COP27 focused on adaptation and emphasized the urgency to scale climate financing. In 2022 alone, floodings, landslides, extreme heat, and droughts made headlines, affecting populations worldwide (see Table 1). The cost to adapt will increase globally, especially in cities. Local governments will need to face the burden of paying the bill, and it will be impossible to face it alone.
Cities are at the forefront of the climate crisis. Cities account for more than 80% of the global GDP and more than half of the world’s population[1]. The impacts of climate change are often felt disproportionally in urban communities due to high population density, a concentration of key infrastructure in cities, and their role as economic hubs among other factors. Climate risks are escalating, and climate hazards are becoming more frequent and costly. Yet, investment in urban climate adaptation finance is far from what is needed.
Throughout the climate conference in Sharm El-Sheikh, Egypt, the COP27 presidency, together with the High-Level Champions and the Marrakech Partnership, launched an Adaptation Agenda with 30 adaptation outcomes to enhance resilience for 4 billion people living in the most climate vulnerable communities by 2030. The initiative is underpinned by 2000 organizations including 131 countries in the Race to Resilience campaign. While the Agenda includes specific outcomes pertaining to cities and urban dwellers, subnational jurisdictions need to be more a focus at the global stage and at the national level.
TABLE 1: Examples of recent climate risk events and project economic consequence
While cities are catalysts for action, too often, their financial needs and efforts are left out of national discussions on climate action. Many of the economic changes needed for the green transition will happen at the local level. National policymakers must work closely with key subnational actors, like mayors and local leaders, as well as with public financial institutions and the private sector to scale funding for urban adaptation and resilience.
Subnational governments are key to enabling the environment for adaptation financing. National governments need to catch up. The Cities Climate Finance Leadership Alliance (CCFLA) offered some ideas on how they can do that ahead of COP27. The Policy Brief: How to Increase Financing for Urban Climate Adaptation and Resilience calls for national governments to take 7 key actions.
Action 1: Urgency—Declare a national climate state of emergency to prioritize funding for urban climate adaptation and resilience. Declaring a national state of climate emergency signals that the national government is working to adapt to climate change and increases access to funding for urban adaptation (more resources, access to information, attracts investments).
While 2,273 jurisdictions in 39 countries, accounting for over 1 billion global citizens, have declared a climate emergency,[1] this includes only 18 national governments and the European Union (EU). Declarations are concentrated at the subnational level and in developed nations.[2] Makati, a city with a population of over 510,000 people in the Philippines, declared a climate state of emergency in August 2022 because of the need for concerted, multi-level and multi-stakeholder climate action to address climate risks her constituents are experiencing[3]. Since declaring a state of emergency, Mayor Abigail Binay said her office has been approached by investors and companies sharing their initiatives. A national state of emergency declaration and clear national adaptation policies with short- and longer-term plans ensure continuity across changes in leadership (e.g., new mayor, president, governor).
Action 2: Vertical Integration—Actively engage with local governments and stakeholders to identify the most pressing adaptation challenges, impacts and risks, and promote solutions targeted to local needs. National governments need to make sure to include local governments and cities of all sizes when developing or updating National Adaptation Plans (NAPs), Nationally Determined Contributions (NDCs), and other national planning efforts to incorporate and incentivize cities’ needs and efforts. Subnational governments should keep their national representatives well informed and both sides need to open communication.
To understand the scope of specific urban adaptation mentions in NDCs, a report from UN Habitat[4] found in 2017 that from the NDCs they analyzed, 113 out of 164 showed a strong or moderate urban context. 58 countries’ urban NDC content focused on adaptation, and 17 countries on urban adaptation and mitigation. Despite that, some of the most urbanized countries had little explicit urban content in the NDCs.
Action 3: Preparation—Boost technical assistance and project preparation support and funding for cities to adapt to climate risks.
According to the World Bank, project preparation itself accounts for anywhere from 2-10% of the total project funding needs[5] which can be a considerable burden for budget and borrowing constrained subnational governments. Either funding for or providing direct technical support can alleviate this burden and ensure funds can go to the rest of the project development and implementation processes.
