Abstract

Investment in urban climate projects is urgently needed worldwide. Cities hold most of the global population and economic activity and contribute approximately three-quarters of the global greenhouse gas (GHG) emissions, underlining the urgent need for projects to reduce emissions in urban areas and increase climate resilience.

Cities face a variety of barriers in accessing climate finance, posing a clear need for innovative financial strategies. However, cities’ ability to attract and facilitate investment in badly needed climate-smart urban infrastructure is constrained by a variety of barriers. Chief among these is municipal creditworthiness; weak or non-existent regulatory, fiscal, and governance systems; risks associated with both forex and interest rates; insufficient revenue collection from city services; technological risks and high upfront costs; and organizational or jurisdictional limitations on cities’ ability to finance and fund major projects.

This brief presents one potential strategy for cities to increase access to urban climate finance, which is financial aggregation. This brief defines financial aggregation as financial instruments or enterprises that combine multiple investments, participants, projects, or sectors to scale up financing for urban climate mitigation or adaptation needs. These strategies may target either one or both of the supply- and demand-sides of financial transactions. The supply-side aggregation strategies bring together multiple groups of finance providers and other actors, while demand-side aggregation strategies combine the purchasing or borrowing power of recipients of finance, including project developers, operating companies, and individual consumers.

Summary of Recommendations:

• Strengthen technical capacity for financial structuring on the supply side
• Utilize public finance de-risking tools where possible
• Develop and implement more impactful financial mechanisms on the demand side
• Foster solutions that combine supply- and demand-side aggregation strategies that have the highest potential for scale and can have the most impact
• Encourage the right enabling environment