Funding and financing the zero emissions journey: urban visions from the 100 Climate-Neutral and Smart Cities Mission

Cities play a critical role in delivering emission-free futures, yet the financial capacities, together with the unprecedented estimated capital requirements represent substantial barriers to climate action. In this study, we use data collected through the European Mission on 100 Climate-Neutral and Smart Cities to investigate how 362 ambitious, yet differently prepared cities are fostering climate investment, under three aspects of (i) financial readiness, (ii) financial proactiveness, and (iii) financial innovation. On one hand, according to their self-assessment, over 70% of the cities have not yet estimated—not even roughly—the total investment needed to become climate neutral and the majority (i) have experience in financing only a few specific climate projects, (ii) are ill-equipped to tap capital markets, (iii) have developed only marginally co-financing with the private sector, and (iv) have taken no steps to establish an investor-ready pipeline of projects contributing to climate neutrality. On the other hand, cities are at the forefront of financial innovation, creating blueprints and business models that are being tested under a learning-by-doing approach, creating deep and long-lasting transformative change, and establishing coordinating mechanisms with new critical players. In this context, current financial management, regulation, and institutional arrangements are key barriers to unlocking access to financing and creating an enabling environment for investment at the city level. The different levels of maturity in terms of financial readiness and institutional arrangements are discussed as the catalysers of climate financing at the city level.