Think global, fund local

Much-needed funding for climate adaptation and mitigation isn’t reaching the people who need it. 

Despite progress in securing commitments from international governments, less than 10% of international climate finance actually reaches subnational governments, meaning regions, cities and municipalities. Since this is where around 90% of climate solutions are implemented, it’s a huge problem that threatens our ability to achieve global climate goals. 

In this article, we’ll look at this case — and what we can do about it. 

Subnational actors (states, regions, provinces) play a critical role in accelerating climate action locally. This is due to their proximity to citizens, local focus and engagement with different actors and sectors in their territories. 

Being, literally, on the ground, they’re closest to the impacts of climate change and the populations affected by it. That makes them uniquely placed to engage with vulnerable communities, develop culturally appropriate solutions and implement projects tailored to their specific territorial contexts and needs. 

And the demand for climate finance only continues to grow. Speaking at the MAIA project’s policy event during COP29 in 2024, Manveer Gill, Senior Manager, Sustainable Finance at CDP, notes that subnational governments are increasingly identifying financial gaps and funding priorities, offering a wealth of data to guide investment strategies. In 2023 alone, 636 cities disclosed climate projects worth $146 billion in total, seeking $65 billion in investment. 

Despite the growing need, however, subnational governments face significant challenges in accessing climate finance, including: 

Lack of awareness: Many local authorities aren’t even aware that funding opportunities exist.
 
Red tape: Bureaucratic hurdles and complex application processes often make it difficult for subnational governments to access international climate finance.

National and local policy misalignment: National policies often lack consistency and clarity, making it difficult for local governments to navigate and apply.

Incomplete decentralization: In many countries, subnational governments lack the necessary authority and resources to effectively plan and implement climate action. 

Insufficient capacity: Many local entities lack the technical expertise to develop "bankable" projects that meet the requirements of international funders.

Lack of two-way communication: Financial institutions often lack understanding of the specific needs and challenges of subnational governments. There’s also a persistent perception that subnational projects are not bankable or investable. Local governments can also struggle to engage with private investors due to a lack of understanding of investor requirements and limited communication channels.

Lack of support or resources: Barriers to securing funding include high transaction costs and insufficient resources for early-stage project preparation.

Fragmented knowledge and communities: Access to relevant data and information on climate risks and vulnerabilities is often scattered and hard to access or use. This makes it difficult to make informed decisions. Local actors also often lack control over the tools and data needed to develop and implement climate solutions tailored to their specific needs.

Lack of coordination and communication: This includes between different stakeholders, including scientists, policymakers and financial institutions.

Altogether, these challenges create significant barriers to mobilising climate finance at the subnational level. 

Certain regions are stepping up and leading the way, but it’s still not enough. For example, Scotland contributes to international funds such as the Loss and Damage Fund. Others are exploring mechanisms like carbon taxes, green bonds and biodiversity credits as potential sources of revenue. But there’s a long way to go before other local actors are similarly active and empowered. 

What’s needed is to build a compelling business case for local projects that are viable, sustainable and attractive to investors.  

Let’s take a look at how to do that next. 

Despite increasing awareness of the urgent need for local investment, projects often struggle to attract sufficient funds. This can be due to a perceived lack of financial viability, limited understanding of the potential returns, or the complexities of engaging with local contexts. 

You see, good ideas alone aren’t enough; would-be recipients must build a compelling business case, demonstrating the value of investing in local climate initiatives and the potential for environmental and economic returns. Get that right and investors will bite. 

Since public funding alone isn’t always enough, however, there’s the added challenge of making the case in a way that resonates with both the public and private sectors. 

One key issue is the disproportionate focus on funding climate mitigation actions (to prevent further temperature rises) compared to the need to adapt to its already inevitable impacts. While less than 2% of local climate finance from 2021–2022 went to adaptation, over 30% of disclosed subnational projects prioritise adaptation, emphasising a pressing need for resource allocation to this area. 

Sergio Arjona Jiménez, Deputy Minister of Sustainability and Environment, Regional Government of Andalusia, notes that in Andalusia, adaptation only accounts for less than 5% of the region’s climate spending. This is despite the fact that subnational governments are responsible for 90% of adaptation compared to 70% of mitigation.

The imbalance between adaptation and mitigation funding stems, in part, from the difficulties involved in quantifying the economic benefits of adaptation projects, which often involve preventing future losses rather than generating immediate financial gains. This suggests that we need to evolve from short-term, reactive funding to strategic, anticipatory investments that build long-term climate resilience. There’s also a need to integrate mitigation and adaptation at the local level, where vulnerabilities become most apparent. 

