The Global Climate Action Summit (GCAS), a high-profile event recently convened at San Francisco, saw a range of international organisations showcase their progress and pledge future efforts. One of those reports brings into focus the growing demand for financing climate-sensitive urban infrastructure. MPP student Nikhil Chaudhary speaks with Lisa Junghans, a Climate Finance/Urban Resilience Expert with the GIZ-C40 Climate Finance Facility (CFF), to discuss strategic ways to unlock public and private funds for cities to implement their mitigation and adaptation projects.
Nikhil Chaudhary: The C40 CFF’s latest report highlights a staggering demand of 60 billion USD in funding for 1,143 projects across 400 cities worldwide. That’s an immense barrier to overcome if climate action at the subnational level is to be effective. Where do you think this situation originates from and why are cities such a key stakeholder?
Lisa Junghans: To begin with, cities are extremely critical when addressing climate change. Three-quarters of manmade emissions originate from cities. Cities also depend on a productive workforce to contribute to the global economy. If this segment of the population is increasingly affected by climate change-induced disasters – floods, sea-level rise and heat stress etc, this will result in the shrinking of productivity. That is why we have to act. Also, urban population is also growing really fast and it is estimated that, by 2030, we are going to need 60% of additional land to accommodate it. If the infrastructure we build towards this is not energy efficient and resilient, we will not survive this century without major catastrophes targeting cities.
It is critical not only at the national level but also at the city level to get new urban development right. In order to do so – to make cities more healthy, liveable and resilient, finance is missing. And this is a major hinderance in developing countries and not many actors are thinking about it. The way cities traditionally finance themselves is primarily through transfers from the national government and partially by property taxes, parking fees etc. So, cities don’t generally have a large income base, and they are not able to spend on low-emissions infrastructure or housing stock. That is why it is essential to set up access modalities for cities to access international funds for implementing local climate action.
NC: I think this issue also arises from prevalent structures of urban governance in many countries which provide little or no administrative autonomy to cities. Many a times, their economic policy is also framed by higher levels of government and hence their fiscal dependence. How could international organisations contribute under such circumstances?
LJ: In the past 30-40 years, international development organisations have only targeted national governments. This is a problem because often these funds do not trickle down and the system is quite unfair towards cities. Also, international organisations usually would not trust city governments. This is understandable, since cities lack a credit-rating, fiduciary standards or a capacity to process a large influx of funds. They also often do not have a comprehensive long-term urban development plan and projects are taken up on an ad-hoc basis. Therefore, international transfers almost always go to national governments.
This problem needs to be tackled from both sides. On one side there are the investors – public financing institutions such as development banks, development assistance agencies, or private sector investors, like investment banks who are interested in the sustainability sector. These agencies have large portfolios and are looking for investment opportunities. Why not make them aware of the challenges faced by cities who want to do something but lack funds? This is where we as a programme, a joint effort of the GIZ (German Development Cooperation) and C40 Cities network, are working towards linking these two sides – investors on one side and cities on the other.
In addition to being an investor-side issue, it also often a problem at the city-side. When there is no investor or financier on board, cities often don’t have bankable climate-focussed projects planned. To address this, we have initiated the Cities Finance Facility (CFF) which helps cities with the technical formulation of projects. This includes feasibility and design studies, socio-environmental impacts, gender-related aspects – all the considerations which make a project ready to be pitched to interested investors, who’re willing come on board and sign the deal. CFF bridges this gap of both sides wanting to do something but not reaching out to each other because no one really wants to move first.
NC: Working with multiple cities with varying stages of urbanisation and infrastructural needs, I assume there would some geographical variation for investing in particular sectors. Have you observed such differences?
LJ: Yes, that is true. The African cities, (including Durban) were more inclined towards adaptation projects – particularly towards water management or flood reduction. Interestingly, none of the cities which applied to us are looking into reducing heat-stress yet. In both Latin America and Asia, there was a demand for projects in the transportation and renewable energy sectors. We are currently supporting Mexico City to transition from diesel buses to electric buses for a 30 km corridor. In Bogota, we are helping with the construction of bicycle highways. We are also scaling up this approach to 15 additional cities.
Large Indian cities such as Bangalore and Chennai have also applied for transport-related projects. I think it’s mainly because of the air pollution, but also since the Indian government is pushing for clean vehicle technology through its national programmes. So, the cities want to take advantage of these initiatives, while at the same time connecting with European agencies who are trialling electric buses in developing countries.
NC: That’s interesting. Would you consider the national policy in these countries as a key driver for the kind of projects cities are willing to implement?
LJ: Definitely. But I think it’s also national policy combined with funding. In its absence, policy alone would not be adequate for motivating cities to initiate projects. Instead of relying on international investors, there are also other innovative ways of tackling this. For example, Johannesburg is trying Green Bonds to raise capital and Cape town is also about to do the same. This could also be applied in other African cities such as Dar es Salaam or Accra. There is also a second approach we are trying in Durban, where CFF built a business case for an adaptation project for the municipal financial officer. This aligns with their municipal budget. For instance, while investing in post-flood reconstruction, why not also include flood prevention measures?
Cities could also consider other potential options. Such as applying to international funds like the Green Climate Fund (GCF) or the Adaptation Fund by framing a detailed proposal. Through these they could channel money to national implementing entities (a national ministry or a national bank), which could then work with the city directly to implement a project. In this way, cities could benefit directly without national governments taking a part of the share. A potential risk could be that the national ministries would want to have a say in the projects and then intervene, but so far, we haven’t observed this.
NC: I suppose one challenge for cities to access such unconventional funding would be the technical capacity or knowledge gap which you earlier referred to. This results in the tendency of local governments to invest only in projects that solve urgent problems (such as traffic congestion or air-quality). But they often overlook the long-term co-benefits (such as emission reduction) of sustainable development.
LJ: I think the other reason is also a very quick turnaround of officials in-charge, possibly due to political conditions. Because of this, knowledge generated doesn’t stay in the municipal administration. The advantage of thinking long-term would not only result in less emissions but also financial savings. This is especially true for climate adaptation projects. One issue is that big private money does not flow into adaptation projects, since investors prefer cash-flows generated by mitigation projects – solar power, electric vehicles or energy efficiency, over a span of 20-30 years. This could be addressed through CSR funds from companies who could be affected by disasters. Public sector institutions could also play a significant role here.
However, if we know a city regularly faces torrential rains and high flood risk, why not start now and invest in small-scale preventive measures instead of dealing with extreme events later on? Instead of building hard expensive infrastructure such as bridges and dykes, cities could also consider ecosystem-based adaptation measures (such as mangrove restoration). This makes a lot more sense, since they are a lot cheaper, involve communities and also raise awareness. Implementing such projects could definitely yield long-term benefits, but cities are often not aware of such solutions.
C40 CFF’s latest report ‘Analysis: The demand for financing climate projects in cities’ could be downloaded here.
Lisa Junghans is a climate finance and urban resilience expert at the C40 Cities Finance Facility (CFF). She leads the cooperation with Durban, South Africa, where the CFF is developing a business model for increasing the city’s resilience to flooding.
Nikhil Chaudhary is a Section Editor with The Governance Post and a second year MPP candidate at the Hertie School. Trained as an architect/urban-planner, he was previously a Senior Associate with the World Resources Institute India, where he was engaged in sustainable urban development initiatives for local governments across Asia. He is currently completing an exchange semester at the Lee Kuan Yew School of Public Policy at Singapore.