Moldova’s capital city, Chișinău, recently secured a €20 million investment to tackle flooding and pollution of the Bîc River, aiming to transform it into a valuable recreational amenity for 100,000 residents and mitigate future flood risks. This funding, which combines loans from the European Bank for Reconstruction and Development (EBRD) and the European Investment Bank with a grant from the Green Climate Fund, will support both engineered and nature-based solutions to manage stormwater, improve water quality and enhance recreational spaces.
The EBRD’s Green Cities Program – a type of project preparation facility – played an instrumental role in securing this investment by helping Chișinău develop a green city action plan that emphasized the need for improved climate adaptation and water quality, ultimately leading to conceptualization of the Bîc River’s restoration project and attracting the necessary finance to implement the project.
As the dual climate and nature crises grow, cities must invest in transformative projects that address both challenges while meeting the social and infrastructural needs of their residents. And they must do so quickly and at scale. Cities are the world’s economic engines, innovation hubs, and centers of political and cultural exchange. As they find themselves on the frontlines of the climate and nature crises, investors are taking note: By 2030, climate investment opportunities in cities – where 75% of the infrastructure expected to be in place by 2050 to support burgeoning urban populations has yet to be built – are expected to reach a cumulative total of $29.4 trillion by 2030.
However, multiple challenges prevent cities from mobilizing the investments required to accelerate the green transition at the pace and scale needed. Accessing finance for climate-resilient and nature-positive projects can often be a daunting challenge for urban planners and policymakers, especially for those in the Global South where domestic budgets and fiscal autonomy are constrained, credit ratings are weak and technical capacity is limited.
This is where project preparation facilities (PPFs) come in. These specialized entities provide technical assistance, financial support and capacity-building services to cities as they prepare and structure their development projects. PPFs can offer vital insights to cities on how best to build the case for investment in their sustainability efforts. Chișinău, for instance, received critical support from a PPF – in this case, the EBRD’s Green Cities Program – to ensure that its Bîc River restoration project offered financers a clear cost-benefit analysis around the value of investing in flood mitigation infrastructure. Bridging the gap between cities’ goals and their financial viability, PPFs play a vital role in scaling up access to finance and driving urban transformation.
Contextualizing the Urban Climate-Finance Challenge
Urbanization is an inevitable global phenomenon. By 2050, over two-thirds of the world’s population will reside in urban areas. And as cities continue to grow, so do their complex challenges: from aging infrastructure and inadequate housing to environmental degradation and social inequality. Further, public coffers are constrained by losses due to the impacts of climate change, the aftermath of the COVID-19 pandemic and the global cost of living crisis. Addressing these challenges requires substantial financial resources, often beyond the capacity of individual cities or public-sector budgets.
Cities’ access to finance for development projects is hindered by various challenges, including a comprehensive lack of feasibility within project proposals. Oftentimes, investors perceive limited opportunities for financing due to insufficient risk analysis, lack of demonstrated and reliable revenue streams to repay investments, or insufficient scale, which results in higher-than-normal transaction costs. The mismatch between the long-term nature of urban development projects and the short-term investment horizons of many financiers exacerbates this problem.
The Role of Project Preparation Facilities
PPFs can play a pivotal role in overcoming these barriers and catalyzing urban finance. By addressing the challenges of project development, PPFs work to deliver the relevant analyses, assessments and options to enhance the attractiveness and quality of urban investments to both public and private financiers. PPFs support the preparation of urban projects throughout the project development phase, often categorized into four stages: (1) concept, design and scoping, (2) pre-feasibility, (3) feasibility, and (4) structuring and transaction.
Irrespective of the stage, PPFs help prepare urban projects for investment by addressing four key areas of support:
1) Capacity Building & Technical Assistance
To help local governments and project developers build technical capacity, many PPFs offer technical assistance such as guidance in project identification, feasibility assessments, financial modeling, risk management, and development of climate action plans and adaptation strategies. By equipping city stakeholders with the necessary skills and knowledge, PPFs empower them to develop high-quality project proposals that meet the requirements of potential investors.
