Posted on: Mar 27th, 2024

Mayors with ‘climate ambition’ urge MDBs to help plug finance gap

Raising the alarm ahead of the World Bank Spring Meetings in Washington, D.C., over 30 mayors from high- to low-income nations have written to 10 multilateral development banks, including the World Bank, urging them to turn their “gaze” and “influence” to help cities access the climate finance they need.

The latest available estimates show cities receive only 7%-8% of the climate finance they need annually — with the gap even more pronounced for cities in low- and middle-income countries. Development banks, the letter stated, can play “a significant role” in improving the financing environment for cities.

More than half of the world’s population currently lives in cities, which account for over 70% of global carbon emissions. By 2050, an additional 2.5 billion people are expected to settle in urban areas worldwide, and without strong carbon-cutting efforts, cities’ emissions could double.

At the same time, climate change represents an existential threat to many of the world’s cities. By 2050, more than 1.6 billion urban dwellers could experience extreme heat and over 800 million people in nearly 600 cities will be at risk of sea level rise if emissions don’t come down.

To tackle this, the group of mayors are calling on MDBs to include urban climate finance in their strategies, provide cities with scaled-up concessional financing, technical support, and policy advice, and help them mobilize private investments.

“If you look at the discussions on the MDB reform agenda, urban [finance] is not part of it,” Andrea Fernández, managing director of climate finance at C40 Cities, a network of nearly 100 mayors committed to addressing the climate crisis, told Devex, describing the situation as “astonishing.”

MDBs should take “a more systemic approach” to cities’ development, health, and climate needs, she said, “and that includes increasing the volume of finance.”

Around the world, dozens of cities have developed climate plans assessed by C40 to be aligned with the goal of limiting global warming to 1.5 degrees Celsius.

“As cities we do not lack climate ambition. What we lack is the finance to make this ambition a reality,” the mayors wrote.

But not every city is equal when it comes to accessing funding.

Large cities in high-income countries often have sufficient fiscal autonomy to borrow directly on international markets, Fernández explained. But it’s far more difficult for cities with constrained balance sheets in debt-laden LMICs.

Urban projects can be seen as too small or too risky for lenders. Many cities lack control over their revenue stream, are unable to directly access MDB support, and need permission from their national government to take on debt.

Rapidly growing cities urgently needing both development and climate funding are particularly squeezed, Fernández said. In recent years, the Middle East and North Africa, and sub-Saharan Africa only received 9% and 11% respectively of all urban-climate-related investment from MDBs.

Freetown, the coastal capital of Sierra Leone, is one of the world’s most climate-vulnerable cities, which has contributed little to the climate crisis. According to its mayor, Yvonne Aki-Sawyerr, who signed the open letter, Freetown’s ability to address its climate vulnerability depends on its access to finance.

“With extreme heat, I know colleague mayors who were able to provide cooling centers, who are able to increase the amount of funding to low-income families so they can have access to air conditioners, or mitigating activities,” she said.

That’s challenging in Freetown, which has an annual budget of $2.53 per resident — compared with nearly $880 for Namibia’s capital Windhoek, according to a study carried out by the mayor’s office and shared with Devex.

Carbon-cutting projects have also been difficult to finance. Unable to access direct MDB funds, it took Freetown three years to fund a feasibility study worth less than $1 million for a “market-ready” cable car project designed to cut transport emissions and increase the city’s connectivity, Aki-Sawyerr told Devex.

“This is a moment in time when we can’t depend on what [Freetown] can afford. The need for access to finance [and] to recognize this inequality is very real and urgent,” she said.

In Makati, the Philippines’ financial and commercial hub, mayor Abigail Binay agrees that accessing urban climate finance is “fraught with complex requirements and stringent application protocols.”

The city, which is at risk from sea level rise and stronger typhoons, is seeking funds to expand its network of electric vehicles, develop drainage solutions to tackle flooding, and retrofit public buildings with energy-saving technologies.

“Urban centres, like Makati, are on the frontline of climate change impacts and are pivotal in implementing innovative, localized solutions for climate resilience and sustainability. However, our efforts are often hindered by existing financial structures that do not adequately cater to the unique challenges and opportunities at the city level,” she told Devex in an email.

The ongoing MDB reform offers an opportunity to “transform these institutions into urban-focused banks,” she added. Binay urged MDBs to develop financial instruments that are specifically designed for cities and allow them direct access to finance, including to recover from climate-induced loss and damage.

Development banks already provide some climate finance to cities. A recent study by the Cities Climate Finance Leadership Alliance found that 21% of MDBs’ climate finance to LMICs went to cities between 2015 and 2022.

Priscilla Negreiros, a senior manager at Climate Policy Initiative who leads CCFLA, told Devex that “although the urbanization process increased” during that time, urban climate finance didn’t. She called on banks to reflect urbanization trends into their priorities.

MDBs, she said, can improve the quantity and quality of the urban climate finance they provide by moving from a project-by-project approach to designing programs that support cities’ overall development strategies.

In its final paper on a road map for reform, the World Bank committed to “focus on work at the sub-national level” as part of its country engagement. A World Bank spokesperson told Devex that the bank is “working to integrate urban climate finance into corporate and climate strategies, scaling up technical assistance and concessional funding to cities, and enhancing and leveraging financing including from the private sector.”