CCLFA side-event at Habitat III Thematic conference in Mexico City (event report)

A Green Deal for Cities and Regions Climate Finance: Partnering for Change in View of Habitat III 

On 9 March, on the sidelines of the Habitat III thematic conference in Mexico City (9-11 March), the CCFLA hosted an event entitled, A Green Deal for Cities and Regions Climate Finance: Partnering for Change in View of Habitat III, which aimed at showcasing the achievements and highlights of the alliance and its members, in terms of knowledge stocktaking on Subnational Climate Finance streams, innovative financial mechanisms, empowerment of local and regional governments and connexions with supply/investors.

The event also provided an opportunity for the elected officials member of the Leaders League on City Climate Finance (represented here by Geoffrey Makhubo, MMC for Finance, Joburg) to engage in dialogue with the representatives from each constituency of the CCFLA (national governments, local governments networks, development finance institutions and private banks, investors, NGOs, innovation labs, etc.).

 

Empowerment of Local and Regional Governments

The event opened with an introductory remark from Geoffrey Makhubo (Councillor, Member of the Mayoral Committee for Finance of Johannesburg, and co-President of FMDV) who reiterated the wide gap existing between the needs, opportunities, and plans available for local, metropolitan and regional governments (LMRGs) to finance decarbonised and resilient infrastructure.

He saluted the CCFLA’s 2015 flagship report on the “State of Cities Climate Finance” and its knowledge stocktaking in tracking subnational climate finance, as well as the subsequent set of recommendations to bridge the gaps identified. Mr. Makhubo particularly emphasized the leadership of LMRGs in addressing climate change, and the importance and relevance of city-to-city cooperation, as well as the value of the support given by international LMRGs networks such as ICLEI, UCLG, Metropolis, C40 and FMDV in empowering LMRGs and increasing their capacities and opportunities.

“We need a strong agenda on empowerment and capacity-building, and the provision and systematization of dedicated methodologies and tools; and of course institutional processes that will allow local governments the opportunities to engage with greater local resource mobilization, development finance, guarantees, credit enhancements, and private investments.

We also need intermediaries that understand our needs, integrate adapted mechanisms and credit lines, and stand by our side while supporting our efforts to plan, prepare, implement bankable projects, and articulate those through integrated strategies for transforming economic paradigm towards de-carbonised urban development.

This is far more complex and time consuming than just formulating the wish to do so. This is why we were glad to see the Cities Climate Finance Leadership Alliance being created in 2014 by Ban Ki-moon. And as FMDV, we are already supporting CCFLA in its mandate to deliver increased capacity and supply for cities and regions, as part of its Secretariat.”

 

It is clear that the growing need for financing increasing demand for sustainable infrastructure rests on the shoulders of LMRGs. Louis-Antoine Souchet (Senior Project Manager of the French Development Agency – AFD) reiterated CCFLA’s propositions.

“CCFLA constituencies have come together for the first time to propose a set of measures that can improve the flow of financing to low-emission, climate-resilient urban infrastructure, focusing on measures that have high near-term potential for impact, could attract private capital and would be relatively easy to scale and replicate. These key measures include:

  1. Engaging with national governments to develop a financial policy environment that encourages local governments to invest in low-emission, climate-resilient infrastructure.
  2. Supporting local governments in developing frameworks to price climate externalities.
  3. Developing and encouraging project-preparation facilities and their convergence to maximize support for mitigation and adaptation projects.
  4. Engaging with local financing institutions to develop climate-finance infrastructure solutions for local governments.
  5. Create a lab or network of labs to identify catalytic financial instruments and pilot new funding models.

While CCFLA recognizes that these proposals alone will not overcome the full set of complex challenges, they are an important step towards empowering and encouraging low-emission, climate resilient territories.”

Mr. Souchet also shared some highlights of AFD’s programmes in building enabling environments for LMRGs.

“We are encouraging the rise of debt markets at national level in order to reach more local governments, and not only big cities. This means adapting legal frameworks to enable these local governments to contract loans for long term financing, and work on better orienting classic tools (such as loans, credit lines, credit enhancement) to municipalities; we also support and promote the important role of local financing institutions as intermediaries for channelling climate finance to subnational levels.”

The debate emphasized that the strong involvement of LMRGs to the various international negotiation processes, and to CCFLA’s dynamic on climate finance has to be more and more linked to the commitments and actions of other non-state actors. It is indeed integral to CCFLA’s innovation the creation of a link between all the stakeholders around the financing chain including national governments, subnational networks and non-state actors.

