The Role of Private Sector in Financing Sustainable Development in Cities

Cities are the center of economic activities: they create jobs, support businesses, provide housing, supply water, manage waste, build roads, provide public transport, ensure electricity supply, and provide crucial social services such as health and education. Cities also have a huge climate footprint and are responsible for 70 percent of global GHG emissions. Creating sustainable cities is crucial to the success of multiple Sustainable Development Goals linked to climate action, clean water, waste management, poverty eradication, inclusion, and natural ecosystems; all the more so as 7 of 10 people will live in cities by 2050.

In the face of increasing climate change, cities need support as they adapt to the increased risks of floods, droughts, heat waves, and address climate-induced migration. Mobilizing finance for local needs presents a substantial market creation opportunity for finance institutions including DFIs and private investors alike to pilot and expand the use of private sector and commercial financing among cities in emerging markets. Increased borrowing can allow cities to meet their growth, inclusion, and climate-related strategic objectives.

Historical backlogs in investment combined with accelerated investment needs have created immense investment gaps for cities in emerging markets. Urban infrastructure investments of US$7 trillion are anticipated during the 2020-2030 period to meet this gap. Sovereign-backed transfers or debt or concessional finance comprises a significant portion of municipal finance in most emerging markets. However, public sector financing alone is no longer adequate. Access to private sector financing, including subnational commercial borrowing and PPP, is key to close the gap in essential urban infrastructure and services as well as accelerate progress on the SDGs. Additionally, financing products like political risk insurance and credit enhancement guarantee can mitigate risks, enhance project viability, thereby mobilizing private investments.

The proposed panel discussion aims to raise awareness of the pivotal role of private sector financing in local development within emerging markets. It will highlight challenges that restrict subnational commercial borrowing and private financing at the local level, such as regulatory constraints, weak creditworthiness, and limited technical expertise. It will also explore strategies at both national and local levels to address these challenges. By bringing together stakeholders from cities, DFIs, and private investors, the panel will learn from successful examples and discuss innovative business models and instruments such as sustainable finance and guarantees. This even will aim to foster a rich dialogue on effective financing solutions for climate actions and sustainable urban development.