U20

CLIMATE FINANCE
WORKING GROUPJOINT STATEMENT2023

U20 CLIMATE FINANCE WORKING GROUP | JOINT STATEMENT

The 2020s represent a key decade for climate action, to achieve theUnited Nations Sustainable Development Goals, and reform global
financial architecture. Without quick, effective and immediate action,
the key 1.5°C global warming target of the Paris Agreement will beovershot by 2027, according to the Intergovernmental Panel on
Climate Change (IPCC) Sixth Assessment Synthesis Report. And as
the world becomes more urban, the vast majority of climate action
required to tackle the global climate crisis needs to happen in cities.

The potential of city climate action is strong - some 90% of urban
emissions could be reduced with existing technology and practices.
Cities often set their own ambitious climate targets and are also incharge of implementing the key climate interventions that areneeded to achieve countries’ Nationally-Determined Contributions(NDCs) and Long-Term Strategies at the national level. In fact,
research (1) shows that in some countries city action alone can deliveron more than half of the NDCs. Cities - as the level of government
closest to their citizens - are also best placed and informed toeffectively address climate change because of their ability to connect
directly to the social and human dimension of the transition. This
makes cities key partners to national governments to help meetnational and global targets. However, at the moment, they do nothave adequate financial resources to support implementation on thescale that is needed and urban finance is not recognised as a central
subject matter in international finance dialogues. Further challenges
such as lack of technical expertise, legal ability and impactfulpartnerships exacerbate the problem, particularly in the Global
South.
(1) C40 Knowledge Hub, Oct 2021, Creating local green jobs: the United States, Italy and South Africa

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U20 CLIMATE FINANCE WORKING GROUP | JOINT STATEMENT

In 2017/2018, on average, only 384 billion USD were invested in city
climate action annually. However, 2-5 trillion USD are urgently
required by cities annually to meet the urban infrastructureneeds. That is why accelerating climate finance, in scale, volumeand speed, is a U20 2023 priority. Cities’ own-source revenues are
not sufficient to support the implementation of the interventions
needed to deliver the objectives of the Paris Agreement nor toprovide basic public services that are often affected by climatechange. At the same time, cities face many challenges in securing
stable intergovernmental fiscal transfers and accessing funding frominternational financial institutions.
To address this urgent issue, the U20 Climate Finance Working
Group calls on national leaders, development finance institutions
and private sector to work with cities to accelerate availability
and access to urban climate finance to unlock effective andimpactful climate action at the local level as an integral strategy toachieving NDCs, the SDGs, and long-term mitigation and adaptation
goals. We welcome the efforts of the SDSN Global Commission forUrban SDG Finance to recognise and validate these issues andpromote effective solutions to the urban climate finance challenge.

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U20 CLIMATE FINANCE WORKING GROUP | JOINT STATEMENT

Specifically, the U20 Climate
recommends the following:

FinanceWorkingGroup

1. National and regional policies need to prioritise the design andimplementation of a systemic urban climate finance architectureand ecosystem as referred to in their commitment to implementing
the historic paragraph 34 of the Addis Ababa Action Agenda andenable and support climate action in cities, led by cities. Cities areimplementers of the key climate interventions that are needed toachieve national governments’ NDCs and Long-Term Strategies andsupporting their financial, political and administrative ability to fundand finance these interventions is critical to ensure NDCs areenhanced by 2025, as required by the COP process. This includes
increasing the involvement of local and regional governments in
NDC development and implementation, including by soliciting theirinput into the planning stages and ensuring cities are empoweredwith financial engineering capabilities to conducive financeregulations to deliver their share of the NDC objectives.
2. Cities need a mix of incentivised, facilitated, direct andintermediated access to funds and guarantees as part of theirnational government’s strategies to fund long-term climate action
and their NDCs, including access to finance mechanisms under theUNFCCC such as the Global Environment Facility, andfromDevelopment Finance Institutions (DFIs) - particularly Multinational,
National and Subnational Development Banks (MDBs, NDBs andSDBs), through grants, concessional loans, subnational pooled
financing mechanisms (SPFMs), risk mitigation and credit
enhancement mechanisms that will allow to accelerate the deliveryof impactful actions on the ground.

