Improving Local Enabling Conditions for Private Sector Climate Investments in Cities

This report by the Climate Policy Initiative analyzes the barriers and success factors for attracting private sector capital into urban climate investments in emerging economies. It identifies obstacles across macro, city, and project levels and provides a framework of recommendations for city governments, public sector partners, and private/third sector entities to improve local enabling conditions.

• Barriers to private urban climate investments are categorized into three levels: the macro level (macroeconomic and institutional/policy context), the city level (policymaking, planning, capacity, and financial/asset management), and the project level (design, structuring, sector maturity, and technology readiness).
• Macro-level barriers, which city governments have limited power to change, include currency risks, high domestic interest rates that create a 'credit ceiling' for subnational entities, and national regulations that may restrict private sector investment in specific municipal sectors like water or waste.
• City-level barriers often stem from a lack of financial literacy among staff, siloed organizational structures between finance and technical departments, and financial accounting practices that do not align with international standards (such as IPSAS), which inhibits investor confidence.
• Project-level barriers include a mismatch between small project sizes and the large 'ticket size' required by institutional investors, high upfront transaction costs, and a lack of a proven track record for new climate technologies, which increases perceived risk.
• Successful urban climate projects often utilize innovative implementation mechanisms to reduce risk and cost, such as investment pooling (grouping multiple municipalities), bulk procurement to lower unit costs, and the use of Special Purpose Vehicles (SPVs) to isolate project risks.
• External certification and verification are critical for building investor trust in environments with underdeveloped regulatory frameworks, as demonstrated by Cape Town's certified green bond which raised 1 billion Rand (approximately USD 67 million).
• City governments are encouraged to shift their procurement orientation from 'hardware' (detailed technical specifications) to 'services' (defining desired outcomes), allowing the private sector to propose more efficient and innovative solutions.
• National Development Banks (NDBs) can play a pivotal role by providing specialized teams to support city governments in project preparation and by bundling subnational projects to achieve the larger ticket sizes required by institutional investors.
• International Finance Institutions (IFIs) should move away from project-by-project approaches toward programmatic interventions and prioritize 'additionality' through risk mitigation instruments rather than traditional lending.

APA

Apostolovic, M., Le Cornu, E., Masale, E., Maskrey, R., Schuler, N., & Teipelke, R. (2023). Improving Local Enabling Conditions for Private Sector Climate Investments in Cities. Climate Policy Initiative. https://www.climatepolicyinitiative.org/wp-content/uploads/2023/06/Improving-Local-Enabling-Conditions-for-Private-Sector-Climate-Investments-in-Cities.pdf

Chicago

Apostolovic, Milica, Emily Le Cornu, Eyerusalem Masale, Rebecca Maskrey, Nina Schuler, and Renard Teipelke. Improving Local Enabling Conditions for Private Sector Climate Investments in Cities. Climate Policy Initiative, 2023. https://www.climatepolicyinitiative.org/wp-content/uploads/2023/06/Improving-Local-Enabling-Conditions-for-Private-Sector-Climate-Investments-in-Cities.pdf.

Wikipedia

{{cite report |last1=Apostolovic |first1=Milica |last2=Le Cornu |first2=Emily |last3=Masale |first3=Eyerusalem |last4=Maskrey |first4=Rebecca |last5=Schuler |first5=Nina |last6=Teipelke |first6=Renard |title=Improving Local Enabling Conditions for Private Sector Climate Investments in Cities |publisher=Climate Policy Initiative |date=May 2023 |url=https://www.climatepolicyinitiative.org/wp-content/uploads/2023/06/Improving-Local-Enabling-Conditions-for-Private-Sector-Climate-Investments-in-Cities.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{apostolovic2023improving, author = {Apostolovic, Milica and Le Cornu, Emily and Masale, Eyerusalem and Maskrey, Rebecca and Schuler, Nina and Teipelke, Renard}, title = {{Improving Local Enabling Conditions for Private Sector Climate Investments in Cities}}, institution = {Climate Policy Initiative}, year = {2023}, month = may, url = {https://www.climatepolicyinitiative.org/wp-content/uploads/2023/06/Improving-Local-Enabling-Conditions-for-Private-Sector-Climate-Investments-in-Cities.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }