Despite science being clear that the planet is warming up to dangerous levels, years of underinvestment in climate mitigation and resilience have led to the situation where trillions in economic product and billions of people are now vulnerable to the impacts of climate change. Today, more than half of the global population live in urban areas. It is predicted that the world’s urban population will increase by 1 billion in the next 15 years.1 Urban areas contribute as much as 82% of the global gross domestic product (GDP) and this share is expected to grow to 88% before 2030. Cities are engines of economic growth and have great impacts on resource allocation. In fact, 67%–76% of global energy consumption and 71%–76% of carbon dioxide (CO2) emissions from final energy use can be attributed to urban areas.2 Growth in urban populations, economies, levels of energy consumption, and carbon emissions will be greatest in emerging and developing countries, such as the People’s Republic of China (PRC), India, and those in Southeast Asia and sub-Saharan Africa (footnote 1). Cities around the world are already facing more severe and frequent storms, floods, wildfires, and heatwaves, and many will be inundated as sea levels rise. Thirteen percent of the world’s urban population already lives in coastal areas that are less than 10 meters above sea level, and almost two-thirds of urban settlements with populations greater than 5 million are located at least partly in these zones.3 The infrastructure required to address these threats to the planet and to the economies that sustain billions will require additional investments in the trillions of dollars.4 This deficit will constrain growth and limit the pace of poverty reduction. Climate investment needs, however, far exceed what public resources can provide, even in the most optimistic revenue scenarios. The investment gap in sustainable urban infrastructure is estimated to be in the trillions of dollars annually and is particularly acute in emerging markets and developing economies. According to the Cities Climate Finance Leadership Alliance, the global need for urban infrastructure investment ranges from $4.5 trillion to $5.4 trillion per year with current levels of financing only reaching $2.5 to $3 trillion annually.5 Attracting more commercial finance and private expertise in infrastructure development is thus a critical challenge, and opportunity for the future development of the Asia and Pacific region. Meaningful increases in private investment will require removing key constraints on private sector participation in climate infrastructure and building effective institutional structures to mobilize such finance.

This working paper sets out ADB’s experience in establishing scalable institutional structures for climate finance, focusing on: the policy rationale for them—setting out for governments why they are useful; the key elements of such structures—what organizational goals and forms are needed; and the important considerations in designing the operational systems of such institutions—how they are operated. It also sets out current and prospective future ADB roles in support of such structures and resultant value addition.