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Making finance work for cities means making cities ready for finance

Over the next fifteen years, the global urban population is going to increase significantly, and the built environment required to accommodate this growth will expand in turn. In order to ensure that this expansion is carried out in a way which avoids lock-in effects – that would be disastrous to the targets established in the Paris Agreement at COP21 – cities need the capacity to plan this growth sustainably and the financing to execute these plans.

The tagline for the ICLEI Municipal Finance Conference at Metropolitan Solutions on 31 May – “making finance work for cities” – reflects the financial support that local and subnational authorities need to ensure that growth is planned sustainably. The presentations of the day – which offered perspectives from the finance sector, local governments, federal ministries and academia – provided necessary clarity on what options local authorities actually have when it comes to financing such investments. They also established the need to rapidly expand the scale of these options and, where possible, develop new templates which make finance work for cities.

This need for scaling-up the financial capacities of local governments is the reason why ICLEI is working to create a template for bottom-up financing: the Transformative Actions Program (TAP). The TAP provides a platform for local and subnational governments to submit ambitious, cross-cutting and inclusive projects. ICLEI, as coordinator of the TAP, then looks to transit these proposals into funding pipelines. Results from the first year have allowed ICLEI to indicate to financing institutions that cities require greater support for the preparation and design of projects and funding applications. It has also allowed ICLEI to determine what elements of the TAP projects are most attractive to financiers.

When it comes to making city-level investment appealing to finance, cross-cutting projects are the first step to be made on the side of cities, which is one of the three pillars of TAP projects. Presentations of TAP projects – both at the Cities & Regions Pavilion in Paris at COP21, and at the Municipal Finance Forum in Berlin – have made it clear that while ambitious is a very contextual term, cross-cutting in particular looks similar all over the world. From Berlin to Bogota, no city problem can be tackled in isolation. Interlinked problems need integrated responses and solutions.

By making a project cut across services and sectors, a city is able to bring it to a scale where the potential return on investment will be attractive to investors. And even though the direct financing of projects by financiers is not yet established, cross-cutting, transversal projects – like Almada’s Multi-adaPT (Portugal), Saanich’s commitment to 100% renewable energy across municipal buildings (Canada), and Fortaleza’s afforestation strategy (Brazil) – are the type being funded by green bonds in Gothenburg (Sweden), or make up the innovative projects which the Low Carbon City Lab within Climate-KIC is looking to finance. If nothing else, cross-cutting projects which start the conversation between departments also present the immense benefit of breaking down silos within local government work. And to the point of making finance work for cities: while there is a mismatch between the duration wanted by investors (15-20) years and the duration of urban investments (40-50 years), there is greater potential to bring down the duration required by urban investments to see a return if they see multi-sector, cross-cutting results.

Despite the diverse range of perspectives that the Municipal Finance Conference offered, there was a strong consensus from nearly all parties on the point that local financing systems need to be re-imagined. Providing support for cities that goes beyond a one-off influx of funding is vital to achieving long-term sustainability. Funding needs to be accompanied by an increase in local capacity.  The TAP, the Low Carbon City Lab (Climate-KIC), and the Global Observatory on Local Finances (UCLG) are all part of the movement to create a bottom-up model which leverages financing for local investment and makes local financial systems sustainable. Financing sustainable cities at the scale required by the 2030 Agenda means making cities ready for finance.