According to the UN’s World Urbanization Prospects Report, 54% of the world’s population currently lives in cities. This proportion is expected to increase to 66% by 2050. This would mean that by 2050 there would be nearly 2.5 billion more people living in cities than today. India is predicted to add 404 million urban dwellers, China 292 million and Nigeria 212 million by 2050. The UN’s forecast shows that in Africa alone, current trends in urbanization will add 800 million people to the world’s urban population.

The world’s population lives in cities


Source: United Nations

Considering the stunning pace of urbanization, many countries will eventually face various related risks and challenges, such as housing, infrastructure, energy, transport, public safety, and healthcare, among others. According to the World Bank, without significant investment in making cities more resilient by 2030, natural disasters may cost cities $314 billion annually, up from around $250 billion currently, while climate change may push up to 77 million more urban residents into poverty. Thus, it is imperative for national governments to invest in sustainable, low carbon, smart cities in order to mitigate future risks and to meet the needs of fast-growing urban populations.

Investment

Investing in sustainable cities can reignite economic growth by creating millions of jobs and unlocking billions of dollars of new investment opportunities.

Based on the New Climate Institute Report, in China and the US alone, low carbon technologies could create 1 million additional jobs by 2040. Moreover, the EU’s “Clean Energy for All Europeans” program will create some 400,000 new jobs and add up to €130 billion to the EU economy by 2030.

Investing in sustainable urban infrastructure such as public transport, increasing efficiency and improving waste management could generate energy savings of up to $16.6 trillion by 2050, according to the New Climate Economy Report.

It is estimated that more than two-thirds of total investment in infrastructure over the next 15 years will be in cities. Thus, governments and finance institutions will need to shift their investments towards sustainable infrastructure in the medium term.

According to the New Climate Economy Report, a combination of public and private investment totaling $90 trillion will be needed by 2040. This would mean that the $2.7 trillion that is currently invested in infrastructure globally every year would have to increase to $6 trillion. Global infrastructure investment should currently be at $3.7 trillion, but in actual fact is $2.7 trillion. Thus, global infrastructure already faces an annual financing gap of some $1 trillion.

Finance

It is estimated that private sector investment could fill up to half of the infrastructure-financing gap. Therefore, access to finance from the private sector is vital for sustainable projects. Currently, a lack of access to finance for large-scale sustainable urban infrastructure projects is one of the main challenges facing cities. According to the World Bank, only 4% of the 500 largest cities in developing countries are considered creditworthy. Public-private partnerships, and new tools like green bonds and green investment banking can play a crucial role in solving the issue of access to finance for sustainable urban infrastructure.

Green Bonds

Since cities are responsible for 60% of the world’s greenhouse gas emissions, green bonds are seen as an important tool in funding low-carbon city projects. The green bond market has grown extraordinary across the world since green bonds were first issued in 2007. A recent study conducted by the European Commission revealed that the issuance of green bonds globally has risen from $2.6 billion during 2012 to $74.3 billion in 2016 so far. European and Chinese issuers make up the largest share of the climate-aligned bonds market globally. Within the EU, France and the UK are the biggest green-bond issuers followed by Germany and the Netherlands. Corporate green bonds accounted for 36% of the issuance – the highest share ever, followed by municipalities with 15% and by banks with 12% as of 2016.

Issuance of green bonds globally


Source: European Commission

C40

Unlocking additional funding and finance is vital in meeting the needs of growing urban populations and boosting economic and social development.

The project, Action on Municipal Infrastructure Finance, launched by C40 Cities Climate Leadership Group with the support of 28 organizations, is one of a number of key initiatives helping cities and national governments develop strategies for sustainable urban development and solve the acute financing challenges.

The Financing Sustainable Cities Initiative (FSCI), a joint effort between C40, WRI Ross Center for Sustainable Cities, and the Citi Foundation, is helping city governments and investors develop business models that enable all stakeholders to move quickly from innovation to implementation and help cities to reach their full potential.

The 11 Best Cities of 2016 for Addressing Climate Change

The C40, which connects more than 85 of the world’s greatest cities, representing 650+ million people and one-quarter of the global economy, announced the 11 best cities of 2016 for addressing climate change.

Climate Action Plans & Inventories: Portland
Adaptation Plans & Assessments: Paris
Building Energy Efficiency: Melbourne & Sydney
Clean Energy:Yokohama
Finance & Economic Development: Shenzhen
Solid Waste: Kolkata
Adaptation in Action: Copenhagen
Transportation: Addis Ababa
Sustainable Communities: Curitiba
Social Equity & Climate Change: Seoul

Analysis

Urbanization forces countries to transform their energy, financial, and investment policies. Thus, national governments need to implement new sets of policies in order to mitigate future risks and challenges. It is imperative that countries around the world invest in climate resilient smart cities, which will reduce greenhouse gas emissions and climate risks, while increasing economic opportunities for urban citizens. As urban populations grow, national governments can either choose to implement effective road management, sustainable energy, excellent public transportation, a zero waste program and thereby save billions of dollars, or they can choose to ignore these issues and face natural disasters, water and air pollution, traffic fatalities and poor health for their citizens.

@InvestInGroup