How Cities Can Mobilize Green and Sustainable Bond Finance for Climate-Resilient Growth

The Asian Development Bank report argues that local governments in Asia and the Pacific are central to delivering climate-resilient and inclusive infrastructure but face major financing constraints, especially for adaptation. It shows that green, social, and sustainability (GSS+) bonds, often issued through pooled municipal finance vehicles, offer a practical way for cities and regions to mobilize long-term capital, strengthen governance, and close critical infrastructure gaps

Produced by the Asian Development Bank under the Asian Bond Markets Initiative, with research inputs from ADB specialists, PwC Luxembourg, and support from the Green Climate Fund, the UK government, and the PRC Poverty Reduction and Regional Cooperation Fund, the report argues that local governments are central to solving today’s development and climate challenges. Cities and regions deliver most public services that affect daily life, transport, water, housing, health, education, and disaster response, while also concentrating economic activity, energy use, and greenhouse gas emissions. In Asia and the Pacific, rapid urbanization and rising climate risks mean that local governments face growing pressure to invest, even as their fiscal space remains limited.

The Financing Gap Facing Cities and Regions

The report highlights a widening mismatch between local infrastructure needs and available funding. Climate-resilient and low-carbon urban infrastructure in emerging markets requires trillions of dollars annually, yet actual climate finance flows fall far short, especially for adaptation. Local governments often depend on unstable transfers from central governments, have narrow tax bases, and face borrowing limits or weak credit ratings. These constraints discourage long-term investment and leave cities exposed to floods, droughts, heat waves, and infrastructure breakdowns. The result is chronic underinvestment in projects that are essential for economic resilience and social inclusion.

How GSS+ Bonds Help Bridge the Gap

Green, social, sustainability, sustainability-linked, and other labeled bonds, grouped as GSS+ bonds, are presented as a practical way to unlock long-term capital for local governments. Once a niche product, these bonds are now mainstream among global investors seeking stable returns with measurable environmental and social impact. For municipalities, GSS+ bonds can offer longer maturities, diversified funding sources, and in some cases, lower borrowing costs, while also encouraging better planning, transparency, and accountability. In countries such as Japan, Australia, Sweden, and the Netherlands, GSS+ bonds already account for more than 10% of annual local government bond issuance, showing that the model works across different institutional settings.

Scaling Up Through Pooled Finance and Adaptation Focus

A key lesson of the report is that scale matters. Many smaller municipalities cannot access bond markets alone, which is why pooled financing vehicles, such as municipal finance organizations, play a critical role. Long established in Japan and the Nordic countries, these institutions aggregate borrowing needs and issue bonds on behalf of multiple local governments, reducing costs and improving market access. The report also emphasizes that local governments are uniquely positioned to lead climate adaptation and resilience financing. While most green bonds focus on mitigation, adaptation projects, such as flood defenses, drought-resilient water systems, urban cooling, and nature-based solutions, are largely public goods delivered locally. Notably, nearly 70% of global adaptation-related GSS+ bond issuance comes from sub-sovereign entities, highlighting the natural alignment between municipal finance and resilience investment.

Lessons from Cities That Have Led the Way

Four international case studies illustrate how local governments can successfully use GSS+ bonds. The Tokyo Metropolitan Government has built one of the world’s most comprehensive subnational sustainable finance programs, issuing green, social, sustainability, blue, and resilience bonds aligned with long-term climate and disaster strategies, and backed by detailed impact reporting. Gothenburg in Sweden pioneered the world’s first municipal green bond in 2013 and now finances most of its borrowing through green instruments, setting global standards for transparency. Cape Town shows how a crisis can drive innovation: facing severe drought, it issued Africa’s first municipal green bond to fund water infrastructure, strengthening governance and investor confidence. Île-de-France demonstrates how sustainable finance can become the default, with nearly all new borrowing issued as green or sustainability bonds to fund clean transport, energy-efficient schools, and social infrastructure at scale.

A Clear Direction for the Future

The report concludes that GSS+ bonds are no longer experimental tools but an essential part of modern local government finance. With supportive national policies, pooled financing mechanisms, and assistance from development banks, municipalities across Asia and the Pacific can mobilize long-term capital for climate-resilient and inclusive growth. Empowering local governments to access bond markets responsibly is presented as a necessary step toward closing infrastructure gaps, strengthening resilience, and delivering sustainable development where it matters most, at the local level