Photo: Larry Nalzaro / Unsplash.

Cities play a central role in tackling the challenges of our century – particularly when it comes to ensuring an equitable transition to a low-emission futureWhile they only occupy around 2% of the Earth’s surface, cities account for over 70% of carbon emissions and around two thirds of all energy consumption . In other words, sustainable development at both a local and global scale depends to a large extent on the actions taken by cities to influence both local infrastructure development and enable healthy, sustainable lifestyles.  

Numerous approaches are available for cities seeking to do thissuch as improved public and active transport infrastructures, smart technologies, nature-based solutions, shared economy solutions and low carbon infrastructures. However, mobilizing private capital will be essential to unlocking the potential of these solutions and scaling up pilot projects to achieve the ambitious climate goals set by the cities.  

Understanding the funding that cities need to meet their ambitions, as well as listening to the different viewpoints of the public and private sectors, is crucial. This is what the Viable Cities’ Finance project set out to do in their “Financing Sustainable, Climate Neutral Cities” webinar series in November 2020, which brought together city representatives and private investors to discuss existing barriers and opportunities in amplifying city innovation and enabling cities to reach their sustainability goals. 

“The key challenge that we are trying to overcome is that the public sector alone doesn’t have enough resources to finance the transition towards climate-neutral cities.”

— Alanus von Radecki, Fraunhofer Morgenstadt Initiative

1. The role of cities in the sustainability transition

To accelerate their climate actions, cities have undertaken a number of initiatives, such as investments in pilot projects to test new technologies, using innovative procurement strategies to foster sustainable solutions, and building new business models with private actors. However, there appear to still be barriers to the full upscaling of these innovations; these include, for example, the silo-based nature of city governance, regulations, and a lack of adequate financing mechanisms, which prevents cities from realizing their sustainability ambitions. Watch the video below to get a glimpse of what city representatives discussed in the first workshop of our webinar series.

“The bill should not be footed by cities that are chronically underfunded, but I believe that the city has a big role to play as an orchestrator.”

— Serge de Gheldere, Futureproofed & Klimaazaak

2. Private investors are interested in financing sustainability in cities

The level of investment needed to accelerate the work towards sustainable, climateneutral cities is considerable and will require increased collaboration between cities and private investors.  

Financial actors, from pension funds to small investment firms, are increasingly interested in integrating sustainability as a criterion for investment, as this can bring return and positive impact.  

Investors are therefore looking for new ways of collaborating with municipalities in order to provide additional resources and support for finding new, innovative solutions; in turn, they are hoping that cities will be increasingly willing to seek out creative forms of collaboration. The video below details some of the private-sector insights from the second workshop of our webinar series.

“The main role of the public sector is not having the solution itself, but laying the foundation so that you can get private players to come in.”

— Kristoffer Aanerud Nielsen, SEB

3. Different ways of enhancing investment opportunities in cities

Although it is clear that investors’ interest in financing sustainable cities has been growing, the pace at which the existing funding gap is being closed needs to accelerate if cities are to reach carbon neutrality by 2030. In our third workshop, our expert panel reflected on ways to enhance investment opportunities in cities. They highlighted the need for coherent impact assessment frameworks and the importance of accounting for non-financial benefits and social returns, such as clean air or improved well-being. For investments to be effective, there is also a need for technologies that are embedded in the local context.

“We need to find ways to invest in alternative modes of service provision and infrastructure. This looks like new technologies that are embedded in the local context.”

— Liza Rose Cirolia, the African Centre for Cities

4. Aligning business cases and business models to foster greater collaboration between stakeholders

Considerable funding is needed from municipalities, citizens and private investors for a rapid sustainability transition to take place. Although the overall returns of these investments are positive for society, the financial returns are not equally distributed between stakeholders. 

In our fourth workshop, panelists discussed the ways in which the market can bring stakeholders together by aligning business cases and enhancing collaboration. They highlighted a need for more long-term thinking within both the public and private sectors. For the public sector to meet the needs of the private sector, there should be a focus on policy incentives and a cross-party vision that provides political leadership and institutional stability. At the same timethe private sector needs to proactively engage with civil society and take a long-term approach. 

“There's a need to build trust and understanding between the parties if we are going to deliver climate and resilient financing in our cities.”

— Alice Charles, The World Economic Forum

Unlocking the overall positive economic, environmental, and social benefits of these investments requires bridging the gap between municipalities and the private sector, and including citizens to a larger extent. Some approaches to overcoming current barriers include policy incentives; frameworks that systematically measure co-benefits; new collaboration models; long-term thinking aligned with sustainability goals; increased citizen engagement; and creative solutions that fit local needs. 

The Viable Cities Finance project intends to better understand and bridge this investment gap, and propose ways to enhance collaboration between municipalities and private financiers. 

The Viable Cities’ Finance project has received support within the strategic innovation programme Viable Cities funded by Vinnova, the Swedish Energy Agency, and Formas.