Supporting Cities Toward Low-Carbon, Resilient Futures

Explore the key lessons learned from the City Climate Finance Gap Fund’s journey and how collaboration with the IKI has been instrumental in supporting cities to build low-carbon, resilient futures.

At the 2019 C40 World Mayors Summit in Copenhagen, UN Secretary-General António Guterres emphasised the critical role of cities in combating climate change. He stated that cities are where the climate battle will be won or lost, addressing the mayors as “the world’s first responders to the climate emergency." 

By 2050, over two thirds of the world’s population will likely be urban, with over 90% of this growth occurring in countries of the Global South. Globally, cities consume over two-thirds of global energy, produce more than 70% of carbon emissions, and face rising climate risks that disproportionately affect the poorest and most marginalised communities.

The need to bridge the finance gap

The Cities Climate Finance Leadership Alliance (CCFLA) estimates that cities’ investment needs for climate mitigation alone until 2030 range from USD 1.9 trillion to USD 6.9 trillion per year. Adaptation needs, while harder to quantify, are expected to significantly increase these requirements. By contrast, climate finance flows to cities stood at about 841 billion per year in 2021/2022. While the need to increase funding is widely acknowledged, cities also face significant challenges in developing robust projects that would attract the interest of investors and financiers. This is often due to a combination of limited in-house capacity and conflicting priorities for the use of constrained resources, is a particular issue for secondary cities or those located in remote areas.

Supporting more than 320 cities worldwide

Established in 2020, the City Climate Finance Gap Fund has emerged as a crucial initiative in addressing the barriers cities face in advancing their climate projects. Its creation was made possible through the German government — partly through funding from the International Climate Initiative (IKI) — and the Luxembourgish government. This collaboration has been instrumental in shaping the Gap fund’s ability to deliver impactful, early-stage support to cities.

Since the start of its operations in January 2021, the Gap Fund has approved support for more than 320 cities in Sub-Saharan Africa, Latin America and the Caribbean, Asia, Europe and the MENA region. As of December 2024, 55 technical assistance assignments have been completed, spanning across a variety of sectors and scope of support.

Identifying climate risks in Bangladesh

For instance, the Gap Fund completed a pre-feasibility study to identify the main environmental and climate risks faced by two neighbourhoods in Dhaka, Bangladesh and outline options for inclusive climate-proof infrastructure. The project will receive additional technical assistance for the complete feasibility studies and financing for its implementation from the Asian Infrastructure Investment Bank and is expected to benefit almost 162,000 residents. 

Enhancing drinking water management in Ecuador

In Cuenca, Ecuador, climate change worsens variable rainfall patterns, causing extreme weather events that threaten water quality and supply. With Gap Fund support, the city strengthened monitoring systems and improved climate data for key river basins to enhance drinking water management. The technical assistance assessed monitoring networks, applied hydrological models, and recommended upgrades. As a result, the city has acquired measuring stations, leveraging a total of 230.000 USD. They have also established a publicly accessible real-time data information system, which is key to maximising the impact of the collected climate and water data. 

Lessons learnt

After 4 years of operations, a few important lessons emerge from the Gap Fund’s experience in supporting cities.
To begin with, many local authorities require not only support in project preparation but also robust capacity development assistance. This is essential to ensure that the expert knowledge mobilised for the technical assistance is transferred on to city officials enabling sustainable, long-term investments.

A second key take-away concerns the need to think about concrete financing options for the project implementation from the start. Public and private finance providers may apply different requirements, standards and conditions to the projects they invest in. Embedding these considerations from the start makes it possible to identify at an early stage projects that, although relevant and beneficial for the local community, have little chance of securing funding for implementation.

Finally, the global offer of finance and technical assistance for urban climate action projects is broad but still fragmented and difficult to navigate for local authorities. IFIs (International Financial Institutions), city networks and other actors operating in this field should strive to operate like a coherent “ecosystem” to cater to different cities’ needs, depending on their size, capacity, creditworthiness and prevailing institutional settings in the country or region.

Background information on the Gap Fund

The Gap Fund is implemented jointly by the European Investment Bank, in close partnership with GIZ, and the World Bank. With its current size of EUR 105 million, the Gap Fund is one of the largest providers of technical support for urban climate project preparation worldwide, helping low- and middle-income cities develop low-carbon, resilient urban plans and projects. The Gap Fund is a multi-donor trust fund which is currently supported by the German Federal Ministry for Economic Affairs and Climate Action (BMWK), through the IKI, the German Federal Ministry for Economic Cooperation and Development (BMZ) and the Luxembourg Ministry of the Environment, Climate and Biodiversity. 

The topic has been an overarching priority at the IKI since 2015. 

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