Bridging the gap: Exploring Innovative Financing Schemes in European cities

With the aim to reduce economic disparities and foster social cohesion between all Member States, the European Cohesion Policy reinforces a sustainable - environmentally and socio-economic - development for Europe. In that, the Cohesion Policy and more specifically, its urban dimension, presents financial instruments that support sustainable urban development in EU. This context emphasises the relevance of innovative financial schemes as a sustainable and complementary alternative to grant-based support that various instruments of EU Cohesion Policy offer to urban authorities.

The use of these schemes is observed and common in many sectors of urban development such as housing, infrastructure, energy renovation, transport, etc. However, the innovative financial schemes are not solely used in urban regeneration projects, rather, they are also impactful in social development. From addressing loneliness and integration of minority groups, to support to local bottom-up initiatives or SMEs and start-ups, they will allow to do more with less, and prioritise and support industries and social development initiatives. These novel financial schemes not only engage multiple sectors, but also are diverse in their formats and regulatory framework, originating from and mobilising both public and private investments (European Commission, 2020). This diversity in the financial schemes, their sources and frameworks, what they allow, and what they fund are arguably the most deciding factor in incentivising different sectors to decouple from carbon-intensive practices and transition to carbon neutrality.

In recent years and against the backdrop of recovering from the Covid-19 pandemic, there is an increasing need to lessen the financial burden on EU cities. This arises from the need to relive cities from the trammel of excessive loans for their development projects, boosting a more efficient use of already existing resources and exploiting the potentials of cities and municipalities. In the face of scarcity of resources, cities provide the perfect setting for experimenting with these innovative financial schemes; on the one hand, they bring this integrated and cross-sectoral approach, and on the other, they are drivers of transition towards a greener and more social EU. As such, cities are the perfect testbeds for testing these schemes.