Mobilising green finance to transform city development

Cities are on the climate action frontline – with 70 percent of global emissions coming from urban areas. Leveraging green finance at scale and pace to invest in sustainable green cities is urgent.

Whether you are transforming cities in developed or emerging markets, the opportunities offered by green finance are enormous. Of course, the scale of today’s environmental challenges are huge too, meaning there is an urgent need to shift focus from ideas and plans to implementation and action.

COP26 in Glasgow highlighted just how important this decade will be for change, and the good news is private green finance is increasingly available from investors to achieve this. In Asia Pacific alone, for example, the investment opportunity is estimated to be $1.4 trillion. Additionally, institutions such as British International Investment, the International Finance Corporation, and U.K. Infrastructure Bank are looking to provide catalytic funds to support green investment and make it attractive to more private investors.

Across the globe, prioritising smarter, cleaner, and greener cities has become policy for national governments, regional leaders, and local authorities. They’re all now outlining projects large and small, as well as looking towards stronger legislation and environmental, social and governance commitments. This has meant the key question we are now asked by cities is: “How do we access more green finance?”.

Risks, actions, outcomes

Accessing green finance involves understanding risks, prioritising actions, and measuring outcomes.

For instance, the dramatic environmental shifts we are seeing due to climate change have accelerated the need for work on mitigation, but less focus is currently being placed on the importance of adaptation measures. Adaptation includes nature-based solutions to help cities handle extreme rain and storm events, coastal protection interventions, and also smart design to reduce urban heat island effects.  However, as this is an area with a significant financing gap, there is a critical need to invest in these measures, as well as continuing to fund mitigation.

Here, what is required is an improved understanding of what’s at risk. Knowing this is critical to designing the right intervention. We train financial institutions to understand climate risks and how to assess and prioritise climate projects, as well as how to support public-private partnerships to deliver truly sustainable infrastructure.

City leaders have a key role too. They must fully grasp what risks their citizens and infrastructure systems face, and better identify cost-effective improvements. To be credible, they must be able to articulate and monitor what tangible benefits these investments will deliver. Without this, many projects will never leave the drawing board.

Financial institutions willing to provide green finance want to be clear on the exact aims and solutions of city measures, whether that’s tackling extreme summer heat, fires and drought, or the winter flooding that causes damage to infrastructure and disruption to the water supply. The long-term returns also need to be clearly outlined along with data to show investments will be safeguarded, with money spent wisely to achieve the biggest positive impacts.

Evidence-based tools like EBRD’s Green City Action Plans and Green Financing Roadmaps help both sides navigate this journey together. In Tirana, Albania, a recent Green Financing Roadmap focused on nine priority areas to increase the readiness of the city’s key green projects as well as strengthening the capacity of municipal staff around green finance.

Investing in the future

Beyond capital cities like Tirana, there is an increasing realisation that secondary cities across the world, from Turkey to Kenya to India, will be critical growth centres of the future. This presents an opportunity to get ahead of the curve by embedding climate change mitigation and adaptation measures from the start. In Kenya, we are supporting the World Bank to embed climate resilience in urban planning practices and infrastructure investments across secondary cities.

Longer-term and more radical solutions are also needed. Nature-based solutions to climate change can replace traditional grey infrastructure systems and deliver the same urban resilience objectives while enriching biodiversity and delivering multiple additional benefits cross air and water quality, urban heating, public health, noise, amenity. liability and land value. Convincing decision-makers in cities to consider these alternative solutions requires measuring and quantifying their outcomes and longer-term economic returns even more important.

Smart tools and approaches – such as those being tested in our Natural Capital Laboratory in Scotland – can quantify the benefits of nature and this intelligence can be integrated into investment decisions

Smart solutions for fairer cities

Smart cities will grow out of a multitude of data streams, analysed by artificial intelligence and machine learning in real time. So, at all phases of development, such data must identify and prioritise green improvements ready for investment.

People-focused green investments are critical too, particularly around climate justice for poorer areas and communities so often on the frontline of climate disasters.

In the United States, for example, the city of Baltimore, Maryland is embracing an equity-based business process to address historical imbalances within the city. Technology is an enabler and facilitator, with data defining areas of need and intervention. It also empowers officials and citizens to make the right decisions toward desired outcomes.

An opportunity to thrive

The U.K. will need to leverage green finance to create liveable, thriving, and smart cities of the future. Green finance is available, but regional authorities and councils need a greater understanding of where this money is available – and how to access it. New institutions such as the UK Infrastructure Bank are coming online with significant ambitions and £22bn in infrastructure finance.

The need to invest in climate-positive resilient infrastructure is enormous. But city governments – both in the U.K. and globally – are not alone. Finance institutions and private investors are ready to scale-up green finance for well-prepared climate projects.

It’s now time to take seriously the crises we are currently facing, linking post-pandemic recovery, cost of living measures, and our climate change goals into a sustainable development agenda.

A version of this article appeared in the Smart Cities report, a supplement published in The Times newspaper, August 2022. Click here to read the full report.