Posted on: Aug 04th, 2020

Enhancing the Role of National Development Banks in Supporting Climate-Smart Urban Infrastructure

There is an urgent need to transition to low-emission, climate-resilient pathways and to avoid locking in high-emission, unsustainable infrastructure. This has been affirmed in international agreements such as the Paris Agreement, captured in the UN’s global Sustainable Development Goals, and recently highlighted by more than 11,000 scientists in a declaration that planet Earth is unequivocally facing a climate emergency (Ripple et al., 2019).

Cities, as growing population hubs and drivers of economic growth, are important focal points in the global response to climate change. At the same time, the concentration of people, assets, and economic activity make cities particularly vulnerable to climate change (CUT, 2019).

The planning and infrastructure investment decisions made in cities in the years ahead will determine their adaptive capacity and emissions profiles for decades to come. A key factor will be the extent to which cities and their urban institutions (e.g., local and municipal governments; regional boards; provincial/state enterprises; etc.) can access the necessary finance for climate-smart urban infrastructure development.

Research has estimated that the global need for urban infrastructure investment is USD 4.1-4.3 trillion per year from 2015 to 2030, and that making this infrastructure low-emissions and climate-resilient (i.e., climate-smart) will require a premium of USD 0.4-1.1 trillion per year (the Alliance, 2015). Researchers have made a compelling case for pursuing the climate-smart approach. For example, a recent study by the Coalition for Urban Transitions showed that deploying technically feasible low-carbon measures could cut emissions in urban areas by almost 90% by 2050, and generate a net savings of USD 23.9 trillion in Net Present Value (NPV) terms (CUT, 2019).

This paper is developed under the framework initiative Leadership for Urban Climate investment (LUCI) that is hosted by the Cities Climate Finance Leadership Alliance. LUCI identifies the need to increase the understanding of National Development Banks’ (NDBs) experiences and challenges with financing urban infrastructure projects. The initiative was developed under the leadership of the German Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU) and launched at UNSG Climate Action Summit 2019. LUCI provides a framework to close gaps in the subnational financial architecture by addressing along four integrated components, the key structural constraints of the entire investment value chain. One of these components relates to the capacities and mandates of NDBs.

Thus, this paper focuses specifically on enhancing the role that National Development Banks play in supporting the acceleration of climate-smart urban infrastructure investment. With more than USD 5 trillion in assets and several comparative advantages relative to other financiers, NDBs are well-positioned to lead this shift. However, maximizing their potential will require strengthening the enabling environments of urban institutions, as well as making some strategic adjustments at the NDB institutional and financing levels.