At last week’s COP29, nations faced an urgent priority – addressing the critical role of finance in adapting to climate change and tackling loss and damage. Cities, which account for over 70% of global CO2 emissions and house more than half the world's population, stand at the frontline of both climate impacts and solutions. Yet with a staggering global climate financing gap of more than US$4 trillion annually, it's clear that new approaches to funding urban climate action are needed.

UNDP in Europe and Central Asia has been advancing an array of innovative financing initiatives designed to transform our cities and build resilience in the face of climate change. We're testing different approaches – from assessing how blockchain technology can help fund green initiatives, to building capacity for crowdfunding that empowers communities to invest in sustainable efforts, to exploring how environmental impact bonds can create win-win opportunities for investors and the planet. 

Democratizing access to finance through crowdfunding

Crowdfunding can be a powerful tool enabling individuals, diaspora communities and private sector actors to support local climate initiatives often overlooked by traditional investors. Our AltFinLab’s Crowdfunding Academy has already made a strong impact: previous cohorts have mobilized over US$3.1 million for sustainable development projects. The academy now includes a dedicated climate-focused track.

 With this success, we’ve moved on to the municipal-level to test how cities can leverage crowdfunding for local development projects, starting with ten Moldovan municipalities with project ideas ranging from rebuilding green spaces to waste management initiatives. Additionally, the UNDP-powered Tadamon platform, supported by ISDB and IsFD, has equipped 700+ civil society organizations with crowdfunding capabilities, leading to numerous campaigns on bringing renewable energy to schools and installing solar panels. Collectively, these initiatives have catalyzed over $17 million in funding, demonstrating crowdfunding's potential as an effective alternative financing mechanism.

Leveraging blockchain technology to foster transparency and efficiency

Building on its crowdfunding success, UNDP AltFinLab is also exploring blockchain technology to enhance transparency and efficiency in climate finance. A critical foundation for this work is the Blockchain Academy, launched in collaboration with the Algorand Foundation. It provides a comprehensive understanding of the fundamentals of blockchain technology, its applications and its potential to transform various sectors, including climate adaptation. In particular, the academy will help UNDP, UNCDF and UNV participants understand impact-focused use cases for development and climate mitigation work, and train them to design blockchain solutions that create value for the communities UNDP works with.

One promising application of blockchain technology for climate finance is in the development of green token systems for cities. Cities like Skopje and Podgorica, part of the City Experiment Fund, are examining how digital token systems can encourage sustainable behavior. Initial designs propose rewarding residents with tokens for activities like bio-waste disposal and public transport usage, which they could exchange for local services or cultural experiences.

In Skopje, for instance, the concept centers on smart bins that would track bio-waste collection, with early analysis suggesting potential cost reductions of 20 percent in waste management and up to €500,000 in annual revenue from bio-waste products. Podgorica's transportation-focused concept aims to address rising emissions in the sector, with estimated annual savings of €3.4 million in emissions-related costs. Such systems, while still in early planning stages, represent innovative ways to connect environmental goals with everyday urban life.

Building resilience with innovative financial instruments

What if cities could fund climate action while ensuring investors see measurable environmental returns? This is the potential of green bonds, a game-changing financial tool dedicated to financing projects with significant environmental benefits, enabling cities to address climate challenges while attracting diverse investors and collaborators. They encourage long-term planning, enabling local governments to secure funding for crucial infrastructure projects such as renewable energy, public transportation and climate resilience measures.

Several countries across Central Asia are exploring green bonds as a financing mechanism, with Kazakhstan having launched the region’s first municipal green bond to address urban issues like air quality. Last year, Uzbekistan also issued its first ever green bonds on the London Stock Exchange, demonstrating its strong commitment towards a green transition, with more interest from more than 30 international investors. Our Urban Learning Center is now equipping local authorities in the Eastern Partnership region with the skills to access and manage green bonds. As many municipalities in this region face significant barriers to securing financing for infrastructure and sustainable development projects, the center recently launched its “Funding and Finance for Municipalities” course. It provides a comprehensive overview of available financing options, especially on practical strategies for attracting investment. It introduces various financial instruments, such as bonds, tailored for sustainable projects and climate infrastructure at the subnational level. The focus on capacity-building is critical for scaling up climate finance, ensuring that cities are well-positioned to attract investors and execute their ambitious climate projects.

Beyond single projects: A new way to finance city transformations

Cities often try to solve multiple challenges in siloes– transitioning to renewable energy, implementing green transportation systems, enhancing efficiency and expanding urban green spaces. But rather than tackling each problem separately, UNDP's portfolio approach helps cities design a connected set of solutions, including finance options, that work together. This approach spreads risk across different projects, making it easier to attract funding from different types of investors – from public institutions to private companies – while testing various solutions at the same time.

Take Pljevlja, Montenegro, for example. The city needed to move away from its dependence on coal, but instead of betting everything on one big project, they started with several smaller energy efficiency initiatives. This careful approach paid off – the success of these initial projects helped convince funders to invest more, securing €8.8 million for a national energy efficiency program, with €2.8 million going to Pljevlja. Similarly, in Ceadir-Lunga, Moldova, a portfolio of connected interventions is helping the city transition to renewable energy and attract the necessary funding for it. Their approach includes training programs on green energy, making kindergartens more energy efficient, and helping low-income families access green technologies.

While many of these approaches are still in early stages, the experiments happening in cities across Europe and Central Asia show promising ways to unlock new resources for urban transformation and climate action.