Mind the gap: How bringing together cities and private investors can close the funding gap for urban resilience

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Image: World Bank

By 2050, two-thirds of all people will live in cities. Each year, 72.8 million more people live in urban areas. That’s the equivalent of a new San Diego appearing every week.
 
But fast growth, and a high concentration of people and assets, makes cities vulnerable to climate change and disasters.  By 2030, climate change alone could force up to 77 million urban residents into poverty.

As we celebrate Earth Day 2018 and continue the fight against climate change, cities are striving to become more sustainable, investing in ways to reduce their vulnerability to disasters and climate change.  Achieving resilience is the goal – and the good news is that cities aren’t alone on the team.




Meet Player 1: The cities
 
Local governments have already begun to invest in resilience. Cities in the 100 Resilient Cities network, for instance, have designed resilience plans that focus on better integrating, coordinating, and managing infrastructure, whether it’s new development or existing assets.
 
But their funding needs are enormous. Just to keep pace with expected growth, cities worldwide will need to spend trillions of dollars on infrastructure. 
 
It is clear that support from public financing and multilateral institutions like the World Bank won’t be nearly enough to meet those investment needs. Therefore, cities are looking more and more to partner with the private sector to finance infrastructure.
 
Meet Player 2: The investors
 
Fortunately, private investors are looking to create value for their clients. Developing cities are a great place to start, as their growing markets provide opportunities for high returns. Infrastructure projects that increase resilience can also boost productivity and spur job creation, stimulating the economy and paying off for investors in the long run.
 
This seems like a match made in heaven. Cities have a strong demand. Investors are eager to provide the supply of funds, pens at the ready to write checks for transactions the world over.
 
But it’s not happening.
 
Cities struggle to find funding. Investors claim they’re scouring the globe to find appropriate deals – unsuccessfully. What’s going on? 
 
Cities often lack the expertise to capitalize on their existing assets, or use mechanisms that mitigate the risks to their projects. Often, investors can’t deploy their capital because perceived risks are too great, transaction costs too high, or well-prepared projects too scarce.
 
So how can cities better access non-traditional sources of financing for resilience, and thereby enable investors to enter new markets? 
 
On April 20th, the next Resilience Dialogue will tackle these questions. The flagship event – organized by the Global Facility for Disaster Reduction and Recovery (GFDRR) in partnership with the World Bank, United States Agency for International Development (USAID), the European Union (EU), and Japan – will take place on the margins of the World Bank Group-IMF Spring Meetings and be streamed live online.
 
The discussion will give the audience a front-row seat to insights from investors on how cities can attract the resources they need for success – and on the crucial role that institutions like the World Bank can play in helping cities achieve resilience.
 
Enter Player 3: Multilateral development institutions
 
After all, the lending capacity of organizations like the World Bank is just a drop in the bucket of what cities require. So what can multilateral institutions do to build urban resilience?
 
The answer is that they, far better than any other institution in the world, can bring cities and investors together.
 
The World Bank and its partner institutions are uniquely positioned to act as advisors to cities and help them raise funds for resilience. The Bank can help cities better prepare more projects, has pre-existing engagements with national and city governments, and offers a range of financial products that reduce risk. These tools can help cities structure their resilience projects to have returns that match investors’ expectations, and risk that is compatible with their liability structures.
 
Once projects are prepared, multilateral institutions can also help bring in investors. Co-financing from the World Bank has a signaling effect in the market, and can catalyze additional financing from private investors.
 
Introducing Player 4: The City Resilience Program

The goal of the City Resilience Program – supported by the World Bank, GFDRR, the Swiss Secretariat for Economic Affairs (SECO), and Austria – is to make that happen. The program works with technical experts and financial advisors to identify project designs that offer opportunities for investors, and to work with cities to access a wider range of sources of funds to get their projects done.
 
The need for urban resilience is urgent, the funding gap intimidating, the challenges complex. But if cities and investors can team up with the help of multilateral institutions, the cities of the world will be much closer to achieving resilience. 
 
The Future of Resilience: Banking on Cities,” part of the Resilience Dialogue series, will take place from 5:00 – 6:30 pm on April 20th Eastern Time, at World Bank Headquarters (JB1-080) and online at World Bank Live. Organized by the Global Facility for Disaster Reduction and Recovery (GFDRR) in partnership with the World Bank, United States Agency for International Development (USAID), the European Union (EU), and Japan, the event will bring together panelists from a diverse set of organizations, including 100 Resilient Cities, European Investment Bank (EIB), PwC, Uganda’s Kampala Capital City Authority (KCCA), and UNFCCC.
 
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Authors

Marc Forni

Lead Disaster Risk Management Specialist