Financing options for climate change programs in cities

Globally, cities need to invest US$57 trillion in infrastructure in order to accommodate both their existing needs and projected growth. To finance this, a global effort by nations, banks, cities and the private sector is needed.

That’s the conclusion of a new report by Siemens, C40 Cities Climate Leadership Group and Citi, launched last week at the World Cities Summit 2016 in Singapore. The report, ‘New Perspectives on Climate Finance for Cities’, provides insights on potential financing options for climate change programs and projects in cities, the lead times and steps required to access different types of climate finance and the lessons learned from cities around the globe.

“Following the historic Paris climate agreement, we must now take bold action to protect our planet for future generations,” said Seth Schulz, C40’s director of research, management and planning. “The only way to do this is dramatically increasing climate financing and attracting more investments.

“By providing an introduction for cities seeking to understand climate finance options, this report is a first step in that direction. It identifies possible routes for supporting climate-related projects and programs, including bonds, where the market in labelled green bonds has risen substantially from $0.8 billion in 2007 to $42 billion in 2015.”

To maximise impact, the report recommends six innovative financing mechanisms for mobilising investment for cities and looks at the benefits and challenges of each approach:

1. Emission trading schemes, which offer flexibility but can be vulnerable to unexpected economic impact.
2. Green bonds, which are useful for funding large infrastructure or aggregated programs over the medium to long term.
3. International financial institutions (IFI) and agency finance, which have broad policies to support certain sectors and market development.
4. International and regional climate funds such as the Green Climate Fund, which has over US$10 billion to invest in the developing world.
5. City government-backed funds, which can de-risk or open up new markets where the private sector is unwilling to lend directly on its own.
6. Equity capital, with institutional investors alone managing US$71 trillion of assets in the OECD.

“New financing models can support sustainable infrastructure development and corresponding investments in cities,” said Kenneth Hsi Jung Koo, deputy general manager and Citi chief representative, Citi Orient Securities. “The key is to understand and embrace new approaches to infrastructure and devise enabling financing solutions that will benefit each city according to its specific needs and economic situation.”

The report can be found here.