Insights | | Sustainable cities: Financing resilience and just transition in urban development

Sustainable cities: Financing resilience and just transition in urban development

13 January 2025

This article explores the pivotal role of finance professionals in advancing sustainable urban development. It highlights how investments in resilience, just transition and green infrastructure can shape cities that are resilient, inclusive, and environmentally sustainable.

Introduction

 

As cities around the world confront growing environmental, social, and economic pressures driven by rapid urbanisation and climate change, finance professionals are uniquely positioned to accelerate the transition towards more sustainable urban development. Finance professionals can leverage their expertise to help cities become more resilience, equitable, and environmentally sustainable by enabling investments in resilience, just transitions and green infrastructure.

The importance of sustainable cities

 

Sustainable cities are key to addressing environmental, social and economic challenges posed by rapid urbanisation, as demonstrated by cities like Copenhagen, Denmark. Copenhagen has invested heavily in green infrastructure, such as cycling lanes and energy-efficient buildings, and aims to be carbon-neutral by 2025. Copenhagen promotes inclusive development with affordable housing projects and green spaces accessible to all residents and fosters sustainable industries, creating jobs while reducing environmental impact. Copenhagen’s approach to integrating sustainability serves as a model for other cities, proving that with the right policies and consideration of green infrastructure and inclusive development, any city can pursue resilient, liveable and equitable growth. 

In contrast, Curitiba, Brazil, has become a model for cost-effective sustainable transport solutions, integrating bus rapid transit systems with green spaces to accommodate urban growth while prioritising social equity. This demonstrates that even cities with limited resources can adopt innovative strategies to achieve sustainability and resilience.

Financing resilience in urban development

 

Urban resilience refers to the ability of cities to withstand, adapt to, and recover from various shocks, including natural disasters, economic crises, and social unrest. For finance professionals, investing in resilience means strategically aligning capital to protect communities and economies from future risks, ensuring long-term urban sustainability. 

The financial sector will play a key role in funding infrastructure projects that incorporate disaster risk management, resilient design, and climate adaptation strategies, as we collectively work towards more sustainable cities. These investments also offer sustainable financial returns. Resilience bonds, for instance, allow cities to raise funds specifically for projects that reduce the risk of catastrophic events, creating both immediate and long-term value for investors. 

Infrastructure project examples: 

  • flood defences 
  • earthquake-resistant structures 
  • energy-efficient buildings.  

Finance professionals can help develop innovative financing mechanisms such as catastrophe bonds and public-private partnerships that provide funding for resilience projects. They can also work closely with governments and international institutions to secure grants or subsidies that lower the barriers for cities to invest in resilient infrastructure. In doing so, finance professionals ensure that urban resilience is financially viable while also safeguarding the future stability of cities and markets.

Urban resilience and sustainable transportation

 

Sustainable transportation is a critical pillar of urban resilience. Benefits to cities include: 

  • capacity to reduce carbon emissions 
  • enhance energy efficiency 
  • maintain social and economic stability during crises 
  • keep cities functional during extreme weather events 
  • ensure people can access essential services, e.g., healthcare and medical 

Investments in electric buses, bike lanes, and expanded public transportation networks not only reduce fossil fuel dependency but also build cities’ adaptability to climate risks. For instance, public transit systems designed with resilience in mind can operate during extreme heat or flooding, maintaining urban mobility when road networks might fail. 

For finance professionals, funding resilient transportation offers opportunities to support environmental goals while generating economic returns 

Public-private partnerships, green bonds, and government-backed climate funds can all be used to finance these projects. Moreover, as cities grow and demand for low-emission transport rises, finance professionals are well-positioned to capitalise on the transition to greener, more sustainable urban mobility.

Investment in green infrastructure

 

Green infrastructure refers to a network of natural and semi-natural systems that provide environmental, economic, and social benefits to urban areas. Unlike traditional grey infrastructure, such as roads and pipelines, green infrastructure incorporates natural processes and ecosystems into urban planning. Examples include parks, green roofs, and urban forests to wetlands, rain gardens, and permeable pavements that manage stormwater. 

The benefits of green infrastructure are extensive: 

  • enhancement of biodiversity 
  • improvement of air and water quality 
  • mitigation of urban heat island effect by cooling cities 
  • cost reduction and increase of property values 
  • contribution to well-being of urban residents through: 
  • recreational spaces 
  • improved mental health 
  • community cohesion 

Green infrastructure is also a key component of climate adaptation strategies. It helps cities prepare for and respond to climate impacts by reducing vulnerabilities and enhancing resilience. For example, urban wetlands can absorb floodwaters during heavy rainfall, while green roofs can reduce the energy required for heating and cooling buildings. These measures are integral to broader climate adaptation efforts, which aim to protect urban areas from extreme weather events and long-term climate shifts.

