City Funds and the Net Zero Transition: Accelerating Urban Climate Finance through Local Investment Vehicles

Co-authored by Rupesh Madlani (CEO)  Ryan McManus (Vice President), Àlvar Gener (Associate) at BwB and Thomas Osdoba (Managing Director) at NetZeroCitiesEU

Cities are critical success actors in the transition to a net zero future. With over 70% of global emissions generated by urban areas, the journey to climate neutrality cannot be achieved without decisive action at the city level. 

Encouragingly, substantial work has been done over the past decade to define and quantify the investment needed to meet net zero targets in cities. Local governments, multilateral institutions, and urban climate networks have developed robust transition plans and identified high-impact projects focusing on energy systems, mobility, buildings, and infrastructure. 

Yet, despite this clarity on what needs to be done and how, one central question remains unresolved: how do we pay for it? Between now and 2030, an estimated US$6.2 trillion in climate finance will be required every year – rising to US$7.3 trillion annually by 2050 – to meet the goals of the Paris Agreement. 

Scaling Urban Climate Mitigation and Adaptation Finance 

While traditional public funding streams remain a crucial piece of the financing puzzle, they are insufficient to meet the full extent of such huge capital needs. Unlocking and accelerating additional capital flows into cities – especially from private sources – has become one of the defining challenges of this decade. Bankers without Boundaries (BwB), in partnership with Climate-KIC, South Pole, TNO, and other NetZeroCities consortium members, has designed the financial architecture behind an innovative entity that seeks to be a significant part of the solution to this challenge: the Climate City Capital Hub (Capital Hub). 

Climate City Capital Hub: Bridging the Gap Between Ambition and Investment 

The Capital Hub is a pan-European initiative aimed at transforming the way capital is mobilised for urban decarbonisation. As the lead finance partner, BwB has worked to develop a structure that brings together public funding, private capital, and risk reduction instruments into a cohesive platform that cities can access to advance and finance high-impact climate-focused projects. 

The Capital Hub is not about rethinking what cities should do, but about enabling how they do it – faster, at scale, and with confidence. By combining risk-sharing facilities, blended finance approaches, and project preparation, the Capital Hub bridges the gap between cities’ climate ambitions and investor expectations. It also recognises something fundamental: that cities are not just passive recipients of capital – they should be treated as active stewards and co-investors in their own futures. 

The Case for Local City Funds 

Even with this regional platform in place, there is a tremendous opportunity – and need – for European cities to go one step further and establish local city funds. 

City funds generally sit within or adjacent to city institutions and are staffed by local teams with the technical and financial expertise required to successfully manage the various interventions being deployed – anything from retrofitting homes, to greening transport systems, to building climate-resilient infrastructure and beyond. Critically, these funds are rooted in place: they are not abstract vehicles but are connected to the lived reality of local urban communities. Their purpose is to deliver benefits to local citizens in the form of cleaner air, better insulated homes, more affordable energy, improved public transport, and green job creation. 

City funds can provide the institutional scaffolding for more agile, responsive, and locally controlled financing of the net zero transition. They can deploy flexible capital, aggregate smaller projects into investible portfolios, and act as trusted intermediaries between cities and investors. 

Why City Funds Matter for the Net Zero Transition? 

There are at least three key reasons why city funds are a compelling and important transition pathway: 

1. Crowding in private capital to deliver public goals 

Central government budgets are constrained. Meanwhile, an enormous pool of private capital – estimated at over US$100 trillion globally – is actively seeking climate-aligned investments. Local city funds can help translate city projects into investment-ready opportunities that meet the requirements of private investors. By using limited public resources strategically (such as for guarantees or concessional lending), cities can de-risk projects and unlock private finance at a scale that public budgets alone could never achieve. This makes the delivery of public policy objectives not only more feasible but also more scalable. 

2. Building a new institutional muscle 

Traditionally, cities have operated as grant allocators: receiving funds and spending them to deliver services. But the scale and urgency of the climate challenge requires something more entrepreneurial – cities must learn to invest funds, not just spend them. A local city fund provides the institutional architecture to support this process by requiring the development of internal financial capabilities, enabling long-term capital planning, and instilling a culture of accountability and return. Even where financial returns are modest or deferred, the mindset shift – toward investment and value creation – is transformative. 

3. Increasing the efficacy of public spending 

When cities have access to financial tools that enable the recycling of capital (for example, via loans or equity stakes), they can stretch limited public budgets further. Instead of spending a single euro once, a city fund can deploy it multiple times. This leads to greater impact per unit of public spending and increases the overall velocity of capital in the system. It also helps cities finance what they must, while leveraging external capital to finance additional projects and initiatives. 

City Funds for Climate Finance: Is It Possible? 

The feasibility of this potentially transformative vision might seem uncertain. However, there are concrete examples demonstrating that it is not only possible, but it is already underway. 

At the national level, sovereign wealth funds such as Norway’s Government Pension Fund Global demonstrate the long-term viability of using public wealth to drive sustainable investments. 

While cities do not have the same fiscal powers as nations, there are examples of similar mechanisms being explored and developed at a local level. For example, the city of Leuven in Belgium is on track to launch a climate fund to directly invest in local energy projects and leverage citizen finance. Bristol in the UK has pioneered several innovative city-level investment vehicles, including the Bristol City Funds and the Bristol Climate & Nature Partnership. These funds are not just about finance – they are about forging partnerships, co-investing with local stakeholders, and aligning financial flows with the city’s social and environmental goals. 

The Road Ahead: Building Capacity and Scaling Ambition 

The Capital Hub is now entering its next phase – working with a growing number of European cities to build the capacity and confidence that will encourage them to create their own local funds. This support includes technical assistance on fund structuring, legal frameworks, governance design, and investment strategies. 

While city funds may not be the right vehicle for every city or every intervention, they are a powerful addition to the urban climate finance toolkit. What matters is not uniformity, but optionality. By giving cities a broad range of tools, we empower them to take action. 

In a world where capital is plentiful yet poorly distributed, city funds offer a pathway to potentially move billions – and, over time, trillions – from the sidelines into urban transformation, enabling localities to go from project aspirations to implementation reality. 

As the climate crisis accelerates, European cities have a pivotal opportunity to lead through action as well as ambition. Local city funds, embedded within a broader sustainable finance ecosystem that includes anchor initiatives such as the Capital Hub, offer a tangible, scalable way for them to do exactly that.