Climate Finance Instruments for Local Governments Global Experiences and Prospects in Developing Countries

Cities will be at the forefront of confronting and mitigating the impacts of climate change, and they need substantial financing to address this challenge. Local governments (LGs)—especially municipalities—will need to make large investments in climate adaptation and mitigation, but often lack the fiscal resources for such investments. They will need to mobilize resources using a variety of financing mechanisms and instruments. National governments will also need to play a critical, enabling and facilitating role to support LGs in this objective.

This session will discuss various climate finance sources and instruments available to municipalities and local governments to support climate change-related infrastructure investment and expenditure. It will showcase a set of climate finance instruments for local governments through case studies and presentation of international experiences with their use. It will assess the constraints faced by municipalities in accessing these instruments and provide recommendations for municipalities, national governments, and development partners to increase and facilitate this access to help meet climate investment needs. The session will include a moderated panel discussion with subject matter experts, city leaders, and officials of the United Nations Capital Development Fund (UNCDF) and the World Bank who will present their new joint publication on this topic.

The set of financing instruments and case studies to be discussed in this event – which are featured in the joint publication - include the full spectrum of financing instruments, including climate-focused intergovernmental fiscal transfers and grants; own-source revenue instruments with climate focus (e.g. land value capture instruments, pollution charges, sale of carbon credits); municipal borrowing instruments such as green bonds, sustainability-linked bonds, climate-focused loans; public-private partnership commitments for climate-related projects; and credit enhancement instruments such as guarantees.

Case studies will be presented for each type of instrument, followed by a panel discussion involving city and national government leaders and representatives from the private financial sector on the constraints, enabling conditions and opportunities for the use of these instruments.