Authors: Robert Kehew, Manoel Carlos Pereira Neto, Alastair Mayes, Hamza Abdullah, and Kristiina
Yang

The impacts of climate change are accelerating rapidly, with urban populations already facing severe climate hazards. To build urban resilience and ensure the safety of all residents, there is an urgent need to scale up financing flows for cities’ adaptation and resilience (A&R) infrastructure. Of the global total of USD 831 billion in tracked urban climate finance flows in 2021/22, only 1%—approximately USD 10 billion per year—was allocated to adaptation, with an additional USD 7 billion supporting projects that aim to deliver both adaptation and mitigation benefits (CCFLA 2024).

In response to the severe lack of financing for urban A&R, members of the Cities Climate Finance Leadership Alliance (CCFLA) agreed during their 2023 Assembly to launch a workstream aimed at developing knowledge, coordinating efforts, and empowering advocacy for action on this topic. This scoping paper aims to help shape CCFLA’s new Urban A&R Finance Workstream by (1) prioritizing key challenges in urban A&R finance, (2) mapping CCFLA members’ current priorities and activities for addressing these obstacles, (3) identifying any remaining gaps in action to address these challenges, and (4) providing recommendations for how the workstream and the broader CCFLA community can effectively address them.

We took as our starting point a list of challenges to mobilizing urban A&R finance that had been identified by previous CCFLA research on the topic (CCFLA & Atlantic Council 2021). We then surveyed and interviewed CCFLA members to prioritize these challenges and gather information on their programs that support urban A&R finance. After mapping these 37 programs, we conducted a gap analysis to identify areas for future focus and developed a set of recommendations and actions for the CCFLA Secretariat and members to address these gaps.

CHALLENGE

There are significant challenges to scaling up urban A&R finance to protect cities from the increasing hazards associated with climate change. In 2021, CCFLA and the Atlantic Council identified 14 key challenges in mobilizing financing for urban climate A&R. For this scoping work, we conducted a survey of members to validate these findings. Despite the increasing visibility of urban A&R finance between 2021 and our survey in 2024, the challenges identified remain critical. Of the 14 challenges, CCFLA members identified 12 priorities to address across the demand-side, supply-side, and enabling environment for urban A&R finance, as shown in Table ES1.

Table ES1: CCFLA members’ 12 prioritized challenges to scaling urban A&R finance

CCFLA MEMBERS’ PRIORITIES AND ACTIVITIES

CCFLA’s 80+ members represent leading organizations from across the urban climate finance value chain and are actively addressing many of the key challenges to accelerating urban A&R finance. Our survey identified 37 programs led by members aimed at fostering urban A&R finance. Of these programs, 30 address demand-side challenges, 16 support the supply of finance, and 28 aim to improve the enabling environment.

Programs are geographically dispersed, with most supporting cities in emerging markets and developing economies (EMDEs) and particularly in least developed countries (LDCs), with a focus on sub-Saharan Africa. They primarily target large and medium-sized cities; settlements with fewer than 500,000 people receive significantly less support.

Members’ support is concentrated in a few sectors that are highly vulnerable to climate hazards, including the water and wastewater sector, as well as ecosystems and biodiversity. Most members encourage the inclusion of nature-based solutions in their supported urban A&R projects, largely for stormwater management as well as green and blue corridors.

The surveyed programs provide strong demand-side support to enhance cities’ preparedness, including capacity development and the development of climate action plans and adaptation plans. Project preparation support is also prevalent, particularly during the initial project stages, with significantly less support available for the structuring and transaction phases. Programs also primarily assist cities in accessing climate finance from international sources, while fewer programs support mechanisms to make projects more attractive to financiers (e.g., project aggregation and securing revenue from ecosystem services).

Supply-side programs include financial institutions and support organizations, with most focusing on international climate finance. Significantly fewer programs support cities on the supply side through equity finance or risk mitigation. Additionally, funding from these programs was unevenly distributed, with most investments focused on flood and heat protection, while risks such as wildfires, extreme cold, and storm events received fewer resources. These programs also make limited use of taxonomies and investment frameworks, creating challenges for the tracking and tagging of urban A&R project finance.

Finally, most of the 28 programs aimed at improving enabling environments focus on supporting city and municipal governments, as well as other levels of government, to address issues such as horizontal fragmentation and the devolution of powers. However, two key areas lack support. First, there is insufficient support for enabling policies and regulations that improve subnational borrowing, an important facilitator to scaling up private investment in urban A&R finance. Second, there is a lack of coordinated action to address city needs for the development and implementation of National Adaptation Plans.

GAP ANALYSIS

Table ES2: Gaps identified in addressing urban A&R financing challenges