessity rather than a choice in response to extreme temperatures. However, relying too heavily on A/C can lead to maladaptation due to high energy consumption and affordability issues for urban low-income residents. Research has shown that the poorest households, often living in hot, crowded, and inadequately ventilated homes without reliable access to cooling, may spend up to 8% of their expenditure on electricity for cooling. This amount is more than three times the share spent by high-income households.
This surge in demand for cooling also presents a sizeable investment opportunity in South Asia’s cooling sector. In India, for instance, the World Bank estimates an investment opportunity of around USD 1.6 trillion for energy-efficient cooling pathways that can simultaneously mitigate the heat-related risks to lives and livelihoods. To this end, the role of concessional and innovative financial instruments will be crucial in accelerating the affordability and accessibility of such sustainable and equitable cooling solutions. For example, integrating passive and climate-responsive cooling into large-scale urban housing scheme, such as India’s Pradhan Mantri Awas Yojana (PMAY), could extend these benefits to nearly 11 million urban and 29 million rural homes, demonstrating how policy and finance can align to deliver impact at scale.
Systemic barriers to scaling finance for heat-related solutions in South Asian cities
Despite the demand and the investment opportunity, five critical barriers limit the flow of financing for heat-related solutions in South Asian cities. We highlight these below:
- Fragmented governance structures
Heat-related solutions represent complex and cross-cutting actions, and as such, often face barriers in many national governance systems. Such cross-cutting action requires coordination both horizontally – across departments such as health, finance, transport, and environment – and vertically, between national, state, and local governments. It also demands coordination with diverse stakeholders, including policy experts (transport, planning, building materials, etc.), civil society groups, and frontline communities. - Inadequate commitment and capacities
Cost-effective, green infrastructure solutions and policy measures, such as cool roofs (Box 1), nature-based solutions (Box 2), and heat-related guidelines for planners, receive less attention than hard infrastructure projects that often contribute to urban heat island effects. This is compounded by capacity constraints, particularly in smaller cities, which hinder the planning and execution of low-cost, heat-resilient solutions. - Limited targeting of vulnerable communities Tailored heat resilience measures present a key area to enhance heat action efforts in South Asian cities. A study of Heat Action Plans (HAPs) in Indian cities revealed missed opportunities to address the needs of those most vulnerable to heat-related risks. Strengthening the focus on low-income households, informal workers, and women in both planning and implementation can significantly improve the equity and impact of heat response measures.
- Insufficient data and governance tools
In cities across South Asia, the absence of disaggregated data and effective governance tools hinders both governance and investments. These cities often lack data-driven governance tools like urban heat risk assessment, heat early warning systems, heat health surveillance, and emergency response frameworks. This lack of disaggregated data and tools means that impacts on vulnerable groups, including heat-related illnesses, deaths, and productivity losses in informal sectors, are poorly tracked. Furthermore, many needs and impacts associated with extreme heat, such as the true scale of cooling needs, are either underestimated due to limited data and methodologies or not well understood due to sparse evidence, particularly regarding non-economic losses.² - Capital mobilization challenges
Capital mobilization challenges for heat-resilience projects exist at both the supply and demand sides. On the supply side, many cities have limited own-source revenues, and intergovernmental transfers are often scarce and unreliable. They also have limited creditworthiness, which increases the cost of borrowing. On the demand side, public financiers such as DFIs, as well as private investors, are cautious about investing in heat-resilience projects and more broadly, urban adaptation and resilience. These projects are often perceived as high-risk investments that do not present clear revenue streams or viable business models. Additionally, such projects are often small-scale, falling outside the standard criteria set by financiers.
These combined challenges hinder the flow of large upfront capital needed for cooling solutions such as sustainable cooling systems, including cool roofs and public cooling centers. They also limit the operational funding needed to maintain green infrastructure such as parks, water bodies, and urban trees, which help mitigate urban heating.
