Cities are responsible for 75% of global greenhouse gas emissions and are at the forefront of climate action. They hold enormous investment potential, with climate-related opportunities in urban areas in low- and middle-income countries (LMICs) projected to exceed US$29.4 trillion by 2030. Yet there exists a significant shortfall in funding in the urban context, with only 1% of the needed annual global climate finance reaching cities.

This new report reveals that the proportion of financing from multilateral development banks (MDBs) dedicated to urban-related finance has remained stagnant at 21% in recent years despite rising climate investments and rapid urbanisation across the globe. The finding is part of a new study carried out by the Cities Climate Finance Leadership Alliance in collaboration with C40 and the Global Covenant of Mayors.

The study, Accelerating Urban Climate Finance in Low- and Middle-Income Countries: An Important Strategic Dimension of MDB Reform, represents the first-ever overview of urban climate finance volumes and initiatives in the context of LMICs from 10 major MDBs, including the Asian Development Bank, African Development Bank, European Investment Bank, Inter-American Development Bank, and World Bank Group. 

Covering the period of 2015 to 2022, data from 815 urban climate-related projects financed by the 10 MDBs were analysed to identify financing flows. Over the seven-year period, MDBs collectively provided US$62 billion in urban climate-related finance out of a total of US$287 billion invested in climate-related finance. 

Sub-Saharan Africa, the Middle East and North Africa received a relatively low share of urban climate-related financing despite being among the most climate-vulnerable and fastest urbanising regions globally. Common barriers for LMICs to access urban climate finance include low creditworthiness, limited fiscal decentralisation, revenue uncertainty, and restricted access to capital markets. 

MDBs, which are tailored to primarily finance national governments with a strong aversion to risk, must develop strategies and instruments to prioritise urban and subnational climate investment better. 

Building on the research findings, the study identified five key areas of focus for MDBs that would help scale up their investment in urban climate finance. Recommendations put forward include increasing volumes and share of urban climate finance in the total climate finance mix of MDBs while maintaining their steadfast commitment to prioritising adaptation, with a specific focus on cities that are most vulnerable to climate change; leveraging existing MDB concessional funding and partnering with international climate funds to develop operating modes and instruments tailored to subnational investment needs; provision of technical assistance aimed at supporting national policy reform and closing cities’ planning-to-investment gaps; and promoting risk-mitigation instruments to increase private sector engagement, among others. 

In implementing these recommendations, the study emphasises the importance of close collaboration between MDBs, national governments, and cities.

Mayor Yvonne Aki Sawyerr, Mayor of Freetown, Sierra Leone and Co-Chair of C40 Cities, said: “All over the world, City governments are engaged in bold climate action, with three-quarters of C40 cities cutting per-capita emissions faster than their respective nation-states. However, bridging the city climate financing gap is an urgent prerequisite to achieving the Paris Agreement goals. That’s why the international community and MDBs must prioritise investing in cities and urban resilient infrastructure as a key lever to act simultaneously on climate and development. As the needs of cities are often overshadowed by competing priorities on the global MDB agenda, we hope this report will shine a spotlight on the crucial need for urban finance to tackle the climate crisis at the subnational level.”

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