Authors: Jessie Press-Williams, Royston Brockman, Michael Lindfield, and Aanandita Sikka

Mobilizing private capital for resilient, low-carbon urban infrastructure is essential to meeting global climate goals. Cities account for over 70% of global CO₂ emissions and face disproportionate risks from climate change impacts. Yet, they struggle to access the scale of finance required to implement necessary mitigation and adaptation actions. By 2030, cities will need upwards of USD 4.3 trillion in investment annually for climate mitigation alone—five times current finance flows (CCFLA 2024). Public resources will be insufficient to close this gap; cities’ ability to mobilize private finance at scale will determine whether they can transition to low-carbon, resilient pathways.

Resilient, low-carbon urban investments offer economic opportunities for private investors, especially in sustainable infrastructure. Although private finance (excluding household investment) currently accounts for around 15% of tracked urban climate finance, its role is expanding. Institutional investors hold trillions in assets under management, far exceeding the climate investment needs of cities. Sustainable urban infrastructure—renewable energy, net-zero carbon buildings, clean transport, water systems, and other resilience projects—offers attractive opportunities for investors, including the potential for stable returns and long-term demand. Additionally, infrastructure assets can diversify portfolios and reduce volatility for investors.

This policy brief aims to support cities in mobilizing private capital by understanding the factors that shape private investment, engaging the appropriate actors, and overcoming barriers to investment. This brief is the first in a three-part CCFLA series on de-risking private investment in cities for low-carbon, resilient infrastructure—the second report maps urban infrastructure guarantees, and the third examines the role of urban insurance as an enabler of private investment.

Four factors interact to determine the extent of private participation in urban climate investment projects:

1. Sector and project private investment suitability: Indicates how attractive investments are to private investors. Private financiers require bankable projects that have a
   high probability of success and a reasonable expectation of sufficient cost recovery. Bankability and risk-return vary by project and sector.
2. City financing readiness: Reflects a municipality’s ability to mobilize and manage finance, shaped by its own-source revenue collection, market access, fiscal position, and the capacity of its financial staff and systems.
3. Financial market depth: Reflects the types and volume of financing that can occur, and the capacity of the institutions involved in the market. Almost all (96%) of private urban climate finance was sourced and invested domestically in 2022/2023 (CCFLA 2024). Therefore, the availability and type of domestic capital are important to enable cheaper financing options.
4. De-risking mechanisms: These instruments help manage or transfer risk for investors, making urban climate investments more attractive. These include concessional capital, credit guarantees, hedging tools, and insurance.

These four factors collectively influence the potential for private investment in cities, providing insights into how to increase private capital mobilization.

• Cities need to prepare bankable projects and match them to investors that align with these projects’ risk profiles. Bankability will also depend on the city’s financing readiness and potentially the creditworthiness of the municipal entity seeking finance. Project preparation assistance can be beneficial, but may not be sufficient on its own to scale private investment.
• Where both city financing readiness and local financial markets are weak, private finance may be difficult to mobilize, and public finance may be more suitable.
• In contexts where city financing readiness is more developed and the capital market can provide financing, cities may be better positioned to prepare bankable projects. In this case, de-risking instruments can help reduce perceived risk, improve creditworthiness, and open pathways to mechanisms such as municipal bonds or public-private partnerships.

TARGETING THE RIGHT ACTORS

Different investors bring distinct financial capabilities and risk appetites. Understanding this landscape is critical for aligning city projects with investor requirements:

• Project developers are one of the most important early-stage investors for greenfield infrastructure.
• Pension funds and insurers seek stable, long-term income, and increasingly explore climate-aligned infrastructure. Their requirements for large-ticket investment often preclude their direct involvement in city projects.
• Banks and asset managers are experienced in project finance and deal structuring but have moderate risk appetites, requiring a pipeline of bankable projects.
• Infrastructure funds pursue higher returns and can take risks in the early stages of project development.
• Other actors—utilities, start-ups, state-owned enterprises, and national development banks—also influence investment in urban infrastructure.

OvERCOMING BARRIERS TO INVESTMENT

Cross-cutting barriers to investment may hinder private investment even in cities that are relatively advanced in one or more of the four concepts above. These barriers exist at the macro, city, and project levels, including a lack of supportive regulations and incentives for private participation, the inability to enforce contracts, and limited capacity at local levels to design, budget, and mitigate project risks. Section 4 of this brief presents potential interventions and existing programs that support cities in overcoming these barriers.

RECOMMENDATIONS FOR CITY SUPPORT AND FUTURE RESEARCH

Expanded tools, guidance, and research aligned with this conceptual framework can help overcome barriers and increase engagement with aligned private investors. We recommend the following:

• Improve sector and project private investment suitability: Support cities in preparing more bankable projects in sectors with high private finance potential and presenting them to investors with aligned risk-return expectations. Additional research is needed to assess the extent to which urban climate infrastructure projects in emerging markets and developing economies (EMDEs) can meet investors’ risk-adjusted return expectations without subsidies. Information on the types of projects submitted, their sectors, and structure could help understand the current demand from cities for private investment.
• Enhance city financing readiness: CCFLA’s Enabling Framework Conditions assessment helps cities and national governments identify gaps in local enabling conditions to attract both public and private climate finance (CCFLA & Urban-Act 2024). Further practical tools and targeted research can guide cities in strengthening their financing capacity and readiness. Over time, cities and supporting stakeholders can increase city financing readiness through technical assistance, capacity building, and peer learning.
• Improve financial market depth: MDBs can work to strengthen local capital markets, such as by scaling up local currency lending and issuing local currency bonds. Further research is needed to understand how these actions can enhance cities’ financial prospects.
• Increase availability and effectiveness of de-risking instruments: There is a critical need for better-designed de-risking mechanisms that are accessible to cities and subnational governments. This includes expanding the availability of subnational guarantee instruments, urban insurance products, and other risk-mitigation tools that can unlock greater flows of private capital. CCFLA’s forthcoming reports will explore the current availability and potential of urban infrastructure guarantees and insurance.