Cities and urban communities are highly vulnerable to climate change risks. The IPCC warns that projected climate change will result in significant urban climate risks including amplified heat waves, extreme weather volatility, floods, droughts, coastal inundation, and an increase in vector borne diseases (IPCC, 2014). CDP data indicates that in 2018, 85% of cities reported major climate-related disruptions, including flash and surface flooding and extreme weather events like heat waves and droughts (CDP, 2019).

Cities also face chronic risks that are exacerbated by climate change, including increased risk of disease spread and potential for significant population shifts as internal migration drives rural populations facing climate-related economic shocks into cities in search of economic opportunities. The World Bank estimates that 143 million people could be forced to internally migrate by 2050 due to climate hazards. Many climate migrants will move to cities where real or perceived economic opportunities exist alongside climate risk (World Bank, 2018).

While many cities have begun enacting policies and programs to build resilience towards climate hazards, there are numerous barriers to financing urban adaptation activities, and little is known about how and where finance for those activities is flowing. Since 2011, Climate Policy Initiative (CPI) has tracked available data on global climate finance in its flagship publication, the Global Landscape of Climate Finance.

Despite the critical importance of adaptation finance tracking for policy makers and capital markets, there are significant data and reporting challenges which limit the capture of global adaptation finance flows. The same challenges – context dependency, a lack of measurement standards, confidentiality requirements, and uncertain causal links – persist in urban adaptation finance tracking and an additional set of challenges emerge related to defining geographic and jurisdictional boundaries.

This analysis aims to assess the state of urban climate adaptation finance and to prototype analysis methods to address current data and methodology limitations. The purpose of high-quality urban adaptation finance tracking is to identify gaps and barriers to financing resilience solutions in global urban areas and to drive action by investors, cities, national governments, and other stakeholders to increase urban adaptation finance. The objective of this study within that context is to:

• Estimate the overall size of primary financial flows to urban climate adaptation, the geographic and sectoral focus of those flows, and the types of sources and instruments employed, to the extent possible given information constraints.
• Advance the methodology for tracking urban adaptation finance by proposing new data sources, a taxonomy with sector specific inclusion rules, and discussing impact metric approaches to improve the quality of the previously mentioned assessment of flows.
• Propose recommendations for both improving tracking and increasing the volume and efficacy of urban adaptation finance flows based on analysis of existing flows.

This work will inform the Cities Climate Finance Leadership Alliance’s (the Alliance) development of the forthcoming State of Cities Climate Finance report, which will provide actionable information to facilitate the scaling-up of climate finance in cities, contributing to the Alliance’s goal to mobilize finance for urban climate action at scale by 2030.

The definition of urban climate finance that we use for this work is:

Resources directed to activities limiting city-induced GHG emissions or aiming to address climate related risks faced by cities, contributing to urban low carbon development or resilience.

Within the specific urban climate adaptation context, this definition covers activities that aim to maintain or increase the resilience of cities and urban communities, in response to climate-related risks affecting the city directly.

The report is structured as follows:

Section 1 on adaptation finance needs and approaches in cities outlines the context for this work, describes the key challenges associated with increasing finance towards urban adaptation activities, and provides a categorization of urban adaptation finance in practice with case studies to illustrate the financial instruments available.

Section 2 on existing and new approaches to urban adaptation finance tracking introduces the methodological approach applied, discusses the data sources, and outlines key findings from each of those sources. The three data sources assessed for this work are: CPI’s Global Landscape of Climate Finance, World Bank Private Participation in Infrastructure, and CDP Cities.

Section 3 summarizes key findings from the report and presents conclusions and next steps to improve both the tracking of urban adaptation finance and to increase finance to urban adaptation activities.