Climate change, technological disruption and other issues are profoundly shaping the trajectory of our cities. Interconnected challenges are converging in front of us, creating a complex landscape that demands action beyond business as usual. 

Across Europe and Central Asia, demographic shifts like declining birth rates and rapid aging are straining economies and social systems. Youth unemployment rates are twice as high as older workers.  While older populations are less concerned about climate change, young people see it as an existential crisis and demand urgent action - they have a very real stake in environmental impacts playing out over longer timelines.

Emerging learning from the City Experiment Fund

Cities are the hotspots where these challenges are most acute and intersectional.  The need to accelerate green and just economic transitions crosses with broader forces reshaping their future:

• Cities' outsized environmental footprints from industrial activity, transportation emissions and concentrated populations, requiring substantial shifts in how they address sustainability;
• A digital revolution transforming how people work, live and engage with urban environments at an exponential pace, testing cities' abilities to adapt infrastructure and services;
• Decentralization trends empowering local communities to develop innovative policy solutions tailored to their needs are also fragmenting the landscape of urban governance and straining municipal resources.
• Public trust in institutions eroding even as the need for rapid innovation is increasing.

For UNDP, catalyzing sustainable development means embracing this convergence in cities not as a risk, but as an opportunity for bottom-up transformation.

Enter the “portfolio” approach. Through initiatives like the City Experiment Fund, a partnership with Slovakia's Ministry of Finance, we assembled collaborative portfolios in five pilot cities – Skopje, Almaty, Stepanavan, Pljevlja and Pristina – we focused on complex urban challenges like air quality, circularity, public spaces and employment.

Rather than pursuing city development projects in isolation, these pilot portfolios became hubs for experimentation – building local capacities in systems thinking, fostering co-creation between unlikely partners and allowing ideas to rapidly evolve based on continuous feedback loops. For example, finding synergy between landfills and the social impact ecosystem to rethink how urban organic waste can be turned into a valuable resource. 

The initial results from this approach have been encouraging. Municipalities appreciated the flexibility provided to design and adapt initiatives based on real-time feedback from a wide range of grassroot actors on the ground. This created an environment where experimentation could occur without rigid constraints – a "failing forward" mindset took root, viewing missteps as learning opportunities rather than failures. 

Three major shifts dominated the focus across the portfolios: 1) accelerating a green and just transition by addressing air pollution, waste issues, fossil fuel dependency, unsustainable transportation models and lack of green infrastructure; 2) tackling demographic challenges like depopulation, brain drain, loss of human capital and shrinking cities; and 3) tapping into new economic opportunities around circularity and the future of work.

Across these areas, a common thread emerged – navigating uncertainty around how transformation could unfold, and building novel coalitions to drive change, like the civic-municipal partnership returning vibrancy to Stepanavan, Armenia or Montenegro’s National Council for Sustainable Development working on a just transition. The portfolios provided a solid framework for city teams to embrace this complexity. What resulted were not narrow projects but an expanding web of complementary interventions mutually reinforcing each other.

From city portfolios to regional urban innovation cohorts

Encouraged by these initial impacts, UNDP and partners are embracing a more ambitious vision – forming thematic regional cohorts unified by common challenges, transitions and development patterns that transcend geographical boundaries.

Creating groups oriented around emergent themes – recently highlighted at in Slovakia – democratizes innovative solutions by distributing experimentation across a broader network, and simultaneously scales the impact.

Potential thematic areas include youth empowerment to create decent work opportunities that also drive sustainability goals; decentralized, participatory governance models that unlock local policy innovation; and the twin transition towards green economies and digitalization as a unifying platform for reducing emissions/pollution, enhancing environmental resilience and catalyzing smarter, more agile cities.The portfolio architecture will evolve iteratively based on an ongoing process of listening, learning and adaptation to emerging issues, risks and opportunities and changing urban landscapes.

A case for new urban solutions and financing approaches

Systemically addressing these converging urban challenges, however, requires significant financial resources. The global urban financing gap is estimated at a staggering US$1-3 trillion annually, underscoring the urgency of unlocking new funding sources and innovative financial mechanisms.

The regional forum explored a range of emerging approaches and tools: 

Quadratic funding for participatory budgeting allows citizens to express their preferences more effectively. Its combination of voting and crowdfunding  increases participation, improves decision-making and can even increase the overall budget for projects through citizen donations. 

New avenues for value exchange: Inspired by Vienna’s “Culture Token”, a blockchain-based pilot that rewards citizens for environmentally-friendly behaviors like cycling or walking, tokens earned based on saved CO2 emissions can be redeemed for cultural event tickets. This type of cross-sectoral value exchange can help foster more sustainable behaviors while also supporting cultural institutions and creating a shared sense of civic engagement.  Meanwhile, they support cities' climate neutrality goals and create economic exchange in new spaces.

Blended finance and risk-sharing mechanisms: International Financial Institutions (IFI) are increasingly using blended finance approaches to crowd in private investments for sustainable urban projects. This can involve using public or philanthropic funds to de-risk investments, provide technical assistance or structure projects to create more attractive risk-return profiles for private investors. We will be partnering with IFIs too catalyze more private financing for small and medium-sized cities that may otherwise struggle to access funding.

By aggregating smaller, thematically-aligned projects across multiple cities into cohorts, it becomes possible to structure larger financing propositions better suited for these kinds of blended or risk-sharing instruments. City cohorts will also benefit from the strategic integration of UNDP’s regional acceleration programme BOOST.  

The key is to move beyond grant-based funding for individual projects and instead design new financing models that are adapted to the complex, mission-driven nature of urban transformation. This requires close collaboration between cities, financial institutions and others, and the City Experiment Fund will continue to foster this and serve as a laboratory for rapidly testing, iterating and diffusing these innovative approaches across city networks.

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The complex challenges facing cities require new approaches that break down siloes and unlock the creative potential of local stakeholders. The Slovak Transformation Fund (a flagship partnership project between UNDP and the Ministry of Finance of the Slovak Republic) invites partners across sectors to collaboratively explore these new paradigms with