2) Project Structuring & Risk Mitigation
PPFs assist in structuring projects to make them more attractive to investors. This involves demonstrating the technical viability of a particular project or solution as well as optimizing a project’s financial, legal and operational aspects to minimize risks and enhance investment returns. PPFs help projects explore different mechanisms — such as risk-sharing instruments, guarantees and insurance products — to mitigate the perceived risks associated with investments in urban development and clean technology, making projects more financially attractive to risk-averse investors.
3) Facilitating Access to Finance
By preparing investment-ready projects, PPFs bridge the gap between local governments and financiers. They act as intermediaries, facilitating connections between public and private investors, multilateral development banks and other sources of public and private capital. PPFs can also help mobilize funding through innovative financing mechanisms, such as blended finance, public-private partnerships and impact investing.
4) Promoting Sustainability & Inclusivity
By embedding equity and sustainability principles into project design and implementation, PPFs contribute to building the cities of the future that are more livable, resilient and inclusive for all residents.
Project Preparation Facilities in Action: 5 Global Case Studies
Around the world, PPFs and other kinds of urban project preparation support exist. Many are part of the Cities Climate Finance Leadership Alliance’s (CCFLA) Leadership for Urban Climate Investment (LUCI) framework, which aims to coordinate efforts between PPFs and like-minded organizations to help 2,000 cities prepare, finance and implement 1,000 climate-resilient projects by 2025. Recognizing the wide gulf between the need for transformative urban resilience projects and the number of finances and capacity-building resources available to support them, LUCI aims to raise ambition around financing urban resilience projects and show that targeted support and collaboration can accelerate progress.
Below, we outline five PPFs already unlocking climate finance for cities.
1) Subnational Climate Fund
The Subnational Climate Fund (SCF), launched by Pegasus Capital Advisors, International Union for Conservation of Nature and others, is a prime example of a PPF that focuses on mobilizing finance through a combination of concessional and conventional loans, particularly for projects with a focus on sustainable, nature-based solutions. With the goal of improving the lives of 17 million urban residents and creating 20,000 jobs, the SCF provides technical assistance, advisory services and financial support to subnational authorities to develop and structure bankable projects in sectors like transportation, energy, water and urban development.
In Portoviejo, Ecuador, a lack of water and waste management infrastructure means that most of the municipal solid waste generated by their 400,000 residents is landfilled, often under unsanitary conditions. Ecuador’s National Program on Integrated Solid Waste Management aimed to eliminate open and informal dumpsites and increase the recovery of recyclable materials from only 6% nationwide.
To address this challenge, the SCF provided technical assistance to Portoviejo to develop a new waste management plant. Support from the SCF also considered how informal waste pickers and recyclers could be integrated into the project (to ensure community buy-in), assessed the potential of using renewable energy sources (to power the plant), and evaluated the project’s feasibility of meeting regulatory requirements for emissions from waste combustion. Portoviejo’s planned waste management sorting plant aims to treat 150,000 tons of waste per year, reducing emissions, increasing recycling rates and creating local jobs.
2) Transformative Actions Program
The Transformative Actions Program (TAP), led by ICLEI – Local Governments for Sustainability (ICLEI) and supported by specialized partners, is a global initiative that helps subnational governments transform their sustainable infrastructure ideas into robust, bankable projects. Projects are mobilized through annual calls for applications and screened by sustainable finance experts. Projects with potential for impact receive personalized feedback and are connected to other PPFs that may provide further technical assistance and to financial partners that could support their implementation. TAP supports projects at all stages of the project development cycle, in all sectors and all geographical regions.
In Doumé, Cameroon, the “Access to Sustainable Public Services” project aims to increase sustainable and equitable access to electricity and water for its more than 10,000 residents by establishing a solar-powered potable water supply scheme and improving public lighting. At first, the project lacked the resources and capacity needed to demonstrate its feasibility and attract the estimated €2.4-3.8 million investment needed. By applying to TAP, the project received technical assistance from ICLEI to conduct a pre-feasibility study. ICLEI then facilitated the transfer of the project to the German International Cooperation Society (GIZ), which commissioned two additional pre-feasibility studies to assess several different technical and financial options to support the project’s goals. With these three studies in hand, the project in Doumé has made significant strides towards being investment ready.
