Climate-Driven Financial Vulnerability is a Vicious Cycle. How Do We Reverse It?

The Costs of Climate Change are Personal

Wildfires burning across Canada this spring and summer remind us that the impacts of climate change are in the here and now. Following every major climate-driven disaster, there is a financial reckoning. Last year was the costliest in Canadian history, surpassing $8 billion in insured damages. There were wildfires in Jasper and hailstorms in Calgary, Manitoba, and Saskatchewan. Western Canada’s deep freeze cost $180 million, while there was a $1 billion price tag on Toronto area floods. In Quebec, Hurricane Debby wreaked $2.7 billion worth of damage.

Behind these gigantic numbers are communities filled with people, from farmers to truck drivers to kindergarten teachers. When we hear that climate impacts could cost Canada’s economy $78 billion or more over the next two decades, our eyes might widen. But are we driven to act? Maybe we would be if we understood that these costs are not abstract. They are driving people, particularly those already struggling to get by, into increased financial vulnerability.  

Climate vulnerability and financial vulnerability are locked together in a vicious cycle. The challenge in front of us is not only how to break it, but how to reverse it. How do we create an upward spiral where climate and financial resilience feed and reinforce each other? That is a wicked challenge in need of wicked solutions. The good news is, we know what many of the necessary solutions look like. Our opportunity is to implement and scale them. 

In All Its Inequity, Climate-Driven Financial Vulnerability Hurts All of Us

New data from the Financial Resilience Institute finds that, as of February 2025, one in five Canadians report being impacted by an extreme weather event over the past 12 to 24 months. Of that group, 29% say this negatively impacted their financial situation. The Institute’s Financial Resilience Index Model data shows that more financially vulnerable households are more likely to be impacted by extreme weather events.¹ The reverse is also true. Those impacted by extreme weather events are more likely to become financially vulnerable. This is how the vicious cycle unfolds. A family that is already facing financial hardship is more likely, for a variety of reasons, to be negatively impacted by fires, floods, and storms.  That damage further hurts their financial well-being. As a result, they become even more climate vulnerable. 

As the Smart Prosperity Institute (SPI) and others have shown, climate change is a threat multiplier that exacerbates social inequities. Women, people of colour, Indigenous Peoples, and those with fewer financial resources face increased and disproportionate climate risks. The Institute’s 2022 report on how climate change impacts at-risk groups, Shed Light, Build Resilience, highlights that climate-induced disaster research in Canada rarely addresses these intersectional vulnerabilities.  

This dynamic impacts all of us. In 2025, 74% of Canadians reported experiencing financial vulnerability on some level, according to the Financial Resilience Institute’s Seymour Financial Resilience Index^®. In precarious times, climate disasters increase uncertainty for everyone. Protecting Canada and all who live here means finding as many levers as possible to reverse this downward trend.

Inventing a Better Umbrella: Insurance, Reimagined

One necessary opportunity lies in the evolution of the insurance sector. The Financial Resilience Institute’s research proves a strong correlation between people reporting having sufficient insurance protection and improved financial resilience outcomes². There is “a growing need for targeted financial and insurance support for households affected by climate change, combined with opportunities to invest in communications and help more people understand the impact of climate change and associated risks,” the Institute concludes.  

Nothing about this is easy. As Co-operators’ President and CEO Rob Wesseling and former Mayor of Edmonton, Don Iveson, wrote last August, the average claim payout has tripled over the last 15 years in no small part because of increasing climate disasters. “The business model for insurance is under increasing pressure…Looking at the long-term trends in climate models, the prospects of sustainable, affordable protection become even more dire.” 

That being said, there are some important interventions the insurance sector can undertake.  For example, leveraging its expertise in risk modelling to better predict and price climate impacts for customers. Further, instead of rebuilding “like for like,” insurance coverage could increase people’s climate and financial resilience by upgrading infrastructure to be more climate-ready. That could look like providing coverage for a new and better roof that is wind, hail, and fire resistant after an old one is damaged in a disaster.  

