Towns and cities are positioned at the forefront to promote and to deliver net zero strategies, given their dominance in consumption and production patterns across the world. Over 70 percent of global CO2 emissions originate from urban areas, and cities consume two-thirds of the world’s energy (C40 Cities). The effects of rapid urbanisation in many cases are concentrating this impact. By 2050, 2.5 billion more people may have migrated from rural to urban locations, multiplying the need now to move to low-emission economies and lifestyles, and to provide climate-resilient infrastructure (UN DESA). 

Sustainable forms of finance and urban development lie at the heart of today’s solutions, and challenges. The first challenge to face is the current architecture and distribution of climate finance. Many of the world’s most vulnerable populations and communities already live in urban areas, yet cities received less than five percent of global finance to address climate risks in 2017-2018 (WEF). When considering sustainable climate finance, we address the source and allocation of broad fields of funding that enable activities, programmes, or projects that support climate change measures, whether through mitigation or adaptation. To be effective, climate finance needs not only to be sufficient, efficient, and just, but also durable. 

Mainstreaming climate finance into any delivery of net zero strategies forms the groundwork for enduring climate change action. The move from short-term investment horizons towards longer term stewardship and patient capital lies at the core of sustainable climate finance and urban governance. Scales and forms of funding opportunities range from microfinance for individual and neighbourhood projects, to the evidence-based incorporation of climate change action and risk into microfinance modelling. City and finance leaders, mayors, managers and electorates are among those who will decide the types, sources, and channels of sustainable finance. Public and private capital, community and wider corporate interests all have their role to play in cities’ climate finance. 

What challenges do towns and cities face in mobilising urban climate finance? 

Despite these opportunities, there are a series of challenges that towns and cities need to address to be able to mobilise climate finance themselves and use it to reach their net zero targets. 

First, towns and cities don’t exist in a vacuum. Their options when it comes to accessing and mobilising finance depend on their ‘enabling environment,’ i.e. the constellation of features, expectations and risks developed around the national context and experience (e.g., regulations, market structure, past attempts at mobilising finance) and that determine the availability of financing instruments, sources and processes. 

Secondly, a town or city’s ability to mobilise finance is a proxy for a host of other intangibles, such as their ability to develop and implement good projects. Towns and cities must prove that they can plan their investments in the medium- and long-term according to consistent, reputable, integrated strategies with broad buy-in – and that are not solely dependent upon electoral and budget cycles. Urban leaders must show that their processes of developing projects are transparent, predictable and efficient. And they must demonstrate that they are able to raise revenues in a competent and fair way. Mobilising finance is dependent upon these foundations. 

Targeting these challenges will put urban areas across the world in a good position to address what are still seen as the most pressing issues that towns and cities face, such as budget constraints, the magnitude of the transition to net zero, electoral (where applicable) or wider stakeholder pressures, and external shocks such as the COVID-19 pandemic. 

How are global cities mainstreaming climate finance? 

To achieve net zero ambitions, it is important that cities look at all their capital investments and infrastructure priorities through a climate lens. Cities that align with the Paris Agreement typically work to integrate climate considerations across their urban development and budgetary processes - but this can be a complex undertaking. A number of global cities are using innovative approaches to mainstreaming climate considerations into their financial decision-making. Here are two examples:

By mainstreaming climate into existing financial processes, cities embed emission-reduction and resilience criteria into how they attract external funds, as well as how they disburse existing city funds. This requires minimum climate literacy amongst all the key government stakeholders, not least the Finance Departments, as well as very strong coordination between them. Whilst many urban areas still lack the budgetary autonomy or legal authority to access all available sources of climate finance, internal processes that link budgetary decisions with climate impact are key to making sure climate commitments move forward.  

Five recommendations for towns and cities to mobilise climate finance 

There is an urgent need to mobilise and mainstream climate finance within cities. Here’s our view on five key considerations for urban leaders: 

1. Try different approaches to mobilise climate finance in order to effectively deliver their net zero strategies and commitments,  
2. Explore the role of the ‘enabling environment’; exploring national and local context and availability of financial resources, 
3. Strengthening financial planning in short-term and long term and embedding this within wider planning for delivery of net zero strategies, 
4. Using a climate lens to evaluate all capital investments and infrastructure priorities within the city, 
5. Transparency and accountability for investments – link all public spend to net zero targets. 

Climate finance is a lever for change and will accelerate our ambitions for our post-pandemic sustainable economic recovery and growth. It lies at the heart of today’s solutions for climate action – whether mitigation or adaptation.  

With towns and cities still only receiving a fraction of global finance, they will need to continue to innovate and try new tactics to ensure sufficient, efficient, just and durable finance that will enable them to take the climate action necessary to reach net zero.