From urban investments to climate action, development banks accelerate the transition to sustainable development

Jun 18, 2018

According to the United Nations, it is estimated that by 2050, two thirds of the world’s population will live in urban areas, the result of a mass rural exodus and high population growth, particularly in Africa. The number of people living in cities will double, as will the size of urban areas, generating massive infrastructure needs.

Urbanization can have a positive impact on development, contributing to innovation and job creation.   When too rapid or unplanned, however, it can lead to social exclusion and environmental degradation.  To avoid this, there is a clear need to design cities that can absorb a growing population while remaining economically, socially, and environmentally sustainable.  

With  institutional and financial decentralization increasing throughout the world, including South Africa, local authorities now have more responsibility for areas such as basic services delivery and local development planning, making them key players in sustainable development.

Local authorities are also adopting a more holistic approach to urban functions such as living (habitat), travelling, working, producing, consuming and sharing and there is a noticeable decline in traditional, sector-based approaches. An increasing number of Development Finance Institutions are adopting strategies to support municipalities in areas such as sustainable urban planning.

A profound transformation of the financial landscape is underway to address the huge infrastructure gap and capacity needs of cities. The transition to low-carbon, resilient cities requires infrastructure investments evaluated to USD 90 trillion worldwide by 2030. How can we “shift the trillions”?

First, rely on local development banks. They are increasingly active in financing sustainable urban development. Given their sound knowledge of domestic policy and the economic and social environment, these institutions are well placed to mobilize local savings and leverage investment from the private sector to increase the pool of funding available.

AFD and the DBSA have been working together since 1994, focusing on sustainable infrastructure investment through the provision of municipal credit lines (exceeding € 315 million (R 4.8 billion) between 1994 and 2017 to finance investments in infrastructure in South Africa, and the co-financing of municipalities’ investment programs (e.g. eThekwini in 2016, together with the Infrastructure Investment Programme for South Africa (IIPSA)).

Second, development banks can make the difference. They are rooted in their domestic and regional constituency, drawing expertise and financing. At the same time, they are connected to the international agenda and can foster alignment between the local and the global. They can demonstrate to the markets the potential returns of sustainable urban investments, which is key to leveraging public and private investments towards sustainable development action.

For instance, the DBSA was one of the early funders of the City of Johannesburg’s first ever municipal Green Bond, which was issued to fund green initiatives such as low carbon infrastructure and climate change mitigation strategies.  In South Africa, AFD provides budget support to metros and promotes sharing of experiences and expertise with peer municipalities on issues such as implementation of spatial transformation or climate change strategy.

Third, seek for innovative partnerships to address sustainable development. AFD and the DBSA are both members of the International Development Finance Club (IDFC), a network of 23 financial development institutions, three quarters of which are from the South.

It has total assets of more than USD 3.5 trillion and devotes more than USD 800 billion in annual funding (four times more than all multilateral development banks combined). It is indeed the third pillar of development finance, alongside the multilateral system (United Nations and Multilateral Development Banks) and private finance. In 2016, IDFC collectively contributed USD 160 billion to the fight against climate change, a significant increase since COP21.

At the One Planet Summit, we have committed, together with 30 DFIs, to align financial flows with the Paris Agreement on climate. The needs far exceed what public finance for development can provide. Development banks must play the role of "catalysts" that reorient global public and private investment, so that the trillions that are needed to transition towards sustainable development pathways start flowing.

Mr. Patrick Dlamini is CEO of the Development Bank of Southern Africa (DBSA)

Mr Rémy Rioux CEO of Agence Française de Développement (AFD). 

 

They are also Vice-Chairs of the International Development Finance Club (IDFC)

 

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