Just transition and affordable housing in urban development

 

A just transition should by nature address social equity, which makes affordable housing an imperative. Affordable housing works to prevent displacement as cities become more desirable due to green improvements. Without affordable housing, low- and moderate-income individuals’ risk being pushed out, leading to increased social segregation and limited access to essential services. A just transition also involves engaging communities in urban planning and development. This participatory approach ensures that projects reflect the needs and aspirations of all residents, particularly underserved populations. By involving communities in decision-making processes, cities can foster social cohesion, making them more resilient and adaptable to change. 

In 2023 the Impact Investing Institute released the ‘Just Transition Criteria’ which helps investors align solutions toward a global just transition. For finance professionals, this means prioritising investments that promote social equity, ensuring that vulnerable populations benefit from sustainable urban growth and contribute to it. By funding projects that ensure housing affordability, finance professionals can reduce living costs for low-income communities, allowing them to benefit from sustainable urban development. 

Finance professionals are encouraged to support initiatives that integrate affordable housing with sustainability goals, including energy-efficient buildings and low-carbon construction methods.  

Financial models that support the integration of affordable housing into the broader framework of sustainable urban development: 

  • inclusionary zoning – which requires developers to allocate a percentage of new residential projects for affordable units, promoting social integration. 
  • New Zealand’s Wellbeing Bond – which supports the expansion of social housing and aligns with broader sustainability goals.

Challenges and opportunities

 

Challenges

Risk assessment related to sustainable urban projects 

These projects often involve long timelines, multiple stakeholders, and uncertain returns, which complicates the assessment of financial viability. 

Insufficient integration of social and environmental considerations into traditional financial models 

Many existing models focus primarily on short-term financial returns, often overlooking the long-term social and environmental impacts of investments. This gap can lead to a disconnect between financial objectives and broader sustainable urban development goals. However, frameworks like the Task Force on Climate-Related Financial Disclosures (TCFD) and the EU Taxonomy are helping integrate long-term environmental and social impacts into investment evaluations. 

Aligning long-term ESG goals with investment priorities 

In real estate and infrastructure, where projects represent long-term asset classes, the focus on ESG (Environmental, Social, and Governance) and sustainability often differs from that in public equity markets. Investors in these asset classes have access to more detailed data and may prioritise decarbonisation alongside social factors, such as community impact and resilience. 

 

Opportunities

Despite these challenges, there are significant opportunities for innovation and growth in the sector.  

Innovative financing mechanisms 

Development of impact investment products that target positive social and environmental outcomes alongside financial returns. 

Green Bonds, Social Bonds, and Sustainability-Linked Loans 

These instruments enable finance professionals to fund sustainable urban development projects, addressing climate resilience and social equity.

Investments in digital infrastructure 

Investments in smart grids and data-driven urban planning tools enhance city efficiency, resource management, and waste reduction.

People-centred urban development 

Focusing on residents’ well-being through affordable housing, accessible public transportation, and green spaces to create sustainable, resilient cities. 

Conclusion

 

As urbanisation accelerates, the urgency for sustainable urban development grows. Key areas such as financing resilience, promoting a just transition, investing in green infrastructure, and ensuring affordable housing present challenges and opportunities for finance professionals.

Despite the complexity of integrating social and environmental factors into financial models, there are abundant opportunities for innovation and growth. By adopting new financial tools, prioritising people-centred solutions, and leveraging smart technologies, finance professionals can lead the way in creating sustainable, resilient cities.

As cities evolve, finance professionals hold the keys to shaping more inclusive, sustainable urban futures. By harnessing innovative financial tools and prioritising people-centred development, they can create cities that thrive economically while staying resilient to future challenges.

Resources

 

Impact Investing Institute (2023) Just Transition Criteria: How to align investments with a just transition, accessed 10 October 2024. https://www.impactinvest.org.uk/wp-content/uploads/2023/05/Just-Transition-Criteria.pdf  

Organisation for Economic Co-operation and Development OECD (2023) Towards orderly green transition: Investment requirements and managing risks to capital flows, OECD website accessed 17 October 2024. https://www.oecd.org/en/topics/investment.html  

Peštová V (2022) Sustainable urban development: case study Copenhagen, proceedings from the EDAMBA 2021 conference, 390 – 399, doi:10.53465/EDAMBA.2021.9788022549301.390-399 

Standard Chartered, KPMG and United Nations Office for Disaster Risk Reduction (UNDDR) (2024) Guide for Adaption and Resilience Finance, UNDDR website, accessed 10 October 2024. https://www.undrr.org/publication/guide-adaptation-and-resilience-finance  

The Urbanist (2024) How Copenhagen is Leading the World in Sustainability, The Urbanist website, accessed 1 October 2024. https://www.theurbanist.org/2024/02/23/how-copenhagen-is-leading-the-world-in-sustainability/  

 United Nations Global Compact (UNGC) (2017) Guide to unlocking prosperity: Finance, investment and sustainable development, UNGC website accessed 17 October 2024. https://unglobalcompact.org/library/5541

Want to contribute to Altiorem?

 

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