Financing Urban Resilience: The Growing Role of Green and Social Bonds for Cities

The Asian Development Bank report shows that cities and local governments, especially in Asia and the Pacific, face a massive financing gap for climate-resilient and social infrastructure, even though they sit at the center of economic activity and climate risk. It argues that green, social, and sustainability bonds, supported by strong national policies, pooled financing vehicles, and development partners, offer a practical way to mobilize long-term private capital for local mitigation, adaptation, and resilience projects

Produced by the Asian Development Bank under its Asian Bond Markets Initiative, with research contributions from ADB staff, consultants, and partners such as PwC Luxembourg and support from the Green Climate Fund, the People’s Republic of China Poverty Reduction and Regional Cooperation Fund, and the United Kingdom’s ASEAN Catalytic Green Finance Facility, this report starts from a simple reality: sustainable development is increasingly an urban challenge. Cities are home to most of the world’s people, generate the majority of global economic activity, and account for most energy use and greenhouse gas emissions. At the same time, they are on the front lines of climate risks such as flooding, heat waves, droughts, and sea-level rise, especially in Asia and the Pacific, where rapid urbanization is colliding with rising vulnerability to disasters.

Why Local Governments Struggle to Finance Infrastructure

Despite their central role, local governments often lack the financial tools to respond at scale. Their revenues are constrained by limited tax bases, rigid fiscal rules, and dependence on transfers from central governments. Large infrastructure projects, such as mass transit, water systems, flood protection, or resilient public buildings, require long-term financing that local budgets alone cannot provide. In developing economies, the gap is especially large: trillions of dollars are needed for low-carbon and climate-resilient urban infrastructure over the coming decades, yet actual financing flows fall far short, particularly for climate adaptation projects that protect communities but do not generate direct revenues.

How GSS+ Bonds Offer a Practical Solution

The report argues that green, social, sustainability, sustainability-linked, and other labeled bonds, collectively known as GSS+ bonds, provide a practical way for local governments to bridge this gap. These bonds allow cities and regions to raise long-term capital from investors while clearly linking borrowing to projects with environmental or social benefits. Green bonds can fund clean transport, renewable energy, water and wastewater systems, green buildings, and urban parks. Social bonds support housing, education, health care, and inclusion, while sustainability bonds combine both. Importantly, the report shows that local governments are also leading issuers of bonds for climate adaptation and resilience, financing flood defenses, drought-resistant water infrastructure, heat mitigation, disaster preparedness, and nature-based solutions. In several advanced economies, GSS+ bonds already make up more than 10% of local government bond issuance, and emerging economies are beginning to follow the same path.

Building Markets and Pooling Strength

Issuing bonds successfully, however, requires strong foundations. Central governments must provide clear legal frameworks, borrowing rules, and disclosure standards that give investors confidence. Local governments need sound planning, accounting, and financial management, along with credit ratings and transparent communication with investors. For smaller municipalities that lack scale, the report highlights the importance of pooled financing institutions, such as municipal finance organizations. These entities, long used in Japan and Nordic countries, aggregate the borrowing needs of many local governments, issue bonds at scale, and on-lend funds at better terms. By pooling credit risk and expertise, they reduce costs, improve governance, and make sustainable finance accessible to smaller cities and towns.

Lessons from Cities That Led the Way

Case studies bring these ideas to life. Tokyo shows how a large metropolitan government can use green, social, sustainability, blue, and resilience bonds to finance climate action while also catalyzing broader market growth. Gothenburg, the world’s first municipal green bond issuer, demonstrates how consistent issuance and strong disclosure can embed sustainable finance into everyday public borrowing, while also highlighting the need to consider social impacts such as housing affordability. Cape Town illustrates how a crisis can drive innovation: faced with severe drought, it issued Africa’s first municipal green bond to strengthen water security and climate resilience. Île-de-France shows what happens when sustainable finance becomes the default, with nearly all new borrowing issued as green or sustainability bonds, attracting strong investor demand and funding major transport, education, and social projects.

Turning Local Finance into a Climate Solution

The report concludes that GSS+ bonds are not a silver bullet, but they are a proven and flexible tool for mobilizing capital at the local level. With supportive national policies, capable local institutions, pooled financing mechanisms, and catalytic support from development partners, cities across Asia and the Pacific can unlock private investment for sustainable infrastructure. Doing so will be essential to closing the climate finance gap and ensuring that urban growth becomes a driver of resilience, inclusion, and long-term development rather than a source of escalating risk.