Way Forward: Four levers to scale finance for heat-resilience
As extreme heat increasingly pushes temperatures in South Asian cities beyond survival thresholds, finance must scale urgently to shift from reactive coping to systemic resilience. This requires coordinated action across governments, DFIs, the private sector, and civil society to address the systemic barriers. Four levers can unlock the necessary financing for heat-resilience and cooling solutions:
- Commitment and engagement
The first lever to scaling heat-related financing is commitment to climate resilience. National governments must mainstream heat resilience into key planning documents—such as NDCs, NAPs, and city-level master plans. Membership in global coalitions like the CHAMP and the Cool Coalition brings access to tools, technical support, and visibility with funders. At the city level, joining networks like GCoM and C40 and engaging with initiatives like the recent Heat Is On campaign can drive city ambition and peer learning. - Innovative financing mechanisms and project preparation
Public finance needs to play a catalytic role in unlocking much larger pools of private and development capital for heat resilience. DFIs, governments, and cities must utilize de-risking tools and leverage a growing toolkit of innovative financial instruments to channel capital into cooling and heat-resilience solutions. For instance, municipal and green bonds, often backed by public guarantees, can mobilize sustainability-focused investors to invest in projects that provide heat-related benefits, such as improved access to water. Emerging instruments, such as resilience bonds, have the potential to directly fund heat resilience solutions, including cool roofs and urban greening projects, by utilizing savings from reduced insurance premiums achieved through improved resilience in infrastructure projects. A good example of this is EBRD’s first-ever dedicated climate resilience bond, raising USD 700 million to finance investments in climate-resilient urban infrastructure projects. However, attracting private capital requires addressing perceived risks. This is where de-risking tools are critical. A powerful model can be found in Tamil Nadu’s Water and Sanitation Pooled Municipal Bond. Here, 13 municipalities from Tamil Nadu state, which are too small to issue bonds on their own, have grouped together. The pooled bond utilized a blended finance structure involving private institutional investors, state government funds, and a credit guarantee from public and donor agencies. Through this bond issuance, the municipalities were able to crowd-in private investors and finance critical water and sanitation infrastructure. This model can be adapted to other heat-related projects, especially for smaller cities that may struggle with smaller project sizes and limited creditworthiness.
Nonetheless, for such innovative mechanisms and instruments to work in South Asian cities, there needs to be clear, investable project pipelines — and that’s something many megacities still lack. Most Heat Action Plans for Indian cities, for instance, do not show how their proposed solutions could be developed into fundable projects.³ This is where project preparation facilities (PPFs) are essential. These support facilities strategically utilize grants to help cities transition from planning to implementation, turning ideas into finance-ready cooling solutions. CCFLA’s PPF Connector is one such initiative that helps proponents connect with the right PPFs and get projects off the ground. - Data, coordination, and capacities
Cities need stronger data, coordination, and institutional capacities to improve the enabling environment and enhance their capacities to scale heat-resilient planning and investment. To this end, local governments must track heat-related financing gaps, tag heat-resilience projects aligned to international taxonomies, and document economic and non-economic losses. CCFLA’s enabling framework conditions (EFC) tools can help cities assess and strengthen policies, coordination, and financing systems for resilience. Ward-level heat risk assessments, such as those in Ahmedabad and Rajshahi, demonstrate the importance of utilizing mortality and temperature data, mapping vulnerable populations, and coordinating across departments and government levels. Further, cities can tap into public and philanthropic funding to train frontline responders to track community heat vulnerabilities, share information quickly, and provide climate- and gender-sensitive health services – much like a community initiative in Bangladesh supported by the Global Fund. - Finance for equity
Access to finance alone isn’t enough – how and where that money is spent matters just as much. Tools such as parametric insurance, which directly support vulnerable groups during heatwaves, need to be scaled. For instance, Atlantic Council and SEWA’s parametric heat insurance pilot in Gujarat provided payouts to women workers when temperatures exceeded certain thresholds, putting resources straight into the hands of those most exposed. Similarly, Eight Medical, funded by Catalyst Fund, delivers rapid emergency medical services in Nigeria, including for heat-related illnesses such as heatstroke and dehydration, showing how private finance can be structured to reach heat-vulnerable populations, including those working outdoors. Such targeted approaches are critical across South Asia’s heat-prone megacities, especially for the large outdoor workforce. Another example of scalable models is an initiative by Zomato, an online food delivery service in India, to set up cooling centres for gig workers using corporate social responsibility (CSR) funds. This model can be scaled across cities with the right support. Equally important is directing finance to informal settlements, where precarious living conditions and building materials like asbestos roofs and poor access to water or electricity can turn homes into heat traps. National and municipal budgets should prioritize passive cooling and green spaces as part of a nature-based solutions approach, and improved WASH infrastructure in these areas. Innovative instruments like payments for ecosystem services can fund these efforts; for example, Freetown’s Treetown project pays residents to plant and maintain trees, which provide essential cooling. To create self-sustaining funding for heat resilience, cities can also use land value capture, using a portion of the increased property value from new green spaces to finance further nature-based solutions. Finally, affordable housing schemes like PMAY must earmark funds to integrate passive cooling and heat resilience, and national governments should help strengthen municipal fiscal capacities to incentivize and subsidize local cooling solutions, such as cool roofs.
