Nature Positive Financing the Tranisition in Cities

5.5 Using non-sovereign-backed loans 5.6 Using blended finance and partnerships with the private sectorAs cities with financial autonomy may struggle with accessing government finance, cities in low- and middle-income countries may face challenges associated with credit and regulatory considerations. The two largest guarantee funds, GuarantCo and the World Bank’s Multilateral Investment Guarantee Agency (MIGA), provided only 1 out of 71 guarantees to sub-national governments.66 New funds are being developed and paving the way for further subnational engagement, however. Key funds include CITYRIZ (Agence Française de Développement) and the Guarantee Facility for Sustainable Cities (UN Capital Development Fund and the EU). Non-sovereign-backed guarantees for loans enable cities to maintain independent relationships with MDBs, and to attract and use finance for nature as they see fit. This limits cities’ reliance on national governments to back high-risk loans and stipulate restrictive conditions on the loan’s use. Opportunities for cities Cities can access non-sovereign-backed loans and develop the appropriate support framework for project implementation by: –Understanding the options for different non- sovereign-backed loan products. –Developing a suitable project proposal to use the non-sovereign-backed loan. –Demonstrating a plan for assessing and mitigating risks and challenges throughout a project timeline. –Identifying opportunities for partnerships with private sector and community involvement. –Ensuring appropriate environmental standards are assessed and met. Blended finance and private sector partnerships are effective methods for cities to limit their reliance on national governments. This is particularly helpful in scenarios in which administering higher taxes or sourcing alternative public funding is challenging. Blended finance has been shown to increase the commercial viability of Sustainable Development Goal-related investments by improving the risk- return profile via risk mitigation tools and the project profile through technical assistance. For PPPs, a project company or special purpose vehicle (SPV) is established for the delivery of a project. This model works well as it strengthens investor confidence and brings in expertise on financial capital.Opportunities for cities Cities can look to increase private capital flows through blended finance by: –Identifying potential projects that could benefit from blended finance or the use of PPPs for nature. –Developing a framework for how the city uses blended finance with partners. –Identifying and engaging private sector partners and deploying market incentives, such as policies which encourage private sector participation and involvement in the nature sector. The two largest guarantee funds, GuarantCo and the World Bank’s Multilateral Investment Guarantee Agency (MIGA), provided only 1 out of 71 guarantees to sub-national governments. Nature Positive: Financing the Transition in Cities 37