Six Reasons Urban Adaptation Finance Falls Short in Global South Cities#

On July 9, 2025, the Cities Climate Finance Leadership Alliance (CCFLA) published an analysis by Hamza Abdullah and Alastair Mayes, outlining six critical barriers to urban adaptation finance in Global South cities, where only 6 billion of the 831 billion in urban climate finance (2021–2022) supports adaptation in emerging markets and developing economies (EMDEs). With cities housing 56% of the global population and facing escalating climate risks like floods and heatwaves, the 147 billion annual adaptation need by 2030 remains vastly underfunded, particularly in Sub-Saharan Africa (8%) and South Asia (7%). The CCFLA proposes innovative mechanisms like blended finance and parametric insurance to close this gap, aligning with its 4C Agenda. link

Six Barriers to Urban Adaptation Finance#

National Agendas Overlook Urban Needs: National climate strategies often prioritize rural or industrial sectors, sidelining urban adaptation needs in funding allocations, leaving cities without resources for flood defenses or cooling infrastructure.
Multi-Level Coordination Gaps: Policy misalignment, legal constraints, and limited fiscal autonomy hinder cities’ ability to secure and implement adaptation funding, exacerbated by weak intergovernmental coordination.
Lack of Specialized Capacities: Cities in EMDEs lack risk assessment tools and investment frameworks to develop “bankable” adaptation projects that attract financiers, limiting project readiness.
Small Project Sizes: Urban adaptation projects, often small-scale (e.g., 1–5 million), fall below the lending thresholds of multilateral and national development financiers, who prefer larger investments.
Poor Municipal Creditworthiness: Weak credit profiles, unfavorable market environments, and a lack of viable business models for adaptation deter private investors, forcing cities to rely on limited own-source revenues or unpredictable grants.
Underutilized Insurance Mechanisms: High premiums and complex payout processes discourage cities from using insurance to transfer climate risks, reducing financier confidence in adaptation projects.

Promising Mechanisms to Bridge the Gap#

Blended Finance: Combining public and private funds reduces risk for investors. For example, a 500 million World Bank partial risk guarantee unlocked a 910 million commercial loan for resilient water infrastructure in Luanda, Angola.
Parametric Insurance: Rapid post-disaster payouts, as seen in the Philippines’ City Disaster Insurance Pool, spread costs and risks, enabling cities to access immediate funds for resilience.
Land-Value Capture: Charging developers for land value increases due to public infrastructure (e.g., flood defenses) generates revenue for adaptation, as piloted in São Paulo, Brazil.
Pooled Procurement: Aggregating demand across cities, like the RAMCC Trust Fund in Argentina (30 municipalities), lowers costs for climate-smart technologies, addressing small project size challenges.
Payments for Ecosystem Services: Programs like Freetown’s Treetown project in Sierra Leone pay residents to maintain trees, selling carbon credits to fund reforestation and resilience.

CCFLA’s 4C Agenda for Action#

The CCFLA’s 4C Agenda provides a framework to scale urban adaptation finance:

Commitment: Integrate adaptation into local climate plans and advocate for inclusion in Nationally Determined Contributions (NDCs) and National Adaptation Plans (NAPs).
Collaboration: Use international taxonomies to tag adaptation projects, signaling resilience outcomes to investors, and leverage CCFLA’s Enabling Framework Conditions tools to align with national governments.
Capacity: Establish dedicated adaptation departments, share climate risk data via programs like the UrbanShift City Academy, and use CCFLA’s PPF Connector for project preparation.
Capital Mobilization: Enhance creditworthiness with tools like the City Cred Tool and engage development finance institutions for innovative financing.

Industry Context#

Global South Challenges: EMDE cities, home to 1.5 billion urban residents, face severe climate impacts, with economic losses from floods and heatwaves reaching billions annually. Sub-Saharan Africa relies on international sources for 69% of its urban climate finance, unlike other regions where domestic sources dominate (96% of private flows). link
Investment Needs: The 2024 SCCFR estimates EMDE cities need 147 billion annually for adaptation by 2030, rising to 165 billion by 2050, likely underestimated due to data gaps. Mitigation requires 4.3 trillion annually, with East Asia and the Pacific needing 1 trillion. link
Broader Fintech Trends: Innovations like Credas’ Compliance Wallet (July 9, 2025) streamline verification for property markets, potentially adaptable for climate project financing, while TSB’s digital wallet support (July 9, 2025) highlights the role of digital tools in inclusive finance.
Sentiment on X: Posts express urgency for scaling adaptation finance, citing CCFLA’s findings, but note resistance from national governments prioritizing economic growth over urban resilience.

Cost-Benefit Analysis: The World Resources Institute estimates every 1 invested in adaptation yields 10.50 in benefits, making it a smart economic strategy to prevent losses from climate events.
Equity Concerns: Climate change exacerbates inequalities, with urban poor in EMDEs facing disproportionate impacts. Only 1% of urban climate finance supports adaptation, leaving vulnerable populations exposed. link
Trade Policy Risks: Trump’s tariffs (announced July 9, 2025), including 20–30% on imports from countries like the Philippines and Sri Lanka, could strain EMDE economies, reducing fiscal capacity for urban adaptation.

Recommendations for Cities#

Leverage CCFLA Tools: Use the PPF Connector and City Cred Tool to prepare bankable projects and improve creditworthiness.
Advocate for Policy Reform: Push for urban priorities in NDCs and NAPs, aligning with national climate agendas.
Innovate Financing: Adopt blended finance, parametric insurance, and land-value capture to attract private capital.
Build Capacity: Invest in risk assessment and data-sharing to meet financier criteria, leveraging programs like the Global Risk and Resilience Fellowship.

Conclusion#

Urban adaptation finance in Global South cities is critically underfunded, with only 6 billion annually reaching EMDEs against a 147 billion need by 2030. Barriers like poor coordination, small project sizes, and weak creditworthiness persist, but solutions like blended finance, parametric insurance, and CCFLA’s 4C Agenda offer pathways forward. Cities must act urgently to integrate adaptation into local plans, leverage innovative financing, and advocate for systemic reforms. For more details, visit www.citiesclimatefinance.org or explore CCFLA’s 2024 State of Cities Climate Finance Report. link