We Must Act Now to Finance a Fairer, Heat-resilient Future for All
Financing equitable heat-resilient measures is an urgent social, economic, and ethical imperative. Extreme heat is already shaping how people work and live in the cities of South Asia. The stories of informal workers, especially women living and working in informal, precarious, and heat-exposed conditions, reveal how climate change deepens inequalities in cities like Delhi, Karachi, and Dhaka. In such cities, climate finance efforts need to go beyond mobilizing higher quantities, and much attention must be paid to improving the quality of finance, which includes channelling resources to vulnerable people and informal settlements to reduce harm. Therefore, we see these four levers as part of a systemic effort, backed by strong political commitments. Their goal is to overcome data, governance, and capacity barriers and mainstream financing solutions where equity is a core metric rather than an afterthought. Ultimately, the success of such equitable financing efforts depends on a timely recognition of the huge social and economic cost of inaction associated with extreme heat – measured in terms of loss of lives and livelihoods, physical harm, and undignified living and working conditions.
[1] Compared to a 2017-2018 baseline
[2] It is difficult to estimate the size of the issue and quantify adaptation investment needs in South Asia and elsewhere.
[3] A study by the Centre for Policy Research highlighted that only 11 of 37 HAPs discuss funding sources. Of these, eight asked implementing departments to self-allocate resources, indicating a serious funding constraint.
Nature-based Solutions:
Nature-based solutions are increasingly being recognized as a critical intervention that can address multiple climate hazards affecting cities, including extreme heat. In India, vacant or derelict plots of land in Raipur and Delhi have been converted into urban forests. These forests not only help to mitigate the urban heat island effect but also provide a space for vulnerable populations to seek shelter during heatwaves, thus reducing health impacts and loss of life. These interventions are relatively low-cost to communities and require little maintenance, proving a cost-effective and equitable solution to addressing extreme heat.
Cool roofing systems:
Cool roofs represent a low-cost and highly replicable solution to extreme heat and can be particularly effective for vulnerable populations living in informal settlements. By painting tin roofs with solar reflective paint, cool roofs can help reduce internal temperatures by 2-5°C, thereby providing critical cooling that can mitigate heat-related health and productivity impacts. The low technical requirements of this intervention also mean that communities can lead implementation themselves, making it a highly replicable and accessible solution.
About the Cities Climate Finance Leadership Alliance (CCFLA)
The Cities Climate Finance Leadership Alliance is a coalition of 80+ leading organizations committed to deploying finance for city-level climate action at scale by 2030. Trillions of dollars will be required to help cities build the low-emissions, resilient infrastructure necessary to combat and react to climate change. CCFLA is the only multilevel and multi-stakeholder coalition aimed at closing the investment gap for urban subnational climate projects and infrastructure worldwide.
For more information, please visit www.citiesclimatefinance.org
About the International Institute for Environment and Development (IIED)
IIED is an international policy and research organisation working with partners globally to build a fairer, more sustainable world. Together, we challenge the destructive economic models, unjust power dynamics, entrenched mindsets, and protectionist laws that perpetuate poverty, suppress rights, and hinder progress towards a thriving world. We explore solutions to complex economic, social, and environmental crises, using research, action, and influence to tackle the root causes of climate change, nature loss, and inequality.
For more information, please visit https://www.iied.org.