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Unlocking green finance


September 23, 2022

Exploring the ways cities can secure the green finance needed to take urgent and united climate action

© BNBB Studio / Getty Images

The level of finance flowing to cities falls far short of what is needed to enable adequate climate investments. This is particularly acute for emerging economies in the Global South, where communities face the worst climate impacts despite being the least responsible for causing climate breakdown.

Many climate actions eventually pay for themselves – such as through lower lifetime costs and reduced public health burdens associated with climate risks – but securing investment and developing the financial mechanisms needed to deliver climate projects continues to be a challenge for cities.

While countries in the Global North and national governments have a duty to ensure sufficient climate finance is available to cities, especially those in the Global South, there are strategies that cities in every context can use to unlock green finance.

Mainstreaming climate action into city financial systems

Integrating climate priorities into city financial structures and decision-making is critical to achieving the pace and ambition of action needed to meet climate goals.

Mainstreaming emissions reduction and adaptation will help increase the scale and pace of investment in short-term, transition investment and operating budgets, and avoid the longer-term lock-in of high-carbon, climate-vulnerable infrastructure.

From energy supply to public transport, decisions on public projects funded in cities’ multi-year capital investment/improvement plans (CIP) will shape city emissions trajectories for years to come. Climate-smart principles should be integrated into CIP decision-making processes and ultimately backed by a legislative mandate that formally institutionalises this.

Learn more about mainstreaming climate action into city financial systems on the C40 Knowledge Hub.

Climate budgeting 

A climate budget is a governance system that embeds climate targets and considerations into all decision-making. Science-based emissions reduction targets and yearly caps on emissions are incorporated into the city’s main budgeting process, holding all parts of government accountable for their climate impacts and progress reports.

Climate budgets, therefore, ensure that climate is a critical element of budgetary discussions, decision-making and monitoring. This governance system means that spending plans can only be approved if they have a realistic chance of reducing GHG emissions.

Vieux port de Montreal and downtown skyline with promenade pier on a clear May Springtime day with people walking in the distance.Photo: © Nicolas McComber / Getty Images

As pressure grows – from residents and youth organisations, to investors and business partners – for city leaders to take bolder climate action without delay, climate budgets offer a way to demonstrate city leadership. Oslo, Stockholm, Barcelona, Berlin, Montreal, Paris and Tshwane have already adopted climate budgeting, either creating full climate budgets or developing key elements of the concept.

Learn more about climate budgeting on the C40 Knowledge Hub.

Encouraging private sector investment in climate adaptation

Globally, estimates suggest the need for annual investment of US$11 billion to US$20 billion by 2050 to protect urban infrastructure from climate risks. More than three-quarters of urban adaptation finance comes from the public sector, therefore, private sector finance is urgently needed to boost green finance.

But cities must increase private sector confidence in order to secure investment. How can cities achieve this?

  • Raising awareness about locally relevant climate hazards and their expected harm to the city and its economy.
  • Clarifying the business opportunities and advantages associated with adaptation investment.
  • Reducing risk and subsidising climate projects with public funds wherever possible.

London used legislation, frameworks, and building and land-use codes to mandate, facilitate and incentivise the adoption of adaptation measures. The London Resilience Partnership, for example, has a Business Sector Panel that promotes collaboration on resilience issues and informs London’s resilience work.

Freetown has developed a replicable, sustainable financing model for climate solutions that restore and protect our ecosystems through #FreeTownTheTreetown, which links tree planting in the city to a carbon-offsetting programme that is managed by a third-party fund manager.

Meanwhile, Toronto invested in protecting assets from climate hazards if they were supported with upfront costs and longer-term returns. The city’s Eco-Roof Incentive Programme has subsidised the installation of green and cool roofs since 2009.

Learn more about how to encourage private sector adaptation finance on the C40 Knowledge Hub.

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