Posted on: Mar 03rd, 2021

Leveraging National Development Banks to Enhance Financing for Climate-Smart Urban Infrastructure

A green recovery has been central to many countries’ stimulus plans to ensure investments that lift the economic recession caused by the pandemic incorporate climate change considerations. At the local level, cities are spearheading the challenge with bold actions and initiatives towards an equitable and sustainable recovery. Investments in climate adaptation and mitigation measures in cities’ infrastructure will determine the resilience and wellbeing of all communities. Infrastructure financing needs have been estimated at USD 4.1-4.3 trillion per year from 2015 to 2030. An additional USD 0.4-1.1 trillion per year is required in making infrastructure low-emissions and climate-resilient. However, the benefit-cost ratio is about 4:1 for climate-resilient infrastructure. The World Bank estimates that investing USD 1 trillion in the incremental cost of making infrastructure more resilient in developing countries would generate USD 4.2 trillion in benefits. Yet there is a critical shortage in investment-ready climate-smart infrastructure projects and therefore an urgent need to invest more resources, particularly from National Development Banks (NDBs), into project preparation and feasibility. This knowledge product builds on the policy brief Enhancing the Role of National Development Banks in Supporting Climate-Smart Urban Infrastructure, which sets the stage to explore the mandate and capacities of NDBs in accelerating financing for local governments’ climate-smart urban infrastructure. In addition, the knowledge product:

  • Provides an overview of the challenges and opportunities cities and NDBs face through consultations with cities and NDBs globally.
  • Identifies the barriers and enablers cities and NDBs face at the policy, legal, financial, and institutional levels.
  • Includes a maturity model based on the findings from consultations with cities and NDBs, which reflects the key parameters required to overcome the identified challenges at every level.
  • Presents case examples as good practices from the demand and supply side of climate-smart urban infrastructure financing to illustrate different dimensions of the City and NDB Maturity Models.
  • Concludes with actionable opportunities for key stakeholder groups including NDBs, municipalities, national governments, and international financial institutions/multilateral development banks to help close the technical and financial gap that prevents cities from raising capital from markets.