Opinion: Why MDB financing is critical for cities’ climate action plans

As mayors of two cities in the global south, we believe that the work of multilateral development banks, including the World Bank, will be in vain if they do not focus on how to get much more investment into cities.

By Claudia López, Mar-Len Abigail "Abby" S. Binay // 27 October 2023

This month, world leaders met in Marrakech to discuss how to unleash $125 billion in new lending through World Bank reforms. There was universal support for bank President Ajay Banga’s proposed reforms, although it is clear that shareholders will not be injecting more capital into the bank. This begs the question of how multilateral development banks, including the World Bank, can have a greater impact on their current balance sheet. As mayors of two cities in the global south, we believe that this work will be in vain if it does not focus on how to get much more investment into cities. The path to net zero runs through the world’s cities. They are home to over half the world’s population, generate more than 80% of global gross domestic product, and an estimated 75% of greenhouse gas emissions. City governments are at the forefront of the climate crisis: they are already facing climate risks, including severe flooding and extreme heat, as well as receiving climate migrants. They must also invest in low-carbon, resilient infrastructure to accommodate the projected 2.5 billion increase in urban population by 2050. Many municipal governments have developed ambitious climate action plans and targets to cut emissions and support adaptation. But most — particularly in the global south — lack access to the funding they need for implementation. Their projects are seen as too small or too risky to attract private investment. To complicate matters, many cities are not able to raise taxes or borrow directly from MDBs, and major international financial institutions develop investment projects informed by national government priorities, which frequently leave cities out of the equation. “MDBs should coordinate with national governments to create better enabling environments for city climate finance.” --— Bogotá is a city that is fully committed to climate action and has already delivered on reducing greenhouse gas emissions by 22% from its business-as-usual scenario in 2021. Due to its lack of direct access to MDB loans, the city has been unable to secure funding for two key, shovel-ready projects to advance its climate action agenda: the city’s second metro line, and a water treatment facility that would increase the percentage of the city’s wastewater that is treated from 30% to 100%. Like many cities worldwide, Makati in the Philippines has been proactive in transforming the city into a more sustainable environment for residents and businesses, implementing green infrastructure such as solar panel roofs on government buildings, encouraging the use of electric vehicles, and creating incentives to promote eco-friendly businesses. Makati also exemplifies how cities are uniquely placed to foster effective community engagement for climate projects to create a lasting impact; it is developing the Makati Green Building Code which will offer rewards and incentives to owners and developers that adopt green building practices. However, a lack of access to funding for sustainable infrastructure hampers the pursuit of sustainable urban development. MDBs such as the World Bank should seize the chance to become “Banks for Cities” and champion the role of cities to shape more climate investment projects that take a comprehensive approach to urban development and better address equity, health, and job creation. Cities need MDB support to drive policy reform to strengthen fiscal health and improve creditworthiness, provide concessional finance for difficult-to-finance projects such as adaptation and resilience, and leverage de-risking instruments to catalyze private sector investment. Here, MDBs are well-positioned to intervene and help cities tap into capital markets. MDBs can help scale the work done by organizations such as C40 Cities and the Global Covenant of Mayors for Climate and Energy, or GCoM, in more than 12,800 cities worldwide to build capacity, support the preparation of climate projects, and aggregate projects between cities to reach the scale needed to attract international investment. C40 and GCoM — in coordination with The Cities Climate Finance Leadership Alliance — have identified four steps the World Bank and other MDBs should take to support urban climate action. First, MDBs must develop a dedicated city climate investment strategy, with dedicated urban financing programs to support a significant increase in project preparation and investment. Second, MDBs should coordinate with national governments to create better enabling environments for city climate finance, including through policy-based loans and national platforms to pool project preparation and financing. Third, MDBs can improve access to funding by adapting existing financing mechanisms to the reality on the ground for cities. MDBs must also work to accommodate smaller project sizes, support the need for financing in local currency, and formulate risk mitigation strategies to attract private finance. Finally, MDBs should prioritize urban adaptation for cities in the global south given their vulnerability to climate impacts. The positive news is that cities are increasingly recognized as part of the climate solution. At the 28th United Nations Climate Change Conference, the Local Climate Action Summit will integrate action between subnational and national leaders, and MDB reform is firmly on the agenda. Advancing multilevel governance and partnerships in Dubai can boost city-led action and help close the climate ambition and financing gap. To be successful, global leaders must seek reforms to crowd in private finance and ensure that as MDBs ramp up climate investment, resources continue to flow to cities in the lowest-income countries. Cities offer the greatest opportunity to rapidly transition to a net-zero economy. These critical changes are needed to deliver concrete steps in tackling the climate crisis.

This month, world leaders met in Marrakech to discuss how to unleash $125 billion in new lending through World Bank reforms. There was universal support for bank President Ajay Banga’s proposed reforms, although it is clear that shareholders will not be injecting more capital into the bank. This begs the question of how multilateral development banks, including the World Bank, can have a greater impact on their current balance sheet. As mayors of two cities in the global south, we believe that this work will be in vain if it does not focus on how to get much more investment into cities.

The path to net zero runs through the world’s cities. They are home to over half the world’s population, generate more than 80% of global gross domestic product, and an estimated 75% of greenhouse gas emissions. City governments are at the forefront of the climate crisis: they are already facing climate risks, including severe flooding and extreme heat, as well as receiving climate migrants. They must also invest in low-carbon, resilient infrastructure to accommodate the projected 2.5 billion increase in urban population by 2050.

Many municipal governments have developed ambitious climate action plans and targets to cut emissions and support adaptation. But most — particularly in the global south — lack access to the funding they need for implementation. Their projects are seen as too small or too risky to attract private investment. To complicate matters, many cities are not able to raise taxes or borrow directly from MDBs, and major international financial institutions develop investment projects informed by national government priorities, which frequently leave cities out of the equation.

More reading:

► Are cities more capable than national governments on climate action?

► Opinion: As cities lead on climate, national governments must pitch in

► Opinion: We need to talk about climate change in global south cities

The views in this opinion piece do not necessarily reflect Devex's editorial views.

About the authors

Claudia López
Claudia López was elected mayor of Bogotá in October 2019 and started her mandate on Jan. 1, 2020. She became the city's first female and also the first openly diverse mayor in Bogotá’s history. She has an emphatic focus on environmental, social, and anti-corruption issues.
Mar-Len Abigail "Abby" S. Binay
Mar-Len Abigail Binay was elected mayor of Makati City in 2016, after serving nine years in the Philippine Congress as representative of the second district of Makati.

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