Financing Urban Adaptation to Climate Change: An Introduction

Published: 18th October 2018 15:19Last Updated: 19th October 2018 13:36

Introduction

Cities must adapt to changing conditions in the face of climate change. These changing conditions can be gradual or acute and can happen concurrently. For example, many coastal cities and cities on small islands are contending with sea-level rise and increasing risk of destructive storm surges in the event of hurricanes, typhoons, and cyclones.

In order to address these risks, cities can rebuild as part of a disaster management approach, incrementally improve the effectiveness of conventional protection measures, and/or find different ways by transforming the way cities are built and organized in an anticipatory manner. It is further crucial that cities continue to pursue development priorities to ensure that the entitlements of the urban poor and vulnerable are met.  

Urban adaptation must address the social, ecological, and physical infrastructure of cities. Of course, in order to adapt, cities must have the capital required to do so. This article provides an overview of the financing options available to cities in both developed and developing countries. It then briefly addresses oft-cited challenges for financing urban adaptation and potential solutions.

A Brief Overview of Financing Options

  1. International funding – adaptation funding in the form of grants and loans (Figure 1).

  1. ​​​National financing mechanisms – national government funds that are dedicated to climate projects.
  2. Banks and other financial institutions – loans or guarantees, either directly or in partnership with local retail banks. Regional development banks (e.g. CAF, BDEAC) are one major source of funding that can be more locally tailored than international funding mechanisms.
  3. Private stakeholders – foundations, real estate developers, companies (especially those facing risks posed by climate change), house owners and individuals, that invest in measures directly or via crowdfunding and green bonds, community-driven financing mechanisms (Figure 2).
  4. Integration into existing sectors – through early integration of adaptation needs into urban planning and design, mainstreaming of adaptation measures into other municipal areas such as water management, health, nature, etc. or through supporting regulations such as building standards.

Fig 3. Opportunities for financing climate change adaptation in municipalities, and the interplay between the various stakeholders involved (Source: EEA, 2017, p. 8)

Challenges & Responses

(1)  As with many climate change mitigation and adaptation projects, financing can often be difficult because the benefits of the project accrue over the long-term.  

The co-benefits of urban adaptation should be underscored as a part of financing bids. Potential co-benefits include risk reduction - if projects are indeed resilient to climate impacts, there should be less damage done to lives, livelihoods, and the built infrastructure. Adaptation infrastructure should also have a longer lifetime and may increase property values. Health can also be improved through urban adaptation measures such as green spaces and green infrastructure (link to the GI page).

Additionally, both stakeholder and public awareness of the potential risks is crucial to garner support for adaptation projects. In this vein, early and active engagement of stakeholders encourages bottom-up initiatives from citizens and clarifies and uncovers local development priorities.

(2)   There is often a mismatch between top-down funding structures and what is needed at the local level, particularly as regards the urban poor.

Many funds and funding structures do not effectively serve targeted beneficiaries. Many of the international funds were not designed to directly address local urban adaptation but rather were designed to work with national governments, who could then disburse money to municipalities. Many of the international funds have not reached their target inputs from donor countries, nor have disbursements been made at a local level. For example, while nearly $1 billion had been contributed to the PPCR, only $8 million had been disbursed as of 2014 (IIED, 2014).

Instead of waiting for top-down funding, cities and their communities have taken to building funding from the bottom-up. Local financing measures include community savings groups and urban poor funds. Community savings groups ‘pool households’ collective resources in a communal fund that can be used to provide quick and easy loans for a variety of small projects, including slum upgrading, housing improvements, and income generation investments’ (IIED, 2014, p.5). Urban poor funds ‘consolidate savings into a revolving fund, capitalised by low interest rates, that provides loans to communities.’ Such local financing mechanisms encourage horizontal links as opposed to top-down finance structures.

Case Studies

Urban Poor Fund International capitalizes local funds across 464 cities that are within the Slum Dwellers International network. The fund combines residents’ collective savings with donor and sometimes state funds and then channels this money to local stakeholders via member federations. The fund is controlled by and directly accountable to the urban poor.  

Bangladesh Climate Change Trust Fund, established in 2010 and the first national climate fund established by an LDC, is part of the Bangladeshi national budget and aims to assist communities to recover from and become resilient to climate change impacts.

Crowdfunding.gent is a crowdfunding platform designed by Ghent, Belgium that allows citizens to propose and finance their ideas for the city. Two projects focus on climate change adaptation - urban farming for social housing and edible streets. Any citizen or person living in Ghent can submit their proposals (that meet predefined requirements) to these two focus areas. The project’s viability is then determined by its community support - indicated by the amount of crowdfunding donations it receives.

Kenya’s County Climate Change Funds: This case study investigates decentralised climate finance in both Ethiopia and Kenya. Kenya has a subnational source of climate financing called the County Climate Change Funds, which is designed to include local priorities by delegating decision-making to local governments.

Further Resources

References

Climate Investment Funds (2018) Pilot Program for Climate Resilience. Available from: https://www.climateinvestmentfunds.org/topics/climate-resilience [Accessed 25 September 2018].

European Environment Agency (2017) Financing urban adaptation to climate change. EEA Report No 2/2017.

Global Environment Facility (2018a) Least Developed Countries Fund - LDCF. Available from: https://www.thegef.org/topics/least-developed-countries-fund-ldcf [Accessed 25 September 2018].

Global Environmental Facility (2018b) Special Climate Change Fund - SCCF. Available from: https://www.thegef.org/topics/special-climate-change-fund-sccf [Accessed 25 September 2018].

Smith, B., Brown, D., & Dodman, D. (2014) Reconfiguring urban adaptation finance. International Institute for Environment and Development, Working Paper January 2014.

 

Further resources