Author: Signe Skov Jensen
Bio: Signe is a second-year Development student at IHEID, specializing in the environment and with a keen interest in sustainable finance regulation. Born in Denmark, she has previously studied in London and worked in the start-up space.
Most often, cities are not mentioned as actors on the global stage. This is a mistake. Cities are more active now than ever on the international scene and have started connecting through ‘city networks’ in order to tackle some of the most apparent challenges connected to urban life. The following projections attest that urgent action is required:
About 3.5 billion people already live in cities, and this number is expected to grow by another 2.5 billion by 2050 – with most of this growth to be observed in Asia and Africa (United Nations, u.d.; United Nations, 2018)
Cities make up only 3% of Earth’s land, yet the majority of the world population lives in them (United Nations, u.d.)
All points to one fact: cities are the future. They will be the battlefields of new inequities, navigate new migration patterns, and the center stage for climate disasters. Cities need sustainable solutions if they are to weather these challenges – and scholarship has long argued that they, in fact, already have them at hand (Broto, Bulkeley, & Edwards, 2015). The UN’s Sustainable Development Goal 11 underlines that cities are key in tackling social and environmental challenges of the present and future, and investors have long been sponsoring cities. Yet, despite this international recognition, only 384 billion USD were invested into cities’ climate finance projects in 2018. In reality, however, some 5.4 trillion USD will be needed to fulfill all expected climate needs (Cities Climate Finance Leadership Alliance, 2021). Why then are we barely investing in sustainable cities? Or, more precisely, why are we only investing in cities in developed countries?
It seems that green investments in general are not as plentiful as they should be if we are to truly commit capital to achieve the Paris Agenda. Yet, it is interesting to note that cities across the world are bursting with credible ideas and green innovations that would allow us to move forward – fast. This potential for growth and scaling of new solutions to climate challenges leaves impact investors with an obvious gap to fill.
We must also realize that the problem is multifaceted. Cities in developed countries, and especially in Europe, have access to capital that cities in developing countries simply do not. This is due, on the one hand, to the legal frameworks that EU and Schengen countries are part of and which developing countries are not, but it is also due to the fact that investors rarely put their money towards climate projects in cities outside of their own country’s borders (R20, 2015; Grandi, 2020). Basically, it means that, statistically speaking, a Dutch investor is much more likely to invest in climate projects in Rotterdam or Amsterdam than in Lagos or Mumbai.
But why does it matter that not nearly enough investments are reaching cities like Lagos or Mumbai? Simply put, the larger the city, the more at risk it is of climate-related disasters and other urban issues. In this context, it is significant to note that only two of the world’s more than 45 megacities are located in Europe (Paris and London) while 40 are situated in developing countries (UNESCO, u.d.). Yet, it remains that European cities are receiving by far the most investments per capita for their climate projects (Cities Climate Finance Leadership Alliance, 2021). In this way, the scale of the investment disparity between cities in developed and developing countries appears huge, and something must be done to change the status quo.
Through all of this, it should be underlined that the green transformation of cities in the developed world remains, of course, imperative. Electric buses in public transport, bike paths, and sustainable waste systems are perfectly necessary projects to finance in developed as well as developing contexts. Nevertheless, if we are to truly guide our resources towards a carbon free future and more peaceful urban realities, investors prioritizing the most at-risk areas of the world will not be such a bad thing.
In the end, a socially and environmentally responsible investor will aim to look at the world from a larger perspective and focus their capital where it might serve as more than a possibly profitable investment, but also leave in place positive outcomes and eventually make a true impact on its surrounding society. These are reasons as to why impact investors should open their eyes to the investment frontier that is sustainable cities – in all parts of the world. So, what’s stopping us? The finance gap for climate projects in cities is clear, and so is the solution. Let’s take action!
Author: Signe Skov Jensen
Editor: Hélène Oeuvray
Broto, V. C., Bulkeley, H. A., & Edwards, G. A. (2015). An Urban Politics of Climate Change: Experimentation and the Governing of Socio-Technical Transitions. London: Routledge.
Cities Climate Finance Leadership Alliance. (2021). The State of Cities Climate Finance: Executive Summary.
Grandi, L. K. (2020). Economic City Diplomacy. In City Diplomacy (pp. 83-95). Cham: Palgrave Macmillan.
R20. (2015, December 5). Climate Finance: a Status Report and Action Plan. Retrieved from https://regions20.org/wp-content/uploads/2016/08/ClimateFinance.pdf
UNESCO. (n.d.). Second International Conference on Water, Megacities, and Global Change. Retrieved January 2022, from https://en.unesco.org/events/eaumega2021/megacities
United Nations. (2018, May 16). 68% percent of the world population projected to live in urban areas by 2050, says UN. Retrieved January 2022, from United Nations Department of Economic and Social Affairs: https://www.un.org/development/desa/en/news/population/2018-revision-of-world-urbanization-prospects.html
United Nations. (n.d.). Goal 11: Sustainable Cities and Communities. Retrieved January 2022, from Sustainable Development Goals: https://www.un.org/sustainabledevelopment/sdgbookclub-11-archive/