Action 4: Collaboration—Engage with critical stakeholders from public financial institutions across the entire ecosystem (including Multilateral Development Banks and National Development Banks) to mobilize financing instruments for urban adaptation projects that overcome barriers like high transaction costs and lack of clear funding mandates.
Most funding for urban climate adaptation was channeled from multilateral DFIs (USD 4.1 billion annually in 2017-2018), then government budgets and agencies (USD 640 million), and bilateral DFIs (USD 340 million).[6] However, from the community perspective, even when funds are allocated, there are still barriers to accessing and deploying them. Challenges can include lengthy and involved verification processes from funders (paperwork, visits to access legitimacy). We need to reform the way grant and support funding is designed to get the money to the community as efficiently as possible. Overall, urban adaptation funding needs to be moving faster and with a lower transaction cost.
Another consideration is the challenge public financial institutions face in the form of pressure not to lose money. Often, the adaptation revenue stream is only implicit and not explicit. Development Finance Institutions should account for a margin of trial and error in the initial stages of allocation.
Action 5: Mobilization—Engage the private sector in investments to allocate risk across multiple actors e.g., by using public-private partnerships (PPPs) or insurance. Define clear mandates for public financial institutions, including mobilizing public and private capital for climate and adaptation projects.
One example of using an insurance model is from the Philippines Department of Finance, with technical assistance provided by the Asian Development Bank. Together they designed the Philippines disaster insurance pool to provide post-disaster financing and payouts determined by the physical features of the natural hazard. Ten cities participated in the design process, who were selected based on factors such as disaster risk and risk management governance, geographic location, and data availability. [7]
Action 6: Invest to Avoid—Invest in national preventive measures, such as strong national early warning systems and emergency response plans for extreme climate events, to support cities in avoiding immediate budget losses.
The estimated benefit of strengthening early warning systems is USD 100 billion and implementation would significantly reduce the loss of life and property. As the Global Commission on Adaptation (GCA) reports, “Spending USD 800 million on early warning systems in developing countries could reduce climate-related disaster losses by USD 3-16 billion per year.” [8] The benefits are clear, it is up to national governments to invest now to avoid losing more lives and capital.
Action 7: Measurement—Support and engage with initiatives working to measure and assess climate risk. Support subnational governments as they integrate climate risk assessments and disclosure.
The Task Force on Climate-related Financial Disclosures (TCFD)’s voluntary framework provides guidance to companies on how to disclose climate-related financial risks, and CDP built on their efforts to release specific guidance for city, state, and regional governments. The work to assess and disclose climate risk is ongoing. These efforts should be supported, and national governments should also support cities’ efforts to disclose.
Where can we go from here:
While there is much work to be done to scale urban adaptation finance, these 7 actions are a strong starting point for national policymakers. Collaboration between key stakeholders identified above— national policymakers, subnational actors like mayors and local leaders, public financial institutions, the private sector, and initiatives working to help cities access climate risk—is integral to making tangible and urgent changes. The time to act is now, and the path they can take is clear.
[1] The Climate Emergency Declaration and Mobilisation. 2022
[2] Of note in developing and emergencies economies, for subnational and local climate emergency declarations, Brazil (Recife Municipal Council, São Sepé Municipality) and Columbia (Antioquia Department, Bogota Capital Department) have 2, Chile has 3 (ex. Hualpén City Council and Magallanes and Chilean Antarctica region), Hungary has 6 (including 4 Budapest districts), and Mexico has 1 (Monterrey Municipal Council) compared to Canada (649), the UK (570), South Korea (228), and the US (187).
[3] Makati City, PH, declares climate emergency | ICLEI – SEAS (icleiseas.org)
[4] ndc_guide_19062020.pdf (unhabitat.org)
[5] A simple way to close the multi-trillion-dollar infrastructure financing gap (worldbank.org)
[6] Cities Climate Finance Leadership Alliance
[7] Richmond, M; Upadhyaya, N; Ortega Pastor, A. 2021
[8] Leveraging PPPs for Climate Resilient Infrastructure – Annotated Outline (gca.org)