How Sweden can strengthen climate resilience now

By HyunJeong Hwang

Sweden is warming at nearly twice the global average pace. Coastal erosion, flooding, and extreme weather events are no longer future risks, they are affecting communities today. On the south coast of Skåne, more than 200 meters of shoreline have been lost to erosion in just four decades. With 82% of the population living in coastal areas, the stakes are high. Investments to adapt to climate change make good economic sense and can improve social equity. The 2025 OECD Economic Survey of Sweden highlights three strategic areas to strengthen Sweden’s climate resilience:

• Accelerating market-based adaptation measures
• Improving public funding mechanisms
• Strengthening governance and coordination

Market tools can drive private investment in adaptation but are not used to their full potential in Sweden (Figure 1). Property owners are the main beneficiaries from safeguarding their own assets and should therefore at the outset foot the bill. Sweden’s legal framework therefore rightfully places the responsibility for climate adaptation largely on property owners, but in practice few financial incentives exist to drive meaningful action.

Insurance premiums typically do not reflect the actual risk of climate-related damages. For example, homes located in high-risk flood zones pay the same premiums as those in safer locations. Moreover, homeowners who take proactive steps, like building flood barriers or reinforcing foundations, rarely see their premiums lowered. This “risk-blind” pricing does not properly incentivise ex-ante adaptation strategies and investments in resilience.

A similar gap exists in property taxation. Municipalities in Sweden cannot adjust tax rates based on local climate risk, nor can they use tax tools to discourage new development in vulnerable coastal areas. The result is a system where those who benefit most from adaptation investments are not contributing proportionately to the cost of those investments.

To reverse this dynamic, Sweden needs to embed climate risks in the prices facing households and businesses to encourage risk-reducing actions. Insurance premiums should be better aligned with site-specific risks, such as flooding or erosion. International examples show that this works. In Denmark and the United Kingdom, for instance, insurers offer premium discounts for policyholders who for example install flood barriers or upgrade drainage. Such approaches have led to measurable increases in private adaptation investments and reduced long-term losses. Introducing similar arrangements in Sweden would not only encourage adaptation but also reduce future spending on disaster recovery (Figure 2).

In addition, Sweden should consider allowing municipalities to implement risk-based property taxation. This would ensure that households in high-risk areas contribute more to the cost of local adaptation projects, such as sea walls or improved stormwater infrastructure. It would also help resolve the “public goods dilemma,” where individuals benefit from shared resilience measures but lack incentives to pay for them. In coastal municipalities like Malmö and Vellinge, disagreements over who should finance protective infrastructure have already caused delays.

Another weakness in Sweden’s climate adaptation funding model is that the risk of large-scale weather-related losses is not properly reflected in insurance premiums. Households, businesses and the insurance industry expect that the government will bail them out in the event of major disasters. Explicit ex ante risk pooling is at the outset a superior solution to such ex post tax-financed bailouts. A prefunded pool, financed by a mandatory surcharge on all property insurance premiums, would act as a buffer in times of crisis and protect the insurance sector and taxpayers alike from unpredictable fiscal shocks. Insurers actively encouraging and facilitating risk mitigation efforts could be rewarded with more favourable terms when accessing the backstop to incentivise risk reduction and reduce the likelihood of high claims. France provides a proven example through its Natural Disaster Compensation Scheme (Caisse Centrale de Réassurance), which is funded by insurance premiums and ultimately guaranteed by the State.

Improving public funding mechanisms is also important. Variation in investment needs for climate adaptation between municipalities is largely orthogonal to their main funding sources, which are personal income taxes, the general grant from the government and the cost and income equalisation system. Municipalities can apply for national and EU grants, but these are mostly aimed at large-scale projects and entail a complex and resource-intensive process, disadvantaging smaller municipalities. Unlike mitigation, adaptation funding is not fully mainstreamed into Sweden’s budget process. Mainstreaming adaptation into national budgeting, alongside easily accessible grants conditional on specific performance targets or milestones, would provide more predictable support and help municipalities plan for the long term.

Governance is another area in need of reform. Sweden lacks a cohesive national action plan for climate adaptation, and responsibilities across sectors and administrative levels often overlap. Municipalities are not legally required to report on adaptation efforts, making it difficult to track progress and identify gaps. Strengthening the authority of County Administrative Boards, which are tasked with coordinating local adaptation efforts, and requiring regular and more standardised reporting would improve consistency across municipalities.

As the impact of climate change intensifies, adaptation can no longer be an afterthought. It must be embedded in financial systems, public policy, and institutional governance. The path forward depends on decisions today, ones that align market incentives and equitably allocate public resources. The resilience of future generations depends on it.

For more information, visit the Sweden snapshot page.

References

OECD (2025), OECD Economic Surveys: Sweden 2025, OECD Publishing, Paris.