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U20 CLIMATE FINANCE WORKING GROUP | JOINT STATEMENT

Facilitating and accompanying this access to finance may require
incentives for DFIs and private investors to boost the urban climate
finance market and a review and reform of national fiscal andregulatory frameworks as well as setting up dedicated urban climate
finance programmes nationally and within financial institutions. It
includes the strengthening of intermediary finance institutions set atdomestic level (such as SDBs, green banks, SPFMs) and specifically
dedicated to the subnational level of action.
3. Financial institutions and banks with public development
mandates need to consider urban climate action in their own
climate strategies and develop clear, integrated and dedicatedurban finance programmes. Integrating urban climate strategy
across financial institutions’ programmes is essential to making
urban climate investment a priority across development financeactors and sectors. Additionally, and in coordination with nationalgovernments, these institutions should be encouraged to integrate
urban climate action into their national-level strategies and country
partnership frameworks, to actively engage with cities and theirnetworks as key stakeholders and empower them with financial
engineering capacities.
4. Cities need support in attracting private sector investment forthe benefit of their local communities. Cities often lack technicalcapacity and expertise to prepare and present well-structured
projects, especially climate-smart projects that have the potential toattract investment.

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U20 CLIMATE FINANCE WORKING GROUP | JOINT STATEMENT

It is critical that national governments facilitate cities in developing
robust pipelines of projects, especially through project preparation
facilities and technical assistance for small-scale projects. National
governments should also play a role in aggregating viable projects
across municipal boundaries to help attract investment.
5. Cities’ own-revenues are not sufficient to support the scale andpace of climate interventions needed but they represent an
important source of revenue that provides flexibility and allows for
local decision-making. National governments should facilitate cities’ability to explore innovative ways to raise their own revenues throughfiscal decentralization, such as through payment for urban services orland-value capture.
6. Cities must be involved in the establishment of improved
systems of intergovernmental fiscal transfers, as these represent
the main source of revenue for most local and regional governmentsin the world on average. Stable and predictable transfers can make ita reliable source of revenue and allow local and regional
governments to plan and manage their budget correctly, as well as
define robust capital investment plans. Regular amounts should beallotted at a steady and timely frequency through transparent
distribution formulas, including climate earmarked subsidies, inorder to cover the devolved functions of government and climatetransition.

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U20 CLIMATE FINANCE WORKING GROUP | JOINT STATEMENT

7. Green bonds are an important financial tool that cities can useto raise funds for large or small-sized pooled projects, eg. forinfrastructure investments. However, meeting ESG certification
criteria can be a challenge particularly for cities in the Global South
who find ESG criteria do not always adequately reflect conditions intheir part of the world. Including more Global South institutions
into ESG certification processes will help facilitate access, improve
compliance and reflect different development trajectories and localcontexts. Moreover, ensuring the depth and liquidity of the domesticor regional market for urban finance is key to allow for thisdiversification of climate finance sourcing and incentives provided to
private and institutional investors are a helpful leverage for thismindset change.
8. Adaptation finance at the local and regional level is a crucial
challenge to be tackled through a multilevel and multi stakeholder
effort. Local adaptation projects tend to lack revenue-generating
potential and provide limited direct financial returns. This constrains
the 'bankability' of these projects at a local level necessitating morereliance on public finance, blended finance or innovative financemechanisms. It is crucial that national governments, financial
institutions and donors place greater resources and focus on urban
adaptation and resilience through increased technical assistance,stronger integration at the national level and increased financing toenable cities to implement effective adaptation measures at the local
level. Local (or domestic) carbon markets and carbon taxes with aclear redistribution/reallocation strategy and mechanism can ensure
a steady sourcing of funding for adaptation and resilience projects.

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U20 CLIMATE FINANCE WORKING GROUP | JOINT STATEMENT

9. International development and public funds must bedisincentivised from activities and infrastructure that cause theclimate crisis, including fossil fuels, and directed in priority towards
sustainable industries and green technologies, digitalisation andpeople-centered projects that create new, good green jobs while
protecting the planet.

PARTNERS

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