Many drinking water utilities face immense challenges in supplying sustainable, drought-resilient services to households. Here we propose a quantified framework to perform drought risk analysis on ~5600 potable water supply utilities and evaluate the benefit of adaptation actions. We identify global hotspots of present-day and mid-century drought risk under future scenarios of climate change and demand growth (namely, SSP1-2.6, SSP3-7.0, SSP5-8.5). We estimate the mean rate of unsustainable or disrupted utility supply at 15% (interquartile range, 0–26%) and project a global increase in risk of between 30–45% under future scenarios. Implementing the most cost-effective adaptation action identified per utility would mitigate additional future risk by 75–80%. However, implementing the subset of cost-effective options that generate sufficient tariff revenue to provide a benefit-cost ratio that is greater than 1 would only achieve 5–20% of this benefit. The results underline the challenge of attracting the financing required to close the climate adaptation gap for water supply utilities.

Climate-related disruptions to water supply infrastructure services incur direct financial losses to utilities (e.g. to repair damaged assets) and externalise a societal cost to domestic customers due to additional costs that they may incur (e.g. to acquire water from alternative sources). The latter often represents an uncompensated social burden, which should be properly accounted for in investment planning. Here we present a new framework for quantifying direct financial risks burdened by utilities and alternative water purchase losses incurred by domestic customers, including those in low-income groups, during flood- and drought-induced utility water supply disruptions. This framework enables the comparison of benefit-cost ratios of a portfolio of flood protection and leakage reduction for water supply systems across the island of Jamaica. A system-level optioneering analysis allows the identification of the optimal adaptation option per system. We estimate that 34% of systems would benefit from flood defences and 53% would benefit from leakage reduction to adaptation to droughts. The benefit that could be achieved by implementing all system optimised adaptation options is estimated to be 720 million Jamaican dollars per year on average, representing a substantial saving for the utility and its customers, including low-income customers. We identify options that offer strong synergies between economic and equity objectives for both types of adaptation option. The proposed framework is established to support the business case for climate adaptation in the water supply sector and to prioritise across flood and drought mitigation options. We take a first step towards mainstreaming equity considerations in water supply sector optioneering frameworks by estimating the contribution of adaptation options towards reducing household costs for low-income customers.