3) City Climate Finance Gap Fund
Managed by the World Bank and European Investment Bank, the City Climate Finance Gap Fund, often simply called the Gap Fund, helps cities access critical financing to accelerate their low-carbon and climate-resilient urbanization ambitions. With a focus on Latin America, Asia, Africa and Eastern Europe, the Gap Fund offers cities a range of technical assistance and capacity building to support climate-smart planning. While the Gap Fund does not directly finance investments, it does offer project development guidance and assists in matching cities with potential funding sources as projects are developed.
In Indonesia, the Gap Fund provides technical support to six cities – Balikpapan, Banjarmasin, Cirebon, Malang and Palembang – to develop low-carbon solid waste management (SWM) master plans. For each city, the Gap Fund offers guidance by assessing existing SWM infrastructure, identifying areas for improvement, estimating costs and developing metrics to track progress. In addition, the Gap Fund provides government officials with access to capacity-building opportunities focused on developing climate-smart waste solutions.
4) C40 Cities Finance Facility
The C40 Cities Finance Facility (CFF) supports cities in emerging economies to create finance-ready projects that address both climate and socio-economic challenges. Collaborating closely with cities, the CFF helps transform sustainability priorities into bankable investment proposals. By 2025, the CFF expects to reduce over 2.5 million tons of greenhouse gas emissions across 30 cities worldwide, increase climate resilience for 2 million people and mobilize $1 billion in climate finance investments.
In Dakar, Senegal, the Grand Yoff District often suffers from flooding caused by bursts of heavy rainfall, exacerbated by illegal dumping of household water and wastewater in the city’s existing stormwater retention basin. Through the CFF’s support – spanning from capacity building to facilitating multilevel and cross-departmental collaboration to conducting technical hydrological studies – the project has secured $11 million in funding to redevelop the stormwater retention basin, ultimately reducing flood risks for ~10,000 residents. The project aims to create higher-capacity and more effective stormwater retention infrastructure in the basin that also doubles as a recreational area during dry season.
5) Nature-based Solutions Accelerator for Brazilian Cities
Led by WRI Brasil, the Nature-based Solutions Accelerator for Brazilian Cities is designed to address the lack of well-structured and financially feasible nature-based solutions implemented in urban areas. It supports early-stage, city-led projects by providing technical assistance, mentoring and opportunities to pitch project ideas to funders. During its first cycle, the Accelerator supported the development of 10 projects from cities across Brazil, facilitating exchange of knowledge and best practices between the cities, projects, local experts and nature-based solutions financiers. Based on their maturity and scalability potential, two projects – from the cities of Campo Grande and Maranguape – were selected to receive additional project preparation support and access to facilitated discussions with potential investors.
In Maranguape, the Pirapora Park project aims to construct a multifunctional area along a section of the Pirapora River plagued by flooding caused by unregulated urbanization. The park will include different nature-based interventions such as naturalized detention basins, rain gardens, bioswales and infiltration trenches which will slow and retain excess rainwater during floods, rehabilitate the river and improve the quality of the adjacent urban space, benefiting more than 11,000 people.
With technical support from the Accelerator, Maranguape conducted feasibility studies and developed a communications plan to engage stakeholders and the local community. This support strengthened the project, enabling the city to advance negotiations with the Brazilian National Development Bank for financing. A recent report published by WRI Brasil highlights the lessons learned from structuring early-stage nature-based solutions projects in Brazilian cities.
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PPFs have a pivotal role to play in scaling up access to finance for urban transformation to build the cities of the future that we need – ones that are resilient to the risks that climate change poses, that are fair and equitable, that can adequately house future urban populations and meet their infrastructure needs, and that conserve and restore nature. By addressing the challenges of project development, PPFs can unlock investment opportunities, promote sustainability and drive inclusive growth in cities worldwide.
A version of this article originally appeared on ShiftCities.org.
John-Rob Pool is Senior Manager of UrbanShift & Nature-Positive Urban Development at WRI Ross Center for Sustainable Cities.
Eillie Anzilotti is Communications Lead for UrbanShift at WRI Ross Center for Sustainable Cities.
Francisco Martes Porto Macedo is Senior Consultant at HAMERKOP Climate Impacts.
Jessy Appavoo is Head of UrbanShift at C40 Cities.
André Almeida da Vila is Innovative Finance Officer at ICLEI World Secretariat.
Bruno Incau is Regional Coordinator of Urban Development at WRI Brasil.
Magdala Arioli is Finance & Urban Economics Coordinator at WRI Brasil.
