In this article, Cities Climate Finance Leadership Alliance City Ambassadors: Richard Bell, City Treasurer of Glasgow, UK; Abigail S. Binay, Mayor of City of Makati, Philippines; Gareth Morgan, Director of Resilience, City of Cape Town, South Africa; Isabella de Roldão, Vice Mayor of the Municipality of Recife, Brazil; Brigid Shea, Travis County Commissioner of Austin, Texas, USA; and Nada Yamout, Former City Council Member of Municipality of Beirut, Lebanon; share their reactions to the Working Group II’s contribution to the IPCC Sixth Assessment Report, focused on Impacts, Adaptation and Vulnerability. They reflect on this critical report’s overriding message of the urgency for climate action, and the need to prioritize adequate funding, technology transfer, and political commitment to climate change adaptation.

As highlighted in the recent IPCC report on Impacts, Adaptation and Vulnerability, cities play a central role in advancing critically needed climate resilient development. Over two-thirds of the world’s population is expected to live in urban areas by 2050, with many living in informal settlements. The report notes that impacts from climate change are magnified in cities, particularly in less developed regions, while also emphasizing the opportunities for adaptation in urban areas.

To protect cities from the risks of climate change, there is an urgent need to prioritize the ambitious scale up of the quantity and availability of urban climate adaptation finance.

The Cities Climate Finance Leadership Alliance spoke to our City Ambassadors, who act as advisors to the Alliance and ensure that its activities and outputs are practical for cities’ ground-level financial realities.

How can cities best raise finance for adaptation?

Nada Yamout, Former City Council Member of Municipality of Beirut, Lebanon

Cities are facing multiple crises – economic crisis, ongoing political gridlock, COVID-19 – and they need to help investors to perceive adaptation projects as an opportunity. For this, enabling environments are key. Greater efforts and reforms are needed to mobilize and integrate external funds into national budgets.

Investment into adaptation can be incentivized using blended finance instruments or other forms of public-private financing models that facilitate pooling or diversifying of risks. One type of financing initiative that is promising in Beirut is the Subnational Climate Finance initiative (SCF), a global blended finance initiative that aims to invest in and scale subnational sustainable infrastructure. Lebanon is among 42 countries that have received assistance from this fund, which facilitates conventional and concessional funds with additional technical assistance coming from the Green Climate Fund.

ESG is seen in Beirut as a tool for increasing resilience and shock absorption. In applying ESG taxonomy, it is important to distinguish between environmental, social, and governance measures, highlighting the climate aspect. Climate considerations have the capacity to add value to the investment, making adaptation projects within cities more attractive to investors, as well as establishing sustainability measures at the project level.

Richard Bell, City Treasurer of Glasgow, UK 

Glasgow recognizes two steps to mobilize investment for adaptation at the city level: first, mainstreaming adaptation into development planning and current policy practices is key. Aligning climate and financial governance is important both for maintaining a resilient, efficient financial sector and a safer climate. This involves risk-based planning, policymaking, and investment programming. Green budgeting can help quantify these risks and shift priorities to include climate considerations into all decision-making through the city’s budgeting process and allow cities to identify and prioritize the most effective climate actions.

Second, cities must also mobilize finance for dedicated adaptation investments. Here, cities often face challenges in developing bankable projects. Innovative governance and financial tools can support cities in these early stages. As part of the Regional Adaptation Strategy and Action Plan, the Glasgow region created a Resource Mobilization Plan, to help target and frame investment. This developed six or seven business models for adaptation that could be taken forward.

While mitigation and adaptation strategies can sometimes be conflicting, the recent IPCC report highlights how combining mitigation and adaptation while developing city investment plans can reinforce synergies and improve cost efficiency. Glasgow has been working with the European Investment Bank to appraise the costs of overheating from housing retrofit to help manage the synergies and tradeoffs of mitigation and adaptation to tackle one of the most stubborn sources of emissions.

Looking forward, it is worth considering the potential synergies with the emerging space of nature-based solutions (NBS). NBS were highlighted in the recent IPCC report as having many co-benefits with mitigation, including the potential to add revenue streams, such as from carbon credits. As this sector matures (helped by the development of the emerging Taskforce on Nature-related Financial Disclosures), it has the potential to become another key dimension of unlocking adaptation finance.

Abigail S. Binay, Mayor of City of Makati, Philippines 

In the Philippines, we are working with two innovative actions to attract investors to urban adaptation: the Comprehensive Land Use Plan (CLUP) and the Makati Public-Private Partnership (PPP) Code. The city’s CLUP includes the grant of bonus incentives, promotion of flexible and innovative planning developments, expansion of the Central Business District, promotion and mainstreaming of disaster resiliency, creation of a livable environment, increasing mobility, identification of special development zones, and promotion of mixed land use.

Makati, like many other cities, is also adopting the use of public private partnerships. The Makati PPP Code is an essential part of the overall infrastructure reform policy of the city’s government. PPPs can be adopted to avoid costs and use the city’s budget for the crucial delivery of health and social services. For example, one of the PPP projects is the Makatizen Card, a multipurpose ID that can be used as a debit and social card. This card became a lifeline during the pandemic as it facilitated the contactless distribution of cash aid to the city’s constituents.

Brigid Shea, Travis County Commissioner of Austin, Texas 

In Austin, Texas, a different kind of approach is considered: raising funding for adaptation through reparations from the fossil fuel industry, and an approach that has been adopted in other states and cities in the country. New litigation with the goal of holding fossil fuel companies liable for loss and damage caused by climate change, also holds them responsible for some of the adaptation costs faced by local governments. This approach is similar to the successful litigation against the tobacco and opioid industries.

