It’s time to address Canada’s major shortfalls in climate adaptation

The nature strategy announced in March 2026 by the Carney government offers a new path to address two major gaps in Canada’s climate adaptation approach: initiatives to mobilize private and non-profit investment in natural assets, and the creation of a task force on accounting and financing natural capital. Both are overdue and welcome.

While these measures are important, they address only part of the problem. Canada still faces mounting costs and escalating risks from extreme weather, and these steps alone fall far short of what is needed.

Ottawa’s nature strategy is the latest in a series of federal policies that must be turned into concrete programs and actions to address Canada’s vulnerability to extreme weather. Despite the National Adaptation Strategy laid out in 2023, the Trudeau government implemented too little to help Canada adapt to a changing climate. Adaptation has also received insufficient focus under the Carney government beyond what is included in its nature strategy. It has received even less attention across the provinces.

Adaptation is more than protecting natural assets and encouraging greater investment in sustaining natural capital. These measures have undeniable value, but in the absence of robust federal and provincial action, Canada remains exposed to significant risks and escalating costs. Extreme weather can cause loss of life, emergency relocations, widespread property damage and destruction, and lasting health impacts. These economic, financial and health burdens are rising as extreme weather events become more frequent and severe.

Canada can ill afford these increasing losses. Adaptation needs to be a foundational pillar of Canada’s nation-building and economic resilience strategy. This will require much stronger government capacity and sharper policy focus to design and implement effective adaptation programs and practical applications. Meaningful reforms to public-sector budgeting and accounting practices are also essential.

Climate adaptation’s inadequate role in Canada’s policy reset

To understand climate risk policy, it’s helpful to distinguish between mitigation and adaptation. Mitigation means preventing or reducing greenhouse gas emissions that drive climate change. Adaptation refers to protecting or lessening the impacts of climate change and extreme weather on people, communities, businesses and infrastructure.

In practice, mitigation continues to get far more attention and resources than adaptation. Under the Carney government, it remains the main climate focus, even though overall mitigation funding and policy support have fallen compared with the Trudeau era. Since spring 2025, Ottawa’s emphasis has been on carbon capture and electrification, and now on sustaining natural capital, as the primary tools to fight climate change.

In contrast, adaptation spending is much lower, accounting for only a small share of climate-related expenditures in 2025 and early 2026. Despite the compelling merits of more funding and extensive information available to support implementation, adaptation efforts by Ottawa and the provinces remain a fraction of what is needed.

Embedding adaptation as a core pillar of nation-building is essential to support long‑term economic resilience in the face of a changing climate and challenging economic times.

– Kathryn Bakos and James K. Stewart

Inadequate adaptation poses critical risks to the Carney government’s wide-ranging strategy shift on the economy and climate. Improved federal policy, investment and spending in crucial areas such as defence, infrastructure and trade are long overdue and have considerable merit. Yet adaptation has not featured in flagship legislation (e.g., Bill C-5, the One Canadian Economy Act), or in key fiscal policies (e.g., the November 2025 budget and the February 2026 Defence Industrial Strategy).

Without more funding and focus on adaptation, Ottawa and the provinces risk making the impacts of extreme weather even worse. Weak adaptation capabilities and implementation also make it harder to coordinate federal and provincial government programs to boost resilience, attract private investment and improve regulations without harming the environment.

Large and increasing economic and financial costs

Extensive international and Canadian research shows that climate change and catastrophic weather reduce output, or gross domestic product, as well as productivity. Extreme weather events create negative supply-and-demand shocks through multiple interconnected channels. These begin with decreasing an economy’s supply capacity with its existing stock of labour, capital and land. Extreme weather (e.g., floods, wildfires, hail, wind) damages utilities and transportation and communications systems, interrupts and reduces business operations, disrupts product distribution channels, and impedes supply chains.

Extreme weather events also diminish the available supply of capital, land and labour, further constraining output. Weather disasters damage or destroy structures and equipment, reducing both the quantity and quality of facilities, and can accelerate asset depreciation. Events such as major floods and wildfires decrease the labour supply by reducing work hours or preventing work altogether through evacuations, community disruption, increased caregiving demands, and prolonged dislocations to transportation and communications.

RELATED STORIES

The production and supply repercussions from extreme weather shocks range from major temporary disruptions to devastating harms. The floods in Quebec and Nova Scotia, and the wildfires in Lytton and Jasper, show how communities can be thrown into chaos.

Even when work does not completely stop, extreme heat reduces the effectiveness of workers and their hours worked. Heat stress lowers cognitive and physical capacity, decreasing labour productivity materially starting at temperatures above 25°C. Labour productivity falls more sharply if temperatures rise further, especially at 33°C to 35°C and above. Temperature extremes also boost absenteeism.

Climate disasters also exert a serious toll on the demand side of the economy. They reduce business and household incomes from interruptions to normal activity, damage to physical capital, reduction in labour supply and lower output. In turn, they cause decreased spending by firms and consumers, further reducing GDP.

Longer-term economic and health burdens

While the rebuilding phase after weather emergencies can temporarily – and misleadingly – increase GDP, reconstruction and replacement of damaged infrastructure require funding and resources that could otherwise have been used to maintain operations or expand productive capacity.

Extreme weather also has long-term effects that can persistently reduce productivity. The difficulty of rebuilding can create delays that reduce output for years. Smaller firms are particularly vulnerable. U.S. data show that 40% of small businesses affected by extreme weather do not reopen, and another 25% close within a year of the catastrophe.

Further, extreme weather events place enormous strain on Canada’s healthcare system. As health deteriorates, more people visit hospitals and costs go up. Society’s most vulnerable individuals are disproportionately affected: the elderly, people with pre-existing conditions, pregnant women and those experiencing homelessness. Climate-related disasters are also linked to worsening mental health from the loss of homes, prolonged relocations and financial stresses from costs not covered by insurance.

Escalating fiscal and financial burdens

Governments face rising costs of emergency assistance and infrastructure repairs from extreme weather events, as well as the growing need to invest in resilient infrastructure. However, public-sector budgets distort the substantial net financial and economic benefits of adaptation spending and investment. While budgets capture immediate costs, they fail to reflect much larger future savings. They also overlook key benefits such as more reliable services, fewer delays and reduced productivity losses.

Businesses and households are also facing growing financial pressures from extreme weather. Rising insurance premiums are a huge factor, but they are just the start. Companies must cover costs for immediate repairs, long-term recovery, and investing in more resilient offices, factories, warehouses, and equipment. Households can struggle with limited mortgage options in high-risk areas and out-of-pocket expenses for repairs and rebuilding. These pressures are compounded by time away from home or work, income disruptions and reduced personal productivity.

Extreme weather and insurance losses on the rise

Since 1983, Canada has experienced more than 300 catastrophic weather events – defined as events causing more than $30 million in insured losses ($25 million prior to 2022). In the 1980s, Canada averaged about two catastrophic events per year; today, that figure has climbed to roughly 15 annually.

Adjusted for inflation, annual losses from extreme weather typically ranged from $400 million to $700 million between 1983 and 2008. Over the past 17 years, insured losses from climate-related disasters jumped to average nearly $3 billion annually, with every year but one surpassing $1 billion.

Although total insured losses in 2025 were $2.4 billion, the broader trend of escalating insured losses from extreme weather events is evident – and is accelerating year over year, as shown in the graph below.

Across Canada, the true financial burden of extreme weather extends far beyond insured losses. Uninsured losses, those not covered by insurance, are estimated at roughly three times the amount insurers pay out, reflecting the costs borne by households, businesses and communities.

A select review of major Canadian floods, wildfires and extreme heat events over the past 13 years shows their increasing frequency, severity and rising economic, financial and health costs. Catastrophic weather events have destroyed homes and infrastructure, displaced residents, disrupted transportation and energy networks, and generated billions in economic losses, demonstrating how climate disasters threaten lives, livelihoods and productivity.

Climate adaptation: A core policy need

Despite the urgent need to reduce greenhouse gas emissions – the primary driver of climate change and extreme weather – fossil fuels are expected to remain a central part of the global economy for the foreseeable future, according to analyses by the International Energy Agency (IEA) and the United Nations Environment Programme. Meanwhile, global climate-related losses are rising as shown by catastrophe loss trends over recent decades and are expected to escalate further alongside ongoing fossil fuel use.

Given this reality, climate adaptation is essential to actively manage these risks. According to the Canadian Climate Institute, every dollar invested in adaptation in Canada can generate up to $15 in value – approximately $5 in direct avoided losses (repair and replacement costs) and up to $10 in broader economic benefits, including reduced supply chain disruption and sustained labour productivity.

A 2026 study on proactively upgrading public infrastructure assets to adapt to extreme rainfall and rising heat estimated that Canada could save $10 billion annually in net costs compared to not making these adaptation investments. The savings exceed $5 billion per year relative to a reactive approach, where upgrades are made only at the time of asset replacement.

What Canada should be doing differently

1. Embed adaptation in nation-building and transformational projects
Major projects and infrastructure development are cornerstones of Ottawa’s nation-building strategy. But success critically depends on building right the first time – designing Canadian infrastructure and economic assets to withstand the escalating risks of extreme weather.

Adaptation policies and programs are foundational to Canada’s economic success, resilience and nation-building. Embedding climate resilience into transportation, energy, hospitals, water systems and emergency operations supports public safety and security, growth and incomes. Aligning adaptation investments with Canada’s defence commitments is vital, including upgrading and protecting critical military infrastructure to safeguard it against extreme weather disruptions.

2. Significantly increase government capacity in adaptation
Effective climate adaptation depends on strong, coordinated institutional capacity across both the public and private sectors. The public sector, in particular, needs enhanced capabilities to assess climate risk and design policy that guides investment capital wisely. Greater government expertise is essential to better inform stakeholders and integrate resilience into decision-making across ministries. It is also critical to prevent fragmented and reactive adaptation efforts.

Establishing a National Adaptation Office (NAO), led by a national adaptation director, would enhance leadership and improve coordination and accountability across all levels of government. Incorporating aspects of the Major Projects Office and Defence Investment Agency, an NAO would attract expertise from the non-profit and private sectors. The director of such an office would serve as a clear focal point with authority to provide guidance, deliver analysis and advance national adaptation priorities.

3. Improve fiscal support for adaptation
Investing in resilient infrastructure, strengthening energy grids, and protecting workers can lower future costs from emergencies, repairs and health impacts. Communities and households can be made more resilient through limiting development in high-risk areas, climate-smart construction, and retrofitting existing stock to maintain housing stability.

Fiscal policy can also strengthen public–private collaboration. Ottawa’s nature strategy goal of attracting private and non-profit investment in nature is commendable. Much more can be done to align government budgets with private investment, and encouraging risk-sharing is key. Incentivizing adaptation in business planning will help embed resilience throughout the economy.

4. Adopt natural asset valuation and better accounting
Natural ecosystems – including wetlands, forests and grasslands – provide essential adaptation services such as mitigating floods, moderating heat and aiding water management. The National Infrastructure Council’s 2025 report emphasized their robust economic, fiscal and health benefits. Their role is critical in delivering more resilient infrastructure through nature-based solutions as highlighted in Ottawa’s nature strategy.

For example, upstream wetlands reduce flood damage in urban areas by up to 38%, while expanded tree canopies in cities can reduce heat by as much as 5°C. Swamps and marshes in one watershed alone in Ontario provide stormwater management services that would cost more than $1.7 billion to replace with built infrastructure.

Yet federal, provincial, territorial and most municipal accounts overlook natural assets, facilitating their degradation and overuse. This increases climate risk and boosts disaster and replacement costs for households, businesses and governments. Public-sector financial reporting needs to align with new international standards for climate risk and natural asset accounting.

Canada must act

Looking ahead, greater investment in climate adaptation and long‑overdue government strategy for climate-risk management are vital requirements for Canada’s economic success.

Canada must go much further than its new nature strategy to avoid the tragedy of the horizon, as then Bank of England Governor Mark Carney warned in 2015. Climate risks unfold over much longer timeframes than those typically considered by financial markets, policymakers and businesses. By the time the full impacts of these risks are visible, it may already be too late to avoid severe consequences.

Embedding adaptation as a core pillar of nation-building is essential to support long‑term economic resilience in the face of a changing climate and challenging economic times.

Kathryn Bakos is a biologist, the managing director of finance and resilience at the University of Waterloo’s Intact Centre on Climate Adaptation, and chair of the Ontario Biodiversity Council.

James K. Stewart is an economist, a senior fellow at the C.D. Howe Institute, and a member of the Advisory Committee for the Intact Centre on Climate Adaptation.