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Abstract

This paper is essentially a literature review of the interaction of climate change and finance through the lens of financing low-carbon urban infrastructure. The financial implications of climate change risks are still under-explored in the finance literature. The transition towards a low-carbon economy requires a broad array of financial instruments and innovations that will have far-reaching implications for markets, corporations, intermediaries, and investors. This paper proposes some potential links between some seminal theories in finance and the climate-economy literature. It reviews the demand side for urban infrastructural finance as well as the supply side. The financing and funding mechanisms that can be deployed on the demand side to raise and steer finance from the supply side, and at integrating climate considerations into the project preparation process (investment decisions). The paper also reviews the concept of urban finance readiness: the capacity of supply- and demand-side institutions to address the infrastructure financing gap. It assesses key opportunities to strengthen fiscal and financial systems, policy environments and frameworks, and project development and implementation processes and how climate considerations can be mainstreamed into urban finance systems.