Nature Positive Financing the Tranisition in Cities

Loans not backed by sovereign nations The model for introducing non-sovereign-backed guarantees for loans has been deployed by the European Investment Bank (EIB) in creditworthy European cities. The Inter-American Development Bank (IDB) is deploying this tool to attract greater investment into borrowing countries, particularly in sectors that the private sector has difficulties accessing. As part of the general practice for loans to subnational entities, the bank usually requires a sovereign guarantee. If the borrower (in this case the city) can demonstrate financial autonomy or capacity to repay resources on agreed terms, the bank may not require a sovereign guarantee. These terms are particularly beneficial for urban nature investments, as they offer cities the opportunity to seek finance without the involvement of the national government, which may have nature objectives that are not necessarily aligned with with those of municipalities. The IDB’s terms are beneficial also for providing the private sector with avenues and opportunities to invest in nature in lower risk circumstances. The use of non-sovereign-backed loans is advantageous in helping cities identify and target nature solutions that are the most beneficial to their urban contexts without having to adopt nationally defined objectives. Non-sovereign-backed loans also enable cities to undertake programmes or projects that may be more innovative and entail greater risk, such as advanced green technology solutions. Country platforms Country platforms are government-led partnerships that exist to unlock international finance and align sectors on international objectives such as climate action using interdisciplinary frameworks. Integrating MDB task forces into country platforms could be an effective method of enabling MDBs to advocate for clear nature-positive strategies, including at the subnational scale. MDBs have pledged to support country- led platforms and improve coordination for development, integrating policy reform, blended finance, and technical assistance for national governments. These developments present an opportunity for cities to advance their own agendas concerning environmental and nature policies and objectives, which can be effectively championed through these country platforms. MDB participation in country platforms is a vital mechanism for advocating for the role of nature in cities and promoting the use of innovative policies, governance structures, and innovative investments as a means to mainstream nature across all levels of government operations. Overview: In 2014, Detroit was facing economic decline due to diminishing population and declining job market, as well as high levels of municipal debt and socioeconomic challenges that led to the city’s bankruptcy. The city’s creditworthiness was assessed as being at Caa3, which is classed as default imminent with little prospect of recovery. Solution: The city developed a plan of adjustment with Moody’s that would help the city to restore basic services and strengthen major economic indicators. A plan of adjustment is a document that outlines how a debtor will address various creditor claims. Outcome: Since this was established, the city was able to exceed expectations in the plan including: –Growth in resident employment by 1.1% on average (resulting in 24,000 new jobs). –Growth in property values by 94% across 10 years. –Growth in income taxes by 5%, generating more revenue for the city. –Change of credit rating from bankruptcy to investment grade, rating the city as Baa2 in 2024.63CASE STUDY 2 Detroit and Moody’s Nature Positive: Financing the Transition in Cities 31