‘Developing countries are struggling to get climate-related finance’

Cities, as is well known, are large emitters of gases that cause climate change and, also, extreme sufferers of its impact (Wayanad landslide in the photograph above). If climate action has to be in cities over the next few years, how are they preparing for it, especially in India, as they expand their footprint with larger areas and bigger populations, but find themselves strapped for finance?  These are some of the questions that Shruti Narayan, Managing Director, Regional and Mayoral Engagement at C40 Cities, responds to. 

C40, with nearly 100 cities as members, has been among the global policy think tanks, nudging cities towards climate action through consultancies and projects with urban local bodies. “Eighty percent of India’s cities face significant climate risks…Finance is very, very, important. It’s not a question of how much finance they can access but what kind of finance because it’s typically given as debt. This means that if a city is already burdened with a climate disaster how will it pay back loans,” points out Narayan in this interview with Question of Cities, delving into the crucial issue of climate finance (the fulcrum at COP29 which recently concluded in Baku, Azerbaijan) and climate budgeting.

Cities have now been recognised as centres of climate action if net emissions have to be brought down. Is it already too late?
Cities occupy two percent of the world’s landmass and generate 80 percent of the world’s Gross Domestic Product, but are responsible for about 75 percent of energy-related emissions. It’s clear now, if it wasn’t earlier, that cities are where our battle against climate change will be won or lost. No, I don’t think that it is too late. Not yet, at least, but if we don’t take urgent action in the next five years, which will be critical, it’s going to be very late. We are at a point where we can look at turning the needle of how cities respond to climate action. 

Cities have bold ambitions on climate action. We, at C40, have seen this since 2017 as we worked with different cities across the world to develop data-driven, evidence-based climate-action plans. Cities in our network have committed to reducing emissions, aligned with the Paris Agreement, and 75 percent of them are reducing per capita emissions faster than the countries they are in. But if more climate action in more cities does not happen in the next five years, then it’s going to be irreversible change.

Climate action in cities, to counter the extreme weather events which destroy nature and adversely affect the vulnerable, is dependent on plans and finance. How do you see India’s cities in both these aspects?
Eighty percent of India’s cities face significant climate risks. An annual adaptation investment of nearly USD 20 billion is required by 2050 for them to be protected from climate risks. But it isn’t only about finance. 

Every time a city faces a climate hazard, authorities immediately start jumping reactively to it. The challenge is for them to become more deliberate in the way they look at climate risks and incorporate them into the urban infrastructure. Every dollar spent on a deliberate attempt to integrate climate risk in the built environment can save nearly USD 4 to 5 spent to restore infrastructure after a climate event. 

We, in India, are getting hugely impacted by climate events and risks – from severe heat and urban flooding to air pollution and landslides in Kerala and north India. Climate risks are imminent. Finance is very, very important, and developing countries are struggling to get climate-related finance. It’s not a question of how much finance they can access but what kind of finance it is because it’s typically given as debt. This means that if a city is already burdened with a climate disaster how will it pay back loans? 

So, we need to start engaging with the multilateral development banks on the kind of finance cities can access when a disaster strikes. And, also question the loss and damage, how some of these funds are being created, how cities can quickly access finance that they need to recover, and how to proactively start incorporating climate resilience as a part of the infrastructure. 

The second point I want to flag off is that many city governments still see climate as a separate issue from day-to-day governance but we don’t have the liberty or luxury now. Cities have to incorporate climate with governance.

Do you mean climate plans and budgets?
I want to outline two points here. One is systems like climate budgeting have become necessary as a governance process to ensure that climate actions and targets are incorporated as part of the internal accounting systems of municipal bodies. We did the first global pilot about two years back and, now, 12 cities globally including Mumbai are a part of the climate budgeting process. This becomes important because when a city wants to raise funding, their credit rating and credit-worthiness are assessed. Climate budgeting helps cities become responsible in a fiduciary way.

Secondly, it’s now important to integrate climate action as part of urban planning. Master Plans or Development Plans are legal documents charting a city’s growth trajectory, deciding land use allocations, mobility, and so on. Incorporating climate targets into planning will help cities make better decisions, ensuring the balance of blue-green infrastructure, tree areas, and so on. When cities prepare climate action plans, like several cities in India have done, those have to get integrated and institutionalised — what we call mainstreaming – and become a part of the way the city looks at its statutory documents or accounting processes. This is the finance aspect. Two key examples are master planning and budgets. 

How exactly does the climate budget work?
Climate budgeting is a governance system and an approach for delivering climate action. Through its framework, the climate budget looks at driving short-term implementation into medium and long-term climate commitments, and these into funded and measurable actions. And it does this by embedding climate targets, measures, and considerations into the city’s budgeting process. So that anytime the city is doing its budget planning, spending or reporting, they are looking at delivering of the climate targets. London, Mumbai, New York and Oslo have already adopted climate budgets. 

We are also working with cities like Montreal, Berlin, and Tshwane besides Ahmedabad and Chennai in India. We supported Mumbai on its climate budgeting, along with the World Resources Institute. We are studying how Tamil Nadu’s Town and Country Act might need to be revised to make climate action plans an integral part of the growth of cities. We are working with the Chennai Metropolitan Development Authority (CMDA) to integrate the climate action plans into the master plan that it is developing. 

Climate budgeting takes time because it’s a very involved exercise. We have been talking to NITI Aayog and plan to approach the Ministry of Housing and Urban Affairs to develop frameworks for climate budgeting that all cities can use. 

What kind of an urban governance architecture should there be for climate finance and climate budgeting to be effective?
The key here is the empowerment of urban local bodies in making decisions; responsibilities aren’t devolved and there’s a lot of integration of cities with state governments and policies can be restrictive. It is important for cities to incorporate climate into their governance and into accounting procedures. For example, even building pavements has a climate lens; the targets can be integrated into accounting. 

Then, there has to be a department and a position of authority that’s responsible for climate action in a city. Climate is a cross-sectoral issue which means both data sits with various departments and impacts have to be handled across departments. There needs to be an institutionalised mechanism, a climate department or climate cell headed by a senior bureaucrat so that the delivery of climate actions is streamlined. 

The last point here is about data which is needed for monitoring and evaluation. Targets have to be tracked, data is needed to make good decisions and quickly. 

How would the Loss and Damage Fund, or climate finance devolve to cities?
There’s now a banker from Senegal, Ibrahima Cheikh Diong, tasked to lead the United Nation’s Loss and Damage Fund. The money in it is a drop in the ocean but it’s a step forward.

The devolution to cities is something that’s been discussed with the multilateral development banks (MDBs) in general. What happens with most of these funds is that cities need state approval and a sovereign guarantee. Sometimes, there may be other loans on-going or the state government may not allow direct lending to a city. So, I believe it’s important to have a mechanism in which cities can directly raise capital and also apply for this funding.  

The U20 Summit in Rio called for “meaningful investment in urban climate action”. What steps can India take on this?
India has affirmed its cooperation to unlock climate finance but it needs to be active. The revision of Nationally Determined Contributions will be submitted next year. It will be good for the Indian government to engage with cities and have strong targets in its national climate plan, enlist subnational or city actors, and keep a focus on climate justice. Brazil recently did this by committing to reduce net greenhouse gas emissions by 59 to 67 percent by 2035 relative to 2005 levels.^[1]

Secondly, it’s an ask from the national government to support cities so they can mobilise at least $100 billion needed for public investments. How this can be earmarked for work on climate equity and resilience is important. Developing countries, which are impacted, are not responsible for climate change; vulnerable communities that have not really contributed either are facing impacts. The U20 is important as a platform that brings cities around the table every year to prepare a communique that’s presented to the G20.

The National Adaptation Fund for Climate Change was established eight years ago to help states fight the climate crisis. Are the budgets enough to support adaptation measures, especially in states that are most vulnerable?
Absolutely not. We are nowhere close to the kind of money needed for adaptation at the global level but, even within India, we need to accelerate efforts. The private sector must come forward in different countries to make commitments and earmark money to support climate action efforts. 

We are running out of time. Every country has its commitments but what’s definitely needed is a revision of national adaptation plans which is also due next year. I know the MOFCC is working on that. The challenge with adaptation is that there are still no funding mechanisms that can directly support adaptation because of the lack of tangible outcomes but there’s mobilisation and thinking of what the mechanisms could be. 

What would really help in India is a deep focus on the national adaptation plan and a correlated focus on how much money is needed and where it can come from. India has an active National Disaster Management Authority which should be empowered. There’s a governance structure too with states having similar authorities. Drawing on the structure and the work they do would be interesting.

How do climate justice issues intersect with climate finance and climate budgeting?
One is that there is not enough money. The second is, if there is money, how to access it and what kinds of frameworks exist. Imagine this: a city or a nation is already in debt and suffering, which makes it more vulnerable, but its suffering deepens with climate events. So, climate is a justice and equity issue. The already vulnerable communities, cities and nations are the most impacted by climate risks. Therefore, the mechanisms of climate finance need to be able to address communities, cities and nations. 

If a city gets a loan, for climate mitigation, of $100 billion at the market rate of interest, how will it pay back? This will impact its economy. We have to come up with financial instruments that are lending to cities directly because they are the ones that are front-facing when climate risks happen. They are the first to respond. For example, if there is flooding in Mumbai during a typhoon, cyclone or excessive rain that is driven by climate change, the first responder is going to be the city, or the Brihanmumbai Municipal Corporation. So, they need to be empowered and given access to money directly. Secondly, cities should be able to access money without having to always pay back at market rate so that the burden is not on them.

Shobha Surin, currently based in Bhubaneswar, is a journalist with more than 20 years of experience in newsrooms in Mumbai. An Associate Editor at Question of Cities, she is concerned about Climate Change and is learning about sustainable development. `

Cover photo: Wikimedia Commons