Cites are both a cause and a victim of climate change. Due to rapid urbanization and demographic trends, Cities are largely responsible of world energy consumption, GHG emissions, air pollution, and waste generation, but the Inter-Governmental Panel on Climate Change identifies urban systems as one of four main systems to achieve a significant progress toward a low-carbon, resilient global economy.

In their effort to become climate-smart, Cities aim at minimizing their environmental impact while maximizing urban resilience, overall livability, future attractiveness and competitiveness. As reported by a new co-publication from The World Bank and United Nations Development Programme, there is a huge investment potential in climate-smart urban infrastructure, accounting for about $29.4 trillion to boost key areas such as renewable energy, public transportation, water, electric vehicles, and green buildings.

But the magnitude of the investment needed to strategically plan for, build, and retrofit climate-smart infrastructure far exceeds public balance sheets: the gap is estimated to be in the trillions annually and particularly acute in emerging markets and developing economies. Cities therefore need innovative approaches to fill the climate-smart investment gap, as they cannot solely rely on the reallocation of existing municipal budgets or tax revenues to fund new projects and services.

Far-sighted City managers are learning how to better leverage and attract private sector financing. From a pure business perspective, climate change is an increasingly powerful opportunity, and not only to mitigate possible risks impacting the real economy. The above-mentioned report suggests demand for companies that are either intrinsically resilient to natural hazards or committed to provide climate resilience solutions should grow in the next three to five years, so investing in those companies could generate promising returns. Also, climate resilience investments will be more and more related to the increasing impact of climate change than, for example, the credit cycle or trade conflict – and that’s interesting too.

Private capital is seeking ways to support businesses, governments, and cities in their climate-smart journey. Some options are already available – think of Efficiency as a Service as the evolution of Public-Private Partnership (P3) models, and The World Bank with the UN Development Programme demonstrated the feasibility of innovative funding models in number of case studies from Yerevan City, Armenia to Shanghai, Chile.

However, progress in scaling up these financing models is slow and the risk of locking in high-emissions pathways is real. Significantly more needs to be done to support national and local governments in removing barriers to investment and unlock private sector capital to enable climate-smart Cities.