Municipal bonds offer an attractive opportunity for investors and should be utilized by local governments. However, while these may be more attractive to investors due to their exemption from federal and state taxes, they do hold a potentially unfair aspect in that the taxpayer is required to ‘pick up the tab.’

There are also other benefits in utilizing the insurance industry to close the global protection gap and build resilience. Utilizing insurance can increase awareness and understanding of climate risks, as well as incentivize risk-reducing behavior. Through policy and planning, cities can act as insurance consumers and finance providers. Insurance has the potential to improve financial stability and relieve pressure on city budgets, boosting economic growth.

Gareth Morgan, Director of Resilience, City of Cape Town, South Africa

In order to be attractive to investors and that the cost of capital is as low as possible, cities must ensure that they practice good financial governance and have reliable, and ideally growing revenue streams. Cities need to build strong, internal capability for project preparation at scale. Investable projects come out of hard work in conceptualizing, designing, and creating the specifications for procurement processes. Only once cities have prepared projects to a sufficient level can cities expect to attract funding. Cities must ensure that there is a commitment to climate response projects in the integrated long terms plans.

Further, cities must be able to make the case clearly what the climate benefit is from projects, ideally with strong metrics of success. In 2017, after two years of a severe drought leaving its stores of water running almost empty, the City of Cape Town issued its first Green Bond, focused on financing the city’s water infrastructure. This was the first green bond in the country that was accredited by Climate Bonds Initiative (CBI). The bond supported the city’s long-term plans and priorities to adapt to climate change through water management investment, as well as building confidence for investors in green investments.

Isabella de Roldão, Vice Mayor of the Municipality of Recife, Brazil

Cities should focus on strengthening climate governance with policies and other legal instruments that allow the adoption of measures that reduce the vulnerability of natural and human systems to the effects of climate change. This will help local governments meet the necessary requirements for attracting investments in adaptation projects. Further, the ability of public administrations to prepare medium and long-term plans for climate adaptation – thus overcoming the limitations of short-term public policies – is a highly relevant factor in attracting investment towards climate adaptation. Paradiplomacy, emerging in Brazilian capitals, presents itself as a possible way to assist in the dialogue of municipalities with governments, companies, and international entities, which is crucial for cities to develop and implement sustainable adaptation policies.

Recife has been carrying out several adaptation activities. It has a Local Climate Action Plan (PLAC), built with ICLEI and other institutions, with the objective of neutralizing greenhouse gas emissions by 2050, based on four axes: mobility, sanitation, energy, and resilience. Recife is also working on climate adaptation by promoting capacity-building to its local communities, and environmental conservation and restoration projects, such as the Mais Vida nos Morros Program. Recife is engaged with the Urban Infrastructure Insurance Facility (UIIF) project, led by ICLEI, and financed by the German government through KfW – Development Bank on behalf of the Federal Ministry of Economic Cooperation and Development. Recife has also become the first Capital in South America to sign a pact to build environmental resilience through climate insurance.

What are some of the challenges cities face in raising finance for adaptation?

Abigail S. Binay, Mayor of City of Makati, Philippines 

In many countries, more often in developing countries, cities may face regulatory restrictions from the national government that prevent cities from exploring financing instruments. Lack of creditworthiness and political uncertainty also hold cities back. Further, international funding agencies often have complex procedures that can exclude cities with less capacity and knowledge of the process. In the Philippines, it is noted that competition among cities for investors can be an issue.

Richard Bell, City Treasurer of Glasgow, UK 

Cities have many other short-term social and development priorities which can take precedence over climate issues. The current fiscal context for European cities makes it challenging to ensure adaptation remains a focus. There are multiple, long-term pressures facing UK and EU cities – including growth and development needs, the costs for mitigation, and wider social pressures such as an aging population. This is set against rising costs of living, making it harder to raise revenue and taxes.

Further, in the UK, there is a heightened focus on achieving net-zero, which crowds out more holistic policy making surrounding adaptation and resilience. Many cities also face a lack of awareness or information on the costs of climate impacts and benefits of adaptation, and limited skill resources and technical knowledge to appraise adaptation benefits.

Gareth Morgan, Director of Resilience, City of Cape Town, South Africa

Cities with weak financial governance damage their ability to attract and secure investors. A city indicates significant climate ambition, but ultimately it must be a capable and reliable partner to investors.

Isabella de Roldão, Vice Mayor of the Municipality of Recife, Brazil

In countries such as Brazil, where natural disaster risks are already high, uncertainty about the scale and frequency of climate disasters can be a big challenge for cities to prepare adaptation policies. As these disasters can be very disruptive in more ways than just financially, investments in climate adaptation compete with other urgent issues such as education, urban mobility, and health – which has only been exacerbated with the COVID-19 pandemic.

Nada Yamout, Former City Council Member of Municipality of Beirut, Lebanon

Beirut is facing multiple crises that are affecting its ability to access climate adaptation finance. There is a lack of government policies and laws that would incentivize investors to channel funds for climate adaptation projects. State institution capacities are still limited when it comes to responding to climate impacts and implementing adaptation solutions. So, the design of the adaptation projects in Beirut must address not just financial barriers, but also institutional, technological, and informational capacities. Further, climate adaptation is still not dealt with as multi-sectoral; it is mostly mandated to the Ministry of Environment, with slow engagement by the energy and agriculture sectors. This hinders the integration of adaptation activities into the various sector’s development plans, and annual budget and policies. Adaptation policies need to be incorporated across the annual budget.

Brigid Shea, Travis County Commissioner of Austin, Texas

Looking ahead, cities need to prioritize equitable adaptation measures that consider the disproportionate impacts that affect vulnerable communities. Further, regulations for addressing costs associated with climate change should be considered. Policies utilizing insurance and payment tools, for example, will have to be equitable, or they face the risk of fueling discontent and political instability.