With this in mind, we can learn a lot from regions like Andalusia, which has launched innovative nature-based solutions and public-private funded blue carbon initiatives like marshland restoration. Further north in Catalonia, the public Climate Fund finances mitigation and adaptation projects through taxes on vehicle emissions, among other sources. To date, it’s invested around €380 million in 67 initiatives focused on reducing carbon emissions and increasing resilience across various sectors. 

Catalonia also takes a holistic approach to integrating adaptation and mitigation. For example, they’ve developed guidelines aimed at reducing energy poverty and promoting renewable energy. This both improves community resilience to extreme temperatures and reduces carbon emissions, neatly integrating mitigation and adaptation. 

These Spanish examples underscore the importance of tailoring financial mechanisms to the unique environmental, social and economic contexts of each region. They also demonstrate that it is possible to create innovative subnational solutions that integrate mitigation and adaptation, generating environmental and socioeconomic benefits.

By creating incentives for carbon sequestration and emissions reduction while investing in resilience-building measures, governments can attract investment and maximise its impact. 

As we’ve seen, collaboration with the private sector is essential to scale impactful climate action at the subnational level. Public funds alone are insufficient to meet the enormous investment needs associated with climate change. By partnering with private entities, local governments can co-design locally driven solutions and leverage additional capital, expertise and innovation to accelerate implementation.  

To be successful, public-private partnerships should aim to create profitable, equitable and welfare-enhancing outcomes. This requires a shift from traditional funding models to co-designed financial solutions that include local stakeholders. By involving local communities and businesses in the planning and implementation of climate projects, governments can ensure initiatives are aligned with local priorities and generate broad benefits. 

As an example, Giorgio Maione, Minister of Environment and Climate of Lombardy Region, Italy, shares how they integrated climate goals into public finance by partnering with Under2’s Next Generation Budgets Project. This helped them adopt climate-aligned budgeting practices by focusing on sustainable low-emission initiatives and promoting investment by analysing innovative revenue-generation methods. Lombardy is also part of an international network aimed at sharing climate finance best practices so everyone can learn from each other. 

In all these collaborations, trust is essential, as is building strong relationships with stakeholders, from scientists to politicians to citizens. Without this, it’s difficult to mobilise the necessary resources and implement sustainable solutions. 

The key lies in transparent communication, inclusive decision-making processes and a commitment to shared goals. Initiatives like the MAIA project also play an important role, uniting climate stakeholders and information through platforms, tools and communities to improve data sharing and interoperability. Finally, there’s work to be done to educate investors and change negative perceptions about the viability of subnational projects. 

To do this, innovative and attractive financial instruments are key, as is robust, reliable data on which to base predictions and make decisions. To this end, the European Investment Bank (EIB) is exploring collaborations like the European Investment Fund (EIF) to address market needs, including potential insurance products tailored for climate resilience. 

It has also set up support systems like the ADAPT platform and the Climate City Gap Fund. These provide capacity building and technical and advisory support to subnational governments. This helps them develop bankable projects that meet the requirements of international funders, recognising that high-quality, well-structured projects are significantly more likely to secure funding. To date, the Fund has unlocked €4 billion in financing and supported 185 cities worldwide. 

Another inspiring example is the state of Goiás, Brazil, which used CDP’s disclosure platform to align sustainability goals with private sector interests, using climate and forest data mapping to inform policy, engage stakeholders and attract investment.

Standardising sustainability metrics is also crucial to attract the private sector. Initiatives like the FAST-Infra Label provide investors with a clear, consistent framework for assessing infrastructure projects' environmental and social impact. This helps to reduce perceived risk and make investments more attractive. 

It’s also important to be aware that not all regions are created equal. Phoebe Koundouri, Professor at the Athens University of Economics and Business, warns that urgent reform of global financial systems is necessary to facilitate funding flows to developing countries in the Global South. This includes providing low-interest loans, long-term investments and focusing on education, health and ecosystem resilience in line with the Sustainable Development Goals (SDGs). She notes that investments in the Global South can yield substantial impacts if combined with capacity-building for local labour forces, so freeing up the funding is well worth the effort. 

While good intentions exist, there’s currently a significant gap between available climate finance and what’s reaching subnational levels. This is due to systemic challenges that hinder effective action, like a lack of understanding, communication or capacity, among many others. 

By addressing these challenges and fostering collaboration among stakeholders, we can empower subnational governments to secure much-needed investment for climate adaptation and mitigation projects and drive meaningful progress toward a more sustainable future. By using solid data and building a compelling business case that highlights environmental, economic and social benefits, subnational governments can unlock the necessary resources to fund local projects. 

Going forward, empowering subnational actors through robust governance structures, technical capacity building, and collaborative frameworks will prove key to achieving global climate goals.  

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