Localizing financing for sustainable climate-responsive development

Strengthening Confidence in Financing Local Climate-responsive Projects

5 years from the deadline of Agenda2030 it is crystal clear that attaining the Sustainable Development Goals (SDGs) will require the unlocking of local solutions, especially regarding climate-related efforts. In 2025 we will hear a lot about financing, including ‘Financing for Development’, ‘climate financing’ and ‘localization of financing’.

Find GCH’s policy paper “Strengthening confidence in financing local climate-responsive projects” here to read about examples of funding or financing instruments – such as catalytic finance, guarantee funds, public-private partnerships, and blended financing instruments – which contribute to the financing of localization of climate action.

The more strategic involvement of Local and Regional Governments (LRGs) in advancing the SDGs through localization and implementing relevant policies at the local level is crucial. Adequate funding should be channeled effectively towards impactful local projects. It requires the strengthening of the different dimensions of SDG localization: local planning; policy development; and localization of financing. It needs also local institutional capacity building and the adaptation of the international financial system.

GCH’s policy paper offers an overview of different channels alleviating the funding gap by strengthening investor confidence in financing climate-responsive projects undertaken by local and regional governments and affiliated entities that capture local conditions and citizens’ needs. Similarly to the challenge of sustainable development itself, financing the activities to face this challenge cannot be provided by states alone. A multistakeholder approach is needed – taking into consideration the specificities of the different institutional and private actors.

In places where national laws allow subnational government borrowing, they usually require cities to secure a sovereign guarantee which is not a reliable way for cities to access needed capital. To overcome this constraint, alternative avenues incentivize lenders to provide debt to borrowers that have a high degree of perceived risk, such as cities. International organizations, especially international financial institutions have a responsibility to work hand in hand with member states and LRGs to find the most adequate solutions.

The GCH recommends exploring the different options of advancing the investment in urban mitigation and adaptation infrastructure and services by:

• Promoting public-private partnerships structured at the municipal level for climate-related urban infrastructure projects;
• Developing credit guarantee programs for derisking borrowing for entities like cities that may lack creditworthiness and have insufficient collateral;
• Making urban climate finance a key component of MDB reform agendas by integrating urban content into country platforms through multilevel coordination;
• Strengthening the principle of inclusive multilateralism within the international financial architecture, incorporating the needs of local and regional governments.