How the World Bank is accelerating urban climate finance

Over the past year, every region of the world has been hit by extreme weather and climate events, from the unrelenting heat waves in South and Southeast Asia, to the extensive flooding in Africa and central Europe, to the wildfires burning across Western Canada and the United States.

Cities – where nearly 60 percent of the global population live – are disproportionately at risk. And with urban areas also responsible for 70 percent of global greenhouse gas emissions and 80 percent of global GDP, it’s clearer than ever that cities are also a key part of the solution.

However, a limited access to finance is posing a critical barrier to cities’ climate action plans. The World Bank and other multilateral development banks (MDBs) are working to help, by scaling up urban climate finance and technical assistance to support city climate efforts and achieve the objectives of the Paris Agreement.

As we mark Urbanization, Transport and Tourism Day at the 29^th Conference of the Parties (COP29) to the United Nations Framework Convention on Climate Change (UNFCCC), we are sharing an updated analysis of our urban climate finance portfolio. It shows the significant strides we have made in scaling up urban climate finance, while acknowledging the considerable work that still lies ahead.

Analyzing Urban Climate Finance at the World Bank

Climate is core to our business at the World Bank. Between fiscal years 2019 and 2022, the World Bank allocated $17.9 billion to climate finance initiatives in cities and urban systems. This represented almost a quarter of all climate finance channeled by the World Bank during this period.¹

Of this, $8.5 billion, or nearly half, was earmarked specifically for climate adaptation, underscoring how the World Bank is prioritizing resilience in urban settings. This is particularly important in low and middle-income countries where climate vulnerability is greatest and because adaptation investments rarely attract private finance due to their risk-reward profile.

For example, our urban climate finance has included projects focused on:

• Urban wetland restoration under the Second Rwanda Urban Development Project
• Improved institutional capacity for urban management and access to infrastructure and services under the Kinshasa Multisector Development and Urban Resilience Project
• Disaster and climate risk-informed urban planning for low carbon, compact cities under the Resilient Kerala Program.

Notably, the average annual amount that the World Bank dedicated to urban climate finance increased by 30% compared to our previous reporting period, rising from $3.4 billion each year in FY2017-FY2018 to $4.5 billion each year between FY2019-FY2022.

From a regional perspective, almost a third of all World Bank urban climate finance was dedicated to projects in Africa, the region experiencing the most rapid rate of unplanned urbanization with the highest vulnerability to climate risks.

The Link Between Urban Development and Climate Finance

Development and climate adaptation finance are fundamentally interconnected, particularly in urban areas, because resilience is inherently a development challenge. Cities struggling with poverty, inadequate infrastructure, and limited access to basic services cannot effectively manage climate risks. And it is the urban poor, especially those living in informal settlements, who are disproportionately affected by climate change.

As such, development and climate adaptation finance are both essential for urban resilience. While the World Bank is contributing to urban climate adaptation through projects like upgraded drainage and flood protection systems, we are also contributing through urban development projects that help lift people out of poverty and expand their access to affordable housing and essential urban services.

Faster, more inclusive urban development reduces climate vulnerabilities by reducing the number of highly vulnerable people and equipping communities with the resources they need to recover from shocks and build resilience. Much of this progress is being driven by the World Bank’s urban development finance, which is supporting cities’ adaptive capacity, such as planning, resource mobilization, and community participation, even when it is not explicitly labeled as urban climate finance.

Bridging the Urban Climate Finance Gap Through Collaboration

While the progress made is commendable, we must recognize that much more is required. Cities in low and middle-income countries are facing an enormous urban climate finance gap, requiring between US$840 billion and US$1.4 trillion annually to develop climate-resilient infrastructure.²

Development finance institutions are already the largest source of public funds for urban climate finance, having contributed over 30% of overall public urban climate finance in 2021-2022. And at COP29, the World Bank joins the other MDBs to collectively reiterate our commitment to accelerating urban climate finance even further.

However, even combined, the MDBs cannot fully close the urban climate finance gap. Bridging this gap will require broader cooperation and partnerships among diverse groups with resources and expertise. Collaboration between MDBs, city networks like C40 and the Global Covenant of Mayors (GCoM), private sector actors, philanthropy, and climate finance facilities will be critical.

To advance these partnerships, the MDB Cities Group, convened by the World Bank and European Bank for Reconstruction and Development, has proposed a more structured series of engagements between the MDBs and city leaders and groups. We plan to meet regularly over the next 18 months with a focus on scaling urban climate finance and enhancing urban adaptation.

In conclusion, while the MDBs, including the World Bank, have made commendable strides in scaling up urban climate finance, the challenges ahead remain significant. By working in partnership, we are working to accelerate the flow of necessary resources to cities. Together, we are pushing for more urban climate finance to build more livable cities for a livable planet.

^{1: Climate finance as defined by the Joint MDB methodology on climate finance. The latest joint report on MDB's climate finance is accessible here.}

^{2: Forthcoming World Bank report on Investing in Low-Carbon and Resilient Cities.}