Closing the city climate finance gap

Many cities have committed to addressing climate change and stepping up their climate action. They have built emissions inventories, assessed climate risks, prepared climate action plans, and identified urban investments to address climate change. Meeting climate ambitions requires cities to invest in a wide range of sectors such as low-carbon urban transport, energy-efficient buildings, solid waste management, urban flood resilience, and many others. Global urban climate finance needs have been estimated at around USD 5 trillion per year, more than ten times the amount currently being invested (City Climate Finance Leadership Alliance [CCFLA] 2021; these figures are currently being updated by the World Bank and CCFLA).

Particularly in low- and middle-income countries, cities struggle to finance these investment needs. Their own-source revenues are rarely adequate to finance large-scale infrastructure, and often to keep up decent operation and maintenance of existing infrastructure and services. Many cities cannot borrow easily, due to lack of creditworthiness or regulatory constraints on borrowing. While multilateral development banks (MDBs) have been providing an increasing volume of finance for climate action in recent years, this alone cannot close the city climate finance gap.

While private investors have pledged large sums of money for sustainable investments, cities often struggle to access this finance for climate investments. Private investors are often reluctant to invest in projects that do not generate predictable and sufficient revenues. This creates a challenge for many urban climate projects, which produce public benefits that are not easily privately monetized. In low- and lower-middle-income countries, user fees can also often cover only a small portion of costs, due to low payment capacity. Even where revenue streams exist, cities often lack the technical capacity and/or regulatory frameworks to design and implement investable projects that could attract private capital.

However, despite these challenges, stakeholders around the world – from local governments, to MDBs, to private companies – have devised and implemented innovative solutions to raising finance for climate-smart investments in low- and middle-income country cities.

This session will begin with a short presentation from the World Bank, drawing on an ongoing analysis of the investment needs, opportunities, and challenges for financing critical urban climate action in cities in low- and middle- income countries (LMICs). This will be followed by a panel discussion with different urban development and climate finance specialists and stakeholders, who will provide a range of perspectives on what it will take to bridge urban climate finance gaps to meet local and global targets for mitigation and resilience.