Financial instruments for mitigation, adaptation and energy poverty actions : covenant of mayors guidebook : complementary document 5

The Covenant of Mayors for Climate and Energy (CoM) is an ambitious initiative for local climate and energy actions. This document complements the main CoM Guidebook by setting out a targeted framework for municipalities to identify financial barriers and opportunities while exploring a variety of traditional, innovative, and alternative financing instruments to support the implementation of mitigation, adaptation and energy poverty actions outlined in sustainable energy and climate action plans. While being in a position to drive the transition to low-carbon and resilient cities, municipalities face significant challenges, including limited budgets, insufficient administrative capacity, and technical and regulatory obstacles. To overcome these barriers, it is essential to integrate traditional funding sources and financing instruments such as grants and soft loans into the funding mix, while also making use of innovative models like public-private partnerships, green bonds, green loans, and citizen-based mechanisms, including cooperatives and crowdfunding. The document explores several key financial instruments, emphasising the role of grants in financing initial investments, soft loans for enabling large-scale projects, and leasing for acquiring energy-efficient equipment without substantial upfront costs. Among the innovative instruments available, it highlights the value of green bonds, green loans and insurance mechanisms for climate adaptation. Alternative approaches, such as crowdfunding and energy cooperatives and communities, are also effective in fostering community engagement and expanding the financial base for local initiatives.