City Climate Finance Gap Fund Launches to Support Climate-smart Urban Development

The Gap Fund will support city and local governments facing barriers to financing for climate-smart projects. Filling a gap in available project support, the Gap Fund offers technical and advisory services to assist local leaders in prioritizing and preparing climate-smart investments and programs at an early stage, with the goal of accelerating preparation, enhancing quality, and ensuring they are bankable.

With a target capitalization of at least 100 million Euro, the Gap Fund will accelerate investments supporting cities in developing and emerging economies, as they determine goals and objectives for low-carbon and well-planned urbanization. The Gap Fund investment is aiming to unlock at least 4 billion Euro of final investment in climate-smart projects and urban climate innovation.

Cities are on the frontlines of the climate emergency and currently account for around 70 percent of global CO2 emissions. Urban centers’ share of emissions is expected to grow as 2.5 billion people migrate from rural to urban areas by 2050. Before the COVID-19 pandemic struck, it was estimated that more than $93 trillion in sustainable infrastructure investment was needed by 2030 to meet climate goals. As cities strive to recover from the economic impacts of COVID-19, investments in clean energy, climate-resilient water and sanitation, and urban regeneration projects will play an important role in eliminating pollution, improving local food systems, and creating green jobs. They will also lead to cleaner, healthier, and more equitable communities – conditions that can help prevent future pandemics.

Climate investment projects are an indispensable opportunity to improve lives of the millions who live in cities around the world. However, cities frequently lack the capacity, finance, and support needed for the early stages of project preparation – especially in developing and emerging economies. This leads to impasses where cities cannot move project ideas to late-stage preparation and implementation. This hurdle is frequently overlooked by national and international support – a challenge the Gap Fund will seek to overcome.

The Gap Fund is an initiative of the governments of Germany and Luxembourg together with the Global Covenant of Mayors for Climate and Energy (GCOM), in partnership with several other key players in the climate finance arena (including C40, ICLEI - Local Governments for Sustainability, and Cities Climate Finance Leadership Alliance). It will be implemented by the World Bank and the European Investment Bank. The Gap Fund was announced at the UN Climate Action Summit 2019 as a key initiative of LUCI, the Leadership for Urban Climate Investment, which promotes financing for ambitious urban climate action until 2025. Core donors to the Gap Fund are Germany (45 million Euro - including 25 million Euro from the Ministry for the Environment, Nature Conservation and Nuclear Safety, and 20 million Euro from the Ministry for Economic Cooperation and Development) and Luxembourg (10 million Euro).