UN arm wants city governments to accelerate climate action

MANILA, Philippines — The United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) is pushing for the use of blended finance and financial aggregation by city governments to accelerate climate action.

This was the recommendation of ESCAP in its working paper to promote the development of an effective city climate finance matchmaking program for the Philippines, China, India, Indonesia and Thailand.

Matchmaking refers to initiatives aimed at strengthening the capacity of cities to develop and implement bankable climate action projects, connecting cities with potential investors including private investors and development banks, and promoting the use of innovative financial instruments and mechanisms to accelerate climate action in cities.

ESCAP said there is a pressing need to increase efforts to reduce carbon emissions worldwide, with the need more urgent in cities, which are vulnerable to the impacts of climate change.

However, it pointed out that cities lack financial resources and project preparation expertise for climate action projects.

“Due to funding constraints and lack of project preparation expertise, city governments often prepare project proposals with limited financial and technical information,” ESCAP said.

It also cited limited replicability and scalability of matchmaking interventions as challenges.

As part of its recommendations, it pushed for the use of the blended finance approach for better chances of financing climate action projects from design to full implementation.

“By using public grant money to build project pipelines and using private equity funds to finance later stage implementation, cities can address challenges of poor project preparation and secure greater amounts of funding than if they used only public or private funds,” ESCAP added.

To achieve blended financing, it said city governments should engage in private investor consultation during the early stages of project design, as this would provide a greater chance of securing investments.

According to ESCAP, city governments should also ensure projects are aligned with national strategies as the study found that such kind of projects were more likely to receive grants from development financial institutions and multilateral development banks.

To support city governments, ESCAP said financial institutions should create a list of projects they are interested in funding over the next 12 to 18 months, which would be shared with the local governments to guide project design.

ESCAP also recommended financial aggregation or linking city projects to smaller investors that are willing to buy shares in a green investment project, rather than finding just one investor to provide all the funding.

To improve the effectiveness of matchmaking efforts in the long term, ESCAP also called for the strengthening of the capacity of local governments to implement projects and secure financing.

“Overall, by bridging the climate financing gap, scaling up climate action impact, and tackling various national policy objectives, city matchmaking programs can effectively promote sustainable development in urban areas,” ESCAP said.