4 ways cities are financing climate action

By James Alexander, Head of the Finance and Economic Development Initiative at C40, and Val Smith, Director and Head of Corporate Sustainability for Citi

Note: This article was originally published on Devex

Access to financing is one of the major barriers cities face in their sustainability efforts, as identified in new C40 research. Mayors and city officials from around the world are responding to this challenge by pursuing innovative, strategic private sector partnerships and pioneering business models to reach their goals.

There are powerful strategies that cities have available to them to help access the large existing pool of private sector and market-based finance available for municipal infrastructure. Despite the challenges they face, many cities have charged ahead to finance projects in new ways.

Here are four strategies cities shared at the C40 Mayors Summit, which took place in Mexico City last year, on how to access new sources of funding and finance.

1. Improve transparency and accountability to attract private sector investment.

The city of Amman, Jordan, faces historic challenges as the ongoing influx of refugees from the region places growing pressure on the city’s infrastructure. Mayor Aqel Biltaji spoke during the “Invest for Success” session at the C40 Mayors Summit about how his city is working to overcome some of the barriers to private investment to meet the needs of this expanding population.

Stressing the importance of transparency and accountability, Biltaji urged other city leaders to open their books to potential investors. In an effort to bolster the city’s creditworthiness, Amman’s government is acknowledging the city’s financial hurdles, as well as its strengths. Improving transparency, particularly with regard to city finances, will reassure financial institutions wary of the risks associated with investing in cities with complex social or political contexts.

Amman’s government is optimistic that by working transparently with the private sector, it can build interest in new public transit projects to connect more of the city’s residents to low-carbon transportation.

2. Strong planning and preparation to secure affordable and appropriate project financing.

Miguel Ángel Mancera — mayor of Mexico City, the host city of the C40 Mayors Summit — spoke in numerous sessions about his government’s bold transportation ambitions and the specific projects planned to realize these goals.

Mexico City is a massive metropolis, with nearly 10 million inhabitants, and is responsible for over 30 MT of carbon dioxide equivalent, or CO2e — the internationally recognized measure of greenhouse emissions — per year, with significant air pollution challenges. To simultaneously address climate change, local pollution and accessibility, Mayor Mancera has overseen the development of a mobility program for the city. This plan calls for the first “Green Corridor” in Mexico City, in part through the deployment of 100 new electric buses and 22 kilometers of new bicycle lanes throughout the city.

Realizing this “Green Corridor” will require Mexico City to access private sector capital, and robust project preparation is vital to secure affordable and appropriate financing. To that end, Mexico City is working with the C40 Cities Finance Facility to improve the government’s project financing capacity. CFF will provide support to the city on the financial structuring of the electric bus corridor and capture lessons learned from other cities to replicate good practices.

3. Engage the private sector to participate in market-based climate solutions.

At the C40 Cities Awards this year, the city of Shenzhen, China, won the Finance & Economic Development category for its groundbreaking municipal emissions trading scheme. Shenzhen is a true mega-city: Its population stands at 15 million people and the city boasts a rapid 10 percent annual gross domestic product growth rate. The city’s emissions trading scheme offers an example of how cities can introduce a price on carbon to engage the private sector to finance low-carbon projects and reduce emissions, while protecting economic growth.

According to Shenzhen’s government, their successful approach began with recruiting over 630 businesses to take part in its emissions trading scheme. In its first three-year period, participating companies yielded significant emissions reductions while maintaining steady growth. Compared with 2010, the absolute carbon emissions of businesses decreased by more than 15 percent, while their economic contribution to the city’s economy increased more than 50 percent. The organizations under the scheme are on track to meet the goal of 60-65 percent reduction of emissions per unit of GDP by 2030 (versus 2005).

4. Sustainable infrastructure as a pathway to social inclusion.

Paris, the home city of C40’s new Chair, Mayor Anne Hidalgo, is committed to inclusive climate action. The city launched a bold retrofitting project for its social housing stock, to reach its goal of reducing energy consumption in the city’s housing stock by 30 percent between now and 2020, compared to 2004 levels. Paris worked with social housing providers on the terms and conditions of grants to incentivize energy renovation work in their building stock.

These renovations are helping Paris meet its emissions reductions goals. From 2004 to 2014, over 28,000 social housing units received funds for energy renovation, yielding emissions reductions of over 44,000 tCO2, or nearly 260 GWh of electricity per year. But the program has also promoted social inclusion in the city, generating average savings of 400 euros ($429) per year on heating bills for the low-income families living in these renovated housing units, and spurring the creation of over 5,000 jobs in the building sector.

These four strategies are just a few examples of the innovative approaches adopted by C40 cities to improve the funding, financing and delivery of sustainable urban solutions. C40, WRI Ross Center and Citi Foundation are working together through the Financing Sustainable Cities Initiative to share hundreds of other innovative approaches from cities across the globe. This partnership is identifying the ingredients of successful sustainable urban projects, helping city governments and investors develop business models to progress rapidly from innovation to implementation — and help cities to reach their full potential.