Closing the financing gap for sustainable urban infrastructure

By James Alexander (C40 Cities) and Darius Nassiry

We know that cities are key to a green and resilient future – however, many cities around the world are currently unable to finance the bold and ambitious climate action that will keep us on the right track. Significantly more investment in cities is needed, but even if existing development finance institutions, funds and investors offered more support, cities - particularly in low- and middle-income countries - would still face an uphill battle to finance the transition to a low-carbon future.

A new paper, published today by the C40 Cities Climate Leadership Group (C40) and the Overseas Development Institute (ODI), with support from ClimateWorks Foundation and Baker McKenzie, proposes the creation of a new institution to finance green city projects and invites input and feedback from a wide group of interested stakeholders.  

The paper highlights the global scale of the financing gap for sustainable urban infrastructure and the opportunity for an institutional response that is proportionate to the pace and scale of the challenge. 

Importantly, the paper scopes the feasibility of a Green Cities Development Bank, which would combine key elements of development banks with the proven green bank model, focused on city support. Such an institution would lend directly to cities and subnational governments enabling the rapid development of sustainable urban infrastructure projects. 

Mark Watts, Executive Director of C40 Cities said, “More than 80 cities have already committed to develop climate action plans that deliver their fair share of emissions reductions to keep global temperature rise below 1.5 Degrees Celsius. That represents a huge amount of sustainable infrastructure and investment that needs to be urgently delivered. That is why we need transformational solutions, capable of deploying capital to cities rapidly and at scale. A Green Cities Development Bank would radically improve the financing conditions for cities and help tackle the significant financing barrier cities face.”

Mayors and city treasurers have demanded solutions to the city financing challenge for many years. Speaking on the need for an institutional response, the outgoing Mayor of Quito, Mauricio Rodas said, “A Green Cities Development Bank would be extremely beneficial for our city and help us make our vision of a sustainable future a reality.”

Mayor Jorge Muñoz from Lima said, “We need institutions like the Green Cities Development Bank to help us deliver Lima’s climate plans and actions.”

Anies Baswedan, Governor of Jakarta said, “For cities in the Global South with limited resources and competing priorities, a Green Cities Development Bank can help us accelerate sustainable development programs which we could not have supported otherwise.”

The Chief Financial Officer of eThekwini (Durban) Municipality, Krish Kumar, added, “This is a fantastic initiative that will have a global impact in respect of climate action and infrastructure development. In many developing countries, the will to go green is there but there are too many competing priorities to prioritise green projects, such as electric buses. The provision of basic services, such as water, electricity, and sewerage, remain a priority. In addition, access to funding green and smart city initiatives is a huge obstacle. Accordingly, there certainly is a need for such a development bank due to the growing demand for green infrastructure financing in cities. We therefore welcome and fully support such a development bank. We believe that this will certainly help lower financial barriers to climate action and will encourage more cities to commit and achieve the target of zero carbon emissions.” 

Further detailed scoping work is required before a Green Cities Development Bank can become a reality. The paper has been launched as a consultation draft with the aim of capturing and incorporating feedback and ideas from across the sustainable cities sector. Through this consultation phase, we invite comments and feedback and hope to engage many stakeholders to further improve and refine the design of the concept and explore potential pathways for implementation. 

Download the working paper here.

C40 Cities is collating feedback and invites submission of any observations, comments or expressions of support to James Alexander, Director of the City Finance Programme at C40 Cities at jalexander@c40.org