 

The Role of Non-State Actors

Ronan Dantec (UCLG Spokesperson for Climate) highlighted the importance of the engagement of global non-state actors who will convene in the Climate Chance Summit in Nantes next September (26-28th), in preparation for Habitat III and COP22. Non-state actors have a crucial role in pushing and encouraging national governments to evaluate and ensure that existing investments respect climate goals and SDGs, and that this finance is accessible to local and regional governments.

“Access to finance is crucial to cities across the world. It is not a question of money and direct subsidies, but more a question of capability to access adequate funding. The money exists. Access is a different issue! One of the most important discussions to take place in Nantes is how to use the Green Climate Fund as a tool of guarantee for cities to have access to loans with decreased interest rates… After the Paris agreement, it is now a question of tools.”

 

Getting Into the Motion of Action

Henry de Cazotte, Habitat III Special Representative of the French Ministry of Foreign Affairs and International Development, echoes these points, and underscores the need to get into the implementation phase, by taking advantage of the route to Habitat III as a way for state and non-state actors, and local and regional governments to get into the motion of action.

“We need to change the level of discussion from a technical one to a political one and put it at the right level. We need to better engage with finance ministers. This is why Habitat III is so important to make a difference. This is also why the CCFLA is so important; we need more Labs to innovate for climate finance, for green infrastructure, for green adaptation in cities. CCFLA is a powerful driver to change rules and mechanics that prevent access to these finances.”

These innovation labs are one of the pillars of CCFLA’s action plan to develop and launch new financial mechanisms at the local level.

 

Innovating in Financial Mechanisms

Yunus Arikan (Head of Global Policy and Advocacy, ICLEI) cited the CCFLA report showing that only 26% of total funding by the 8 leading financial institutions in the world goes to climate finance, and only 30% of which goes to urban climate finance. This has to change. The Transformative Actions Program (TAP) aims to bridge the gap between subnational climate action plans and projects and access to public and private climate investments, with the support of grants and loans from multilateral development banks. Mr. Arikan also touched on exploring other sources of funding.

“We also need to work more in going towards other processes where we do not have that much dialogue – trade agreements and market reforms, for example. The volume of money in these transactions can be new sources that can generate funding. We need to keep on innovating because money is there. And CCFLA will be exploring these trends in the future.”

Linking innovation and financial engineering to the empowerment of local and regional governments, C40 is setting up a City Finance Facility to support and encourage innovation in megacities, which most of the time, are not expected to design their own financial mechanisms. James Alexander (Head of Finance and Economic Development Initiative – C40) said that mayors set targets, and create visions, but they lack the capacity to turn those ideas into bankable projects that the market can take forward. The idea of the finance facility is not only to help megacities to tackle this challenge, but more importantly, to work with them and provide technical assistance to help them build their own capacities.

“For example, credit worthiness has always been mentioned as one of the biggest challenge for cities. We help them to have their accounts and finances in order, and develop a strong capital investment plan. If we can get cities to work on these few things, we are one step closer to successful transactions.”

Vito Intini, UNCDF’s Municipal Investment Finance Program Manager, on its side, has developed the program Local Climate Adaptive Living Facility (LoCAL) providing technical and capacity building support to integrate climate change adaptation into planning and budgeting systems of local governments in Least Developed Countries.

“Through LoCAL, we support cities in LDCs in the fiscal decentralization process particularly through adopting performance based grants. We have a top up of 20-25% of fiscal transfers for municipalities that meet minimal conditions and performance indicators such as having a long-term sustainable development plan, or having adopted a climate investment plan with a specific list of investment projects related to climate change adaptation. This helps local governments to develop little by little a culture of climate resilient investments through the technical budget programming procedures, fostering local governments empowerment for future and more complex local development investments related to climate change adaptation and mitigation.”

 

The Mexico City Declaration on Financing Urban Development: Localizing Finance for Inclusive Change

As a conclusion, Geoffrey Makhubo FMDV’s Co-President and Carlos de Freitas, FMDV’s Director of Programs, explained that CCFLA will foster the convergence of all these dynamics, processes and actions oriented toward local, metropolitan and regional governments climate financing.

As an accelerator and catalyser for innovation in partnering, engineering and scaling-up, CCFLA is expected to deliver and connect the international agendas, especially in better connecting the 2030 Agenda and its SDGs, Financing for Development work stream, the COP agreements and the New Urban Agenda to be adopted at Habitat III in Quito, Ecuador in October 2016.

By enhancing the dialogue and co-production of knowledge, strategies and mechanisms with its broad membership, CCFLA is already innovating.

As a result of CCFLA’s first achievements in 2015, the Habitat III Mexico City Declaration on Financing Urban Development recognizes the CCFLA as a “major step forward in better connecting demand and supply in resilient and low-carbon local infrastructure financing”.

By Members: