Let go of public finances
In India, urban climate resilience has largely been financed through public budgets. State transfers, centrally sponsored schemes and direct budgetary allocations account for 85-90% of municipal capex, including climate-related investments.
Own-source revenues primarily fund O&M, while borrowing remains limited to a small number of larger cities and usually requires state approvals. World Bank estimates suggest that resilient and low-carbon urbanisation in low- and middle-income countries will require between $256 bn and $847 bn annually.
Global urban climate finance has grown, reaching about $831 bn annually in 2021-22, more than double 2017 levels. Yet, these flows remain uneven, concentrated in advanced economies and heavily skewed toward mitigation rather than adaptation. As a result, overall finance would still need to expand several-fold over the coming decade, especially in emerging economies.
Climate resilience is not a one-time investment but a continuous process because cities require repeated infra upgrades. At the same time, public finances are under pressure from competing priorities. A greater share of long-term capital will have to come from private sources. But that requires changes in the regulatory and financial frameworks governing municipal finance.
The challenge is not a shortage of global capital, but the difficulty of investing in cities where revenues are uncertain, risks are poorly allocated and governance lacks predictability. Making cities investable requires governments to empower municipalities, ease borrowing restrictions and simplify PPP frameworks.
Yet, many cities face structural barriers: limited capacity to design and deliver multi-year programmes, weak or incomplete audited accounts and fiscal frameworks, and a lack of bankable investment pipelines. Restrictive borrowing rules, slow approvals and shallow capital markets further deter investors, explaining why private finance remains cautious despite rising climate ambition.
Policy signals suggest a gradual shift in India. Urban Challenge Fund, announced in Budget 2025, signalled an intention to mobilise private capital for urban projects, while introduction of an Infrastructure Risk Guarantee Fund (IRGF) in this year's budget reflects movement toward risk-sharing mechanisms that could make infrastructure investments more bankable. The challenge, however, lies in implementation at the city level.
If the first challenge of urban climate resilience is recognising risk, the second is financing the response. Over the coming decade, resilience will increasingly become a test of municipal creditworthiness. Cities that strengthen their balance sheets and embed climate resilience into mainstream investment decisions will be better positioned to mobilise long-term capital. Those that do not will remain dependent on constrained public budgets - and increasingly exposed to climate shocks.
The writer is former senior country officer,IFC, World Bank Group
Own-source revenues primarily fund O&M, while borrowing remains limited to a small number of larger cities and usually requires state approvals. World Bank estimates suggest that resilient and low-carbon urbanisation in low- and middle-income countries will require between $256 bn and $847 bn annually.
Global urban climate finance has grown, reaching about $831 bn annually in 2021-22, more than double 2017 levels. Yet, these flows remain uneven, concentrated in advanced economies and heavily skewed toward mitigation rather than adaptation. As a result, overall finance would still need to expand several-fold over the coming decade, especially in emerging economies.
Climate resilience is not a one-time investment but a continuous process because cities require repeated infra upgrades. At the same time, public finances are under pressure from competing priorities. A greater share of long-term capital will have to come from private sources. But that requires changes in the regulatory and financial frameworks governing municipal finance.
The challenge is not a shortage of global capital, but the difficulty of investing in cities where revenues are uncertain, risks are poorly allocated and governance lacks predictability. Making cities investable requires governments to empower municipalities, ease borrowing restrictions and simplify PPP frameworks.
Yet, many cities face structural barriers: limited capacity to design and deliver multi-year programmes, weak or incomplete audited accounts and fiscal frameworks, and a lack of bankable investment pipelines. Restrictive borrowing rules, slow approvals and shallow capital markets further deter investors, explaining why private finance remains cautious despite rising climate ambition.
Policy signals suggest a gradual shift in India. Urban Challenge Fund, announced in Budget 2025, signalled an intention to mobilise private capital for urban projects, while introduction of an Infrastructure Risk Guarantee Fund (IRGF) in this year's budget reflects movement toward risk-sharing mechanisms that could make infrastructure investments more bankable. The challenge, however, lies in implementation at the city level.
- Mumbai Climate Action Plan 2021 identified climate investments and integrated them into the capital programme. Yet, financing has largely followed individual projects rather than a system-wide resilience framework, leaving progress vulnerable to political and institutional shifts.
- Cape Town adopted a different model, anchored in a 120 bn South African rands (about $7.4 bn) 10-year infrastructure programme. Climate was embedded across all sectors, and financing was raised against the city's balance sheet rather than individual projects. This mainstreamed approach created continuity, reduced reliance on episodic approvals and proved more attractive to long-term investors.
- National-level reforms in South Africa aimed at streamlining PPP frameworks further illustrate how regulatory change can support municipal financing. System-wide resilience embedded in routine capital planning is more durable - and financeable - than project-driven approaches.
- Show predictable revenues, expenditure discipline and credible debt-service capacity, while separating regulatory and operational roles.
- Move beyond isolated projects to present multi-year investment pipelines. Cities such as Copenhagen have embedded flood protection into their broader capital programmes. In India, Pune and Ahmedabad demonstrate that improved financial management and clearer capital planning can open access to debt markets, even if climate-specific financing remains nascent.
- Multilateral development banks (MDBs) can provide long-tenor capital, technical assistance and risk-mitigation tools that help cities prepare bankable projects and attract private co-financing. Cape Town's climate-resilient infrastructure programme illustrates how MDB engagement can strengthen financial management and improve access to capital markets.
If the first challenge of urban climate resilience is recognising risk, the second is financing the response. Over the coming decade, resilience will increasingly become a test of municipal creditworthiness. Cities that strengthen their balance sheets and embed climate resilience into mainstream investment decisions will be better positioned to mobilise long-term capital. Those that do not will remain dependent on constrained public budgets - and increasingly exposed to climate shocks.
The writer is former senior country officer,IFC, World Bank Group
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
Rajeev Gopal