Historically, cities as separate urban government units had never garnered any significant attention from the United Nations, but at Tuesday’s U.N. Climate Summit in New York, mayors from all over the world took center stage.
A common theme throughout the day was that cities are crucial to fight climate change because urban areas are responsible for nearly 70 percent of all carbon emissions.
To reduce pollution from urban centers, U.N. Secretary-General Ban Ki-moon announced the establishment of the Climate Finance Leadership Alliance, tasked with funding low-carbon and climate-resilient infrastructure projects and make their implementation better and easier as a key component of the struggle against global warming.
Despite the U.N.’s usual good intentions, the purpose of CFLA seems to be a work in progress, not due to a lack of focus by the loose partnership, but in part because infrastructure project funding is so different for various sectors in different cities. Participants at the summit highlighted that any financing initiative must be flexible in order to bring everyone to the table.
So far about 20 partners — ranging from the C40 advocacy group to Citibank — have committed to CFLA, according to Amanda Eichel, adviser to Michael Bloomberg, U.N. special envoy on cities and climate change and former mayor of New York.
Partners will not engage in direct funding of infrastructure projects, but rather leverage the right investors to make those projects a reality in developing countries, precisely where the risk is highest.
CFLA will thus function like a consulting firm for cities on “how to package projects in an interesting way to make them more attractive to investors,” Eichel said.
“A common communication, language and approach” in presenting infrastructure projects is the main reason cities have such trouble funding large infrastructure projects, Bloomberg’s adviser explained.
Investors struggle to navigate the bureaucracy’s competing priorities and the lack of clarity on any potential returns, so the initiative will provide them with guidance on each sector instead of focusing on individual cities, in order to maximize development impact.
To illustrate how the process works, Eichel gave the example of a mass transit development project in a particular urban area. CFLA would study what transport needs are across a range of cities within that sector and give recommendations on how to “market and advertise” that type of project to potential investors. It would then be up to that city to apply that “branding” strategy and choose their own partners and contracts based on individual cities’ criteria.
Outside of its partners, the initiative’s unofficial steering committee is led by the World Bank,Bloomberg Philanthropies, U.N.-Habitat and the Rockefeller Foundation. Although final roles have yet to be finalized, Bloomberg Philanthropies and World Bank will be in charge of researching and assessing “the state of climate finance in cities” in annual reports, because measuring impact can provide more confidence to investors. U.N.-Habitat will act as technical adviser, determining the type of project for particular needs in various cities. The Rockefeller Foundation will be a core member of this group, although in a still unknown capacity.
Joan Clos, executive director of U.N.-Habitat and former mayor of Barcelona, insisted the problem is not a lack of money but putting it in the right places.
“What is lacking is not funding, what is lacking is the quality of the project,” he told Devex, stressing that the real issue is making sure cities know how to get a slice of that money. “Financial institutions require that [urban infrastructure] projects have a clear business model, they are understandable, in order to be funded.”
We are in the “demand side of the equation” to build up the capacity of developing country cities, Clos said.
The head of U.N.-Habitat specified that “turning solid waste into energy is one of the most important group of projects.” For instance, landfills in developing countries are usually the highest emitters of methane gas, but urban governments there don’t have the technology to harness the waste and turn it into energy. The goal is to convince investors that they can make a return on that type of financial risk, which Clos noted can be done by showing them the potential for “maturity of long-term investment” in sanitation and transportation projects, to name just two.
CFLA, he said, will help create institutional settings to attract investors. These would be “innovative instruments … not necessarily on the financial side” in the form of new water, electricity or transport companies, legislative reform or utility subsidies. The field is open because each city has a unique set of issues despite a shared, overarching problem within different sectors.
“The scarce resource is the solid business plan” for infrastructure projects, and the initiative has been established to remedy just that, Clos pointed out.
CFLA will thus adopt a unique business and climate change-based approach to development, which has the potential to push more private sector engagement if investors see they can make a profit.
Top U.S. banks want to be a part of the initiative, and surely Bloomberg’s name and business acumen will also help attract investors. But it remains to be seen if governments, aid groups and the private sector will be able to work together to achieve the goal of helping cities develop low-carbon and carbon-resilient infrastructure to really make them the next battleground to combat climate change.
Picture: Johannesburg by SmartCityStudio