Across the world — and increasingly in South Africa — cities sit at the front line of climate risk. Building climate resilience requires awareness, planning, institutional capacity, policy alignment and resources.
In South Africa, where municipalities carry significant responsibility for infrastructure delivery, the question is no longer whether cities need climate plans but whether they can implement them.
Financing, alongside technical expertise, remains the most binding constraint cities face. Financing climate-resilient cities will probably prove far more difficult than preparing climate action plans.
How cities have been financed
Across much of the Global South, urban climate resilience has largely been financed through public budgets. In India, for example, state government transfers, centrally sponsored schemes and direct budgetary allocations account for about 85% to 90% of municipal capital expenditure, including climate investments.
Own-source revenues largely fund operations and maintenance, while borrowing remains limited to a small number of larger cities and is typically subject to higher-level approvals, often with explicit or implicit government support.
The pattern is not unique. Urban climate resilience continues to rely heavily on government budgets and concessional finance, with private commercial capital remaining marginal. Public funding has enabled early progress but is increasingly inadequate, given the scale and systemic nature of the climate challenge cities face.
The scale of the urban climate finance gap
The magnitude of the climate challenge underscores why existing financing models are insufficient.
According to World Bank estimates, resilient and low-carbon urbanisation in low- and middle-income countries will require between $256 billion (about R4 trillion) and $847bn annually. Reflecting the gap, mayors and urban leaders at the U20 conference in 2024 called on national governments and development banks to mobilise at least $800bn a year by 2030 for urban climate action, particularly for resilience and adaptation.
Data shows that while global urban climate finance has increased, reaching about $831bn a year in 2021-22, it remains misaligned with need. The flows are unevenly distributed across regions, heavily skewed towards mitigation and concentrated in advanced economies.
As a result, urban climate finance would need to expand several-fold over the next decade, particularly in emerging markets where urban climate risks are intensifying.
Why the public finance model will not scale
Climate resilience is not a one-off investment but a continuous process. Cities require repeated upgrades to drainage systems, water networks, transport corridors, power infrastructure, housing and public spaces, often to standards that must evolve as climate risks intensify.
At the same time, public finances are under strain as governments face competing demands from healthcare, social protection, the energy transition and fiscal management. Public budgets are unlikely to expand at the pace required to meet escalating urban climate risks.
A larger share of long-term capital will therefore need to come from private sources. This will require changes in the regulatory frameworks that govern how cities raise finance.
Why private capital is missing
The global financial system does not lack capital. Yet private capital has largely stayed away from climate resilience. The reason is not indifference to climate outcomes but the difficulty of investing in projects and institutions where revenues are uncertain, risks are poorly allocated and governance frameworks lack predictability.
Adaptation investments are often perceived as non-bankable, politically exposed and operationally complex. The real challenge lies less in mobilising capital than in making cities investable, which requires national governments to empower municipalities and simplify regulatory frameworks governing municipal finance and public-private partnerships.
Many cities face structural and capacity constraints in mobilising finance and designing and implementing complex multiyear programmes. Audited accounts, credible fiscal frameworks and bankable investment pipelines — basic prerequisites for accessing commercial finance — are frequently missing or incomplete.
Borrowing frameworks remain controlled, approvals can be slow and capital markets shallow. Together, the factors help explain why private finance remains cautious.
Approaches from South Africa and India
Recent policy signals in several countries suggest a gradual shift towards mobilising private capital for urban infrastructure. In India, for instance, initiatives such as the Urban Challenge Fund and the introduction of risk-sharing mechanisms aim to make infrastructure investments more bankable, though implementation challenges remain at city level.
Mumbai’s 2021 Climate Action Plan marked an important step in identifying climate-relevant investments and embedding climate considerations into municipal planning through climate budgeting and dedicated institutional structures.
However, financing has continued to follow individual projects rather than being anchored in a system-wide resilience framework, leaving momentum vulnerable to shifts in political and institutional priorities.
