Improving climate financing via cities

Cities are responsible for more than 70 percent of global greenhouse gas emissions. They thus play a key role in reaching the goals of the Paris Climate Agreement. However, in order to effectively invest in emissions reductions and improved resilience to climate change, they require suitable financing options.  As these are not sufficiently developed in all countries, the Agence Française de Developpement (AFD) commissioned a consortium of experts from France, Germany, and Mexico to investigate climate financing via cities.

Led by adelphi, the project partners undertook a study to analyse the status quo of urban climate financing, with a particular focus on the inclusion of local credit institutes: How do cities invest in their infrastructures? Which climate-relevant instruments are utilised? And what is the role of local financial institutions (LFIs) in financing the use and advancement of local, climate-relevant investments?

Following an investigation of the weaknesses of the climate financing options, the study has identified suitable financing streams capable of directly improving climate financing by cities. The study also established how the role of the LFIs could be strengthened to facilitate the mobilisation of climate-friendly investment in cities. Finally, the study elaborates the conditions that make it possible for LFIs to advance the initiation of new climate financing projects. The study focussed on Brazil, Mexico, and South Africa. This selection pointedly illustrates the opportunities embedded in the expansion of climate financing by LFIs under various conditions. The three countries differ, for example, in their levels of development, their political environments, the degree of decentralisation, the extent and type of climate-related challenges, and the degree of development of their capital markets and banking sectors.   

For the study, the project partners conducted comprehensive political analyses and country-specific expert interviews. Special attention was paid to the comparison of the three states with industrialised countries in the Americas and Europe. The insights gained and the resultant recommendations for action were discussed with the AFD in the run-up to the Paris climate conference. The AFD utilised these during the climate negotiations to advance its strategy for climate financing via cities.