As cities’ ambitions become more significant, the support of the European Union, its main financial instruments such as Cohesion Policy and its urban initiatives and programmes become more essential. The EU’s Cohesion Policy plays a crucial role in reducing regional disparities by investing in cities’ capacity to deliver greener, more inclusive, and competitive sustainable local development. While its financial instruments for urban authorities -such as the European Urban Initiative (EUI)- provide essential support to cities of all sizes and regional development level, the policy goes beyond traditional grants. It actively promotes innovation in how cities fund and implement projects.
For example, Cohesion Policy encourages the blending of different EU funds (such as ERDF, ESF+, or Just Transition Fund) with national, local, and even private sources to unlock larger-scale investment. This flexibility allows urban authorities to design more integrated responses to challenges like housing shortages, climate adaptation, or digital infrastructure. Through pilot schemes, financial instruments, and multi-fund strategies, the policy enables cities to experiment with new delivery models, leverage additional financing, and build long-term investment capacity tailored to their specific needs.
This has led to the emergence and growing use of Innovative Financial Schemes (IFS) as a means to finance sustainable urban transformation. IFS are valuable resources for cities seeking to deliver new innovative solutions to face growing urban challenges. These creative approaches used by cities and urban practitioners to mobilise and distribute funds more effectively, are characterised by their integration of diverse financial sources both public and private to implement sustainable urban development projects. Unlike conventional grants, they allow more flexibility, experimentation, and adaptability to local needs. Through instruments such as financial instruments under the European Regional Development Fund (ERDF) or the support for innovative projects via the EUI, cities gain the ability to test and scale up IFS. Innovative financing is a powerful tool due its adaptability and potential for cross-sectoral impact. Whether used in housing, mobility, employment, or environmental projects, it enables cities to go beyond conventional funding barriers by blending multiple sources, involving citizens and private actors, and fostering long-term sustainability. It equips cities to pilot, scale, and replicate impactful solutions across different urban challenges.
As part of the Cohesion Policy, EU programmes such as EUI give the opportunity to cities to benefit from ERDF to achieve their urban projects. Through activities such as Knowledge and Capitalisation exercises (including Policy Labs and Focused Policy Labs) or Capacity Building activities (such as Peer Reviews and City-to-City exchanges), EUI supports cities in their quest for sustainability and ensures that the lessons learned from pilot initiatives are accessible to all cities, regardless of their size or geographical location. As the EUI recognises the importance of funding for urban development and the challenges around the topic, its next Focused Policy Lab, held in Rotterdam from the 30th of September to the 2nd of October, will focus on the topic of ‘Access to Funding: Practical tools for urban change’.
The city of Rotterdam provides an exemplary practice of innovation in financing to achieve social cohesion. The BRIDGE project (Building the Right Investments for Delivering a Growing Economy) aimed at creating employment, particularly by supporting disadvantaged young youth in gaining skills adapted to the context of the emergence of green and digital economy. Achieving this goal, however, came with significant challenges -particularly in navigating Dutch regulations around social return obligations, which set strict conditions for the social impact of publicly funded projects. To address these hurdles, Rotterdam experimented with innovative financial mechanisms, including socially driven procurement models and Social Credit Schemes. A key breakthrough was the development of Rikx (Rotterdam Impact Keys) -a “social coin” model designed to value and exchange measurable social impact. This tool enabled the city to align public investments with private sector contributions while addressing regulatory constraints, creating a flexible and scalable model that balanced the needs of multiple stakeholders.
The city of Ghent provides another strong example of how innovative financing can address pressing urban challenges like access to affordable housing. Through the ICCARus project ("Improving Housing Conditions for Captive Residents in Ghent"), the city established a revolving fund that offered up to €30,000 per household to support home renovations for low-income residents. This approach combined financial assistance with tailored social and technical support, enabling residents to actively improve their housing conditions. The project delivered tangible outcomes—enhancing housing quality, boosting energy efficiency, and lowering CO₂ emissions—successfully completing renovations in 82 out of the 100 targeted homes, despite operational challenges. Beyond its local impact, ICCARus inspired similar schemes across Belgium and highlighted the importance of sustained political will and long-term investment strategies in tackling housing inequality.
As urban challenges continue to grow, securing access to adequate, flexible, and innovative funding is not only a financial necessity, but also a strategic imperative for European cities. The experiences of Rotterdam and Ghent illustrate that when cities have the right tools, knowledge, and financial mechanisms, they can transform ambitious visions into real impacts. EUI, together with other EU programmes and initiatives under the Cohesion Policy instruments, plays a key role in this process through its Policy Labs, Capacity Building efforts, and various activities that empower cities to overcome barriers and experiment with innovative solutions. The Focused Policy Lab on ‘Access to Funding’ in Rotterdam will provide a timely opportunity to share best practices such those of Rotterdam and Ghent, explore practical tools, and co-design financial strategies that address the complexities of today’s urban needs in Europe.
Ensuring inclusive and sustainable urban development in Europe relies on continued collaboration, innovation, and support -above all, on the ability of cities to unlock and leverage the funding opportunities available to them, despite growing economic and financial pressures on local urban authorities’ budgets.
