Cities in developing countries will be at the forefront of confronting and mitigating the impacts of climate change, and they need substantial financing to address this challenge. Local governments (LGs)—especially municipalities responsible for managing cities—will need to make substantial investments in climate adaptation and mitigation, from greening existing and planned infrastructure to promoting the growth of low-carbon and climate-resilient communities. However, they often lack the fiscal resources for such investments, and despite global climate finance commitments, the funding gap remains substantial due to the high investment needs. LGs will need to mobilize resources using a variety of financing mechanisms and instruments. National governments will also need play a critical enabling and facilitating role to support LGs in this objective.

This report aims to contribute to discussions on increasing the access of LGs and cities to climate finance and help LGs understand various financing instruments and sources available to them to meet climate investment needs. It organizes these instruments in a conceptual framework and provides information on each, along with case studies (listed in table ES.1) presenting international experiences with their use. It also assesses constraints faced by LGs in accessing these instruments and provides recommendations for LGs, national governments, and development partners to increase and facilitate this access to help meet climate investment needs.