Nature Positive Financing the Tranisition in Cities

Financing processes are similar across MDBs, yet cities face numerous challenges accessing funding, including opacity and quantity of approval stages, and strict data and reporting requirements. This hampers visibility of the potential problems MDBs may find with a project proposal, such as feasibility, necessity of solution, or level of risk. Due to the real or perceived challenges of the process, cities often fail to appropriately use sources of funding from external financial institutions, instead relying mostly on government budgets to support the implementation of nature- related initiatives. The challenges associated with urban nature financing can be seen through the MDB financing processes.The MDB Joint Statement on Nature, People and Planet has identified changes MDBs will undertake to green their finance processes, such as introducing and incorporating more nature considerations in due diligence assessments.36,37 The statement has also led to the introduction of more nature- focused project funds and facilities, such as the Green Economy Financing Facility, and platformed programmes, such as Green Cities by the European Bank for Reconstruction and Development (EBRD). Figure 7 illustrates the end-to-end financing process of MDBs, with an emphasis on nature- related assessments and criteria, and reported challenges by local governments at each step. This provides insight into how MDBs mainstream nature and shows the complexity of infusing nature considerations across every decision-making step.3.5 Streamlining assessment processes and evaluation frameworks for “nature positive” Eligibility approval Process step detailFinal approval Repayment MonitoringDisbursement of finance and project startSignature stageAppraisal/project developmentEligibility assessment Due diligence Check of project proposal eligibility and viability, review of financing and other due diligenceDevelopment of project structure and details of financing mechanisms and toolsSignature of key documents to grant progress and ensure project goes aheadDisbursement of project finance and commencement of projectMonitoring of project progress through quality reviews throughout project life cycleCompletion of financial obligations and repayment of loans MDBs disburse finance and support with the operational set up and management of a project.Financial, physical and ex post evaluation is conducted from contract signing through to repayment. Physical monitoring includes assessing the social and environmental risks.Loan repayment is conducted in accordance with the terms defined in the term sheet. The project is closed, and obligations end. MDBs help cities access appropriate data and provide access to appropriate tools and technical support.Cities may struggle to repay loans and so are provided appropriate support to do so.MDBs support cities by helping define the importance of stakeholder and community engagement in nature-positive projects.Project finance from MDBs is often limited to 50%, with cities expected to cover the remaining project costs. Process is often challenging and leads to delays in signing contracts, resulting in delayed or scrapped project proposals.Project appraisals include defining and developing the financial and economic, technical and nature measures of the project. MDBs often provide technical support as cities may lack the skills or resources to complete this themselves. Projects must meet climate and environmental lending terms (limiting/preventing harm being inflicted on nature). Cities may struggle to provide the relevant data for MDBs to conduct the due diligence process.Challenges and MDB supportMDB financing process, from assessment to repayment FIGURE 7 Source: World Economic Forum analysis of data from: Asian Infrastructure Investment Bank (AIIB); Asian Development Bank (ADB), Inter-American Development Bank (IDB), African Development Bank (AfDB), European Investment Bank (EIB), European Bank for Reconstruction and Development (EBRD), World Bank Group (WBG). Nature Positive: Financing the Transition in Cities 22