By contrast, Cape Town illustrates a different approach. Anchored in a R120bn 10-year infrastructure programme, climate resilience is embedded in every project, whether in transport, water or electricity. Financing was raised against the city’s balance sheet rather than against individual climate projects. The mainstreamed long-term approach created continuity, reduced dependence on episodic approvals and proved more attractive to long-term capital.
Across South Africa’s metropolitan municipalities, capital expenditure programmes remain significantly supported by national transfers and internally generated funds, with debt finance funding only a minority share of infrastructure.
In this sense, South African metros represent a hybrid financing model, sitting between highly centralised systems and more mature OECD-style, balance-sheet-driven capital market access. The significance of Cape Town’s model lies less in the scale of borrowing than in how resilience is embedded in the city’s overall financial architecture.
Johannesburg and eThekwini have similarly accessed municipal bonds and development finance and technical assistance from institutions such as the International Finance Corporation, the Development Bank of Southern Africa and other international partners, illustrating how large metropolitan balance sheets can gradually expand access to
long-term capital, even as debt remains only a modest share of overall metro financing.
Building on the shift towards balance-sheet-driven planning and financing, South Africa has begun strengthening municipal governance and streamlining elements of the municipal financing and public-private partnership framework. It is also reviewing treasury regulations aimed at enabling municipalities to structure and finance partnerships more effectively.
Metros grappling with energy reform and infrastructure backlogs face a shifting revenue landscape. Changes to municipal energy procurement and revenue models are beginning to reshape how cities approach investment, revenue stability and financial risk.
In this context, system-wide resilience embedded in routine capital planning is structurally more durable — and more financeable — than episodic, project-driven approaches.
The shift from projects to balance-sheet-driven pipelines
Private investors do not finance schemes or policy announcements; they finance balance sheets that demonstrate sound governance and fiscal discipline.
Cities seeking private capital must demonstrate predictable revenues, particularly tariff stability and credible revenue collection, expenditure discipline, credible debt-service capacity and clearer separation between regulatory and operational roles. They must also move beyond isolated projects to credible multiyear investment pipelines in which climate resilience is embedded in mainstream capital expenditure.
More mature capital-market cities such as Copenhagen have financed flood protection through integrated capital programmes, while Paris has issued green bonds linked to overall infrastructure investment. In India, cities such as Pune and Ahmedabad have shown that improved financial management and clearer capital planning can open access to debt markets, even as climate-specific borrowing remains nascent.
The bridging role of multilateral development banks
As climate finance needs rise and public resources remain constrained and private capital cautious, multilateral development banks play a critical bridging role. They provide long-tenor capital, technical assistance and risk-mitigation tools that strengthen urban governance frameworks and help cities prepare bankable projects and attract private co-financing.
Cape Town’s climate-resilient infrastructure programme illustrates how development finance institutions can strengthen financial management and improve access to capital markets. Similar catalytic roles are visible in cities such as Johannesburg and Mexico City.
In South Africa, development partners have supported cities in preparing climate-aligned infrastructure pipelines and strengthening municipal investment planning, reflecting growing recognition that bankability begins with institutional capacity and credible balance sheets rather than individual projects.
Multilateral development bank engagement cannot substitute for strong municipal financial fundamentals but it can help bridge the gap between public intent and private capital allocation.
From climate risk to creditworthiness
If the first challenge of urban climate resilience is recognising risk, the second is financing the response.
Over the coming decade, climate resilience will increasingly become a test of municipal institutional creditworthiness. Cities that strengthen their balance sheets and embed resilience in mainstream investment decisions will be better positioned to mobilise long-term capital.
For South African cities balancing climate risk, fiscal pressure and service delivery demands, the shift towards institutional creditworthiness might prove decisive — because resilient cities will be built on balance sheets as much as on climate plans.
Rajeev Gopal is an international infrastructure finance practitioner and former senior country officer for IFC in South Africa.
Public budgets are unlikely to expand at the pace required to meet the escalating risks. A larger share of long-term capital will therefore need to come from private sources
