The fiscal response to COVID-19 is estimated globally at US$12 to US$15 trillion committed, but cities may have trouble accessing it, and only 3%-5% of announced funding is identifiably ‘green’.

As the global COVID-19 pandemic approaches the one-year mark and much of the world girds for a worsening wave of the virus during the northern hemisphere’s winter, the challenges of managing the economic and social wellbeing effects are as acute as ever. Among the most affected are city governments, which are on the front lines managing a health emergency, an employment crisis, and daunting logistics and tradeoffs to safely manage the provision of public services, all while tax revenues are cratering and public expenditures are skyrocketing. Add to this the urgent and growing problems of climate change and inequality, and one begins to understand the fearsome predicament facing mayors of cities across the globe.

Despite this spate of difficulties and challenges, there is hope – and a growing consensus – among political leaders and policymakers that a suite of coordinated approaches can tackle these problems simultaneously. At the height of the pandemic’s first wave in April, C40 Cities Climate Leadership Group convened a Global Mayors COVID-19 Recovery Task Force of 11 mayors “established to drive forward an economic recovery that improves public health, reduces inequality and addresses the climate crisis”. Building on a set of principles addressing these interconnected crises, in July the Mayoral Task Force (MTF) released its “C40 Mayors Agenda for a Green and Just Recovery,” highlighting eight foundational policy realms around which to build a green and just recovery to COVID-19. This action agenda, which cuts across green jobs, supporting essential workers and essential services, and building green and resilient, socially-oriented and hyper-local communities, elaborates upon the vision established in the task force principles and creates an initial blueprint for priority-setting, policymaking, and action.

Implementing C40 MTF’s vision for the COVID-19 recovery makes it imperative that stimulus plans and packages that national governments and development finance institutions around the world have unveiled and funded to revive the economy are aligned. While stimulus packages, in most cases, may not be designed and authorized with cities in mind, cities and other subnational jurisdictions are typically the organs of government at the community level implementing programmes, executing investments, and disbursing funding. That the fiscal response is at an unprecedented scale – estimated globally at US$12 to US$15 trillion committed – cities thus have an enormous stake in how stimulus funding for the COVID-19 recovery is targeted and accessed.

Assessing these stimulus plans, on October 28 the C40 MTF issued a statement warning that the global response of governments is not measuring up. Recent research issued by C40, compiled in “The Case for a Green and Just Recovery” to which Climate Finance Advisors contributed, found that only 3%-5% of announced or enacted stimulus has been targeted as ‘green’. This is an aggregate global figure, and in reality the ‘greenness’ is highly uneven across countries ranging from leaders such as the EU at about 30% to China at less than 1% green, with virtually all large non-EU economies creating a net environmental negative impact from stimulus spending. This business as usual approach to stimulus spending falls well short of the MTF’s vision and also shy of the investments required to make good on the Paris Agreement’s mitigation and adaptation goals. “By ignoring the opportunity to make rapid green stimulus investments, most national governments and global institutions are likely leading us to catastrophic climate change”, the statement noted. The research brief underscores the overwhelming rationale for a green recovery in terms of reduced emissions, solid job creation, improved air quality, and greater liveability of cities. And in fact, the gap between present stimulus trajectories and alignment with the Paris Climate Agreement is not so vast – it is estimated that shading just 10% of stimulus spending green can keep these goals in reach.

Despite these frustrations, city leaders still retain a good deal of agency in attracting financial resources to address both the immediate crisis response and recovery as well as their municipalities’ middle- to long-term sustainable development objectives. A new report released today, commissioned by C40 and prepared by Climate Finance Advisors, surveys the landscape of financing opportunities for the green recovery and captures the scope and breadth of the opportunities, and what steps cities can take to position themselves to tap into these resources.

The report reaches the encouraging and empowering conclusion that, in general, there is no misalignment between city goals and the direction of leading actors in the private and public finance markets. Green and socially themed finance is growing and delivering superior risk-adjusted returns. Investors are no longer ignoring climate impacts and loss of biodiversity and natural capital. This newfound interest in environmental sustainability is driven by two factors: the need to better manage ESG and climate risks and related drivers of returns, and the imperative to make investing ethical and aligned with global SDG and climate goals. Financial innovation — including labelled loans and bonds with defined social, environmental and/or climate objectives, which are showing record issuances in 2020 — is a growing feature of the public and private capital markets and may offer direct or indirect financing to cities to support the MTF agenda.  Other instruments such as sustainability linked loans and debt-for-climate or debt-for-nature swaps and just transition bonds shows the appetite for financial market actors to be fully supporting partners in a green and just recovery agenda. Policymakers are further reinforcing these market trends in the quest to fix enormous systemic risks in economies and financial markets and spur investments in a low-carbon transition, climate resiliency, and nature-based solutions that are near-term job generators, long-term engines for growth, vehicles for advancing social equity.

Encouragingly, development finance institutions (DFIs), including the multilateral development banks (MDBs), have accelerated investments and availed of innovative capital-market instruments since the start of the pandemic to support sovereign and sub-sovereign borrowers. Various climate finance and project advisory programmes targeting cities, such as the City Climate Finance Gap Fund have been strengthened through the pandemic or are newly emerging.

Still, cities also face headwinds in seeking investment capital for a green and just recovery.  Public stimulus spending and financial markets regulations lag what is needed – though leading public, regulatory and private actors are developing principles for a sustainable recovery. The pre-pandemic challenges that cities faced in accessing resources to finance their operations and capital programmes remain, however, and are being more acutely felt in some cases. Capital market investors remain under-committed to infrastructure and often find subnational projects unavailable to them. And while DFIs are clearly shifting their priorities toward the low-carbon transition and resilience, none of the nine major MDBs are presently Paris-aligned, and much of the present pandemic-related financing comes from existing programmes and finance windows.

There is still a way to go for the financial community to make sufficient resources available for the green and just recovery – and for cities to position themselves to access those resources. A forthcoming follow-on report will examine more closely the response of the largest DFIs and MDBs to make resources available to cities for the green recovery, and a second blog post to follow shortly provides a set of suggestions to cities to position themselves to tap into those and other stimulus funds to power the green recovery.