Still, it’s not possible to “insure our way out” of this vicious cycle, as long as the risks are rising. We need broader approaches and, importantly, a more collaborative effort across all of society. 

Changing the System: Scaling Investment in Resilience and Nature

Improving Canadians’ financial resilience comes down to improving Canada’s climate resilience. And, frankly, there is no way to achieve that without significant investments in new infrastructure, upgrading existing structures, and ultimately lowering emissions. Solutions must include both traditional “built” infrastructure (dams and drainage systems) as well as nature-based “green” infrastructure (green roofs and urban forests). The good news is that for every $1 Canada spends on resilience and adaptation measures, we get as much as $15 back in direct and indirect savings and benefits. 

Further, many of the initiatives necessary to increase extreme weather resilience—like restoring wetlands to help limit flooding or increasing urban green spaces to cool the air—also fight climate change. These natural climate solutions reduce greenhouse gas emissions and store carbon while also protecting communities from floods, fires, and storms.     

While the long-term economic and social values of resilience investments are clear, the challenge is the upfront cost. Governments alone cannot carry the load. Private investment is a necessary catalyst. Attracting it requires private investors getting a return on their investment, which means finding ways to monetize adaptation and natural climate-solution opportunities that produce business-aligned returns on investment. 

A swell of research and innovative efforts is working to crack this nut. In 2023, the Climate Institute, in partnership with Co-operators, scoped out a number of avenues for mobilizing private investment in adaptation, supported by Canadian case studies. 

For example, the paper shows how insurance premiums and “mop-up” savings can provide a source of returns for investors who finance adaptation infrastructure projects. Imagine a municipality garners private investment to upgrade local levees and stormwater ponds. The improved infrastructure lowers the risk of flood damage, which should lead to relatively lower insurance premiums. Further, the city and other governments spend less on cleanup costs, business interruptions, and emergency services. 

More recently, SPI and Nature United collaborated on an effort to unlock the economic power of natural climate solutions. This includes finding ways to unleash private investment in nature, which is critical for climate resilience and mitigation efforts. That can look like strengthening nature-based markets (e.g., improving forest carbon protocols so that sustainably managing a forest pays better than cutting it down). It can also look like developing nature finance tools, work that’s currently being led by Generate Canada’s Nature Investment Hub. From “project finance for permanence” partnerships to conservation impact bonds, these tools generate financial returns alongside environmental, cultural, and social benefits.  

We Have Much Farther to Go

When it comes to transforming climate-driven financial vulnerability into climate-proofed financial resilience, Canada has a long way to go. At the crux of this challenge lies a fundamentally wicked problem: how do we turn solutions that benefit Canadians broadly into investable opportunities for private capital? It will take an all-hands-on-deck approach and collective efforts to experiment with and scale promising solutions in real life. 

All of this requires political will and private commitment, which can be hard to come by in a world facing upheaval on so many fronts. That’s why it’s important to remember what’s at stake in this fight for financial and climate resilience. It isn’t numbers. Not figures on a balance sheet or calculations in a report. It’s people, it’s all of us, doing our best to protect what we love and to make our families and communities resilient.

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1. Financial Resilience Institute’s Financial Resilience Index Model measures household financial resilience, defined as one’s ability to get through financial hardship, stressors and shocks as a result of unplanned life events, across nine behavioural, sentiment and resilience indicators. Financial resilience is measured at the national, provincial, segment and individual household level with a pre-pandemic baseline of February 2020 and Index data based on a sample size of approximately  5000 adult Canadians three times a year. ‘’Extremely Vulnerable’ households have a financial resilience score of 0 to 30; ‘Financially Vulnerable’ a score of 30.01 to 50; ‘Approaching Resilience’ a score of 50.01 to 70, and ‘Financially Resilient’ a score of 70.01 to 100.
Seymour Financial Resilience Index ® is a registered trademark used under license by the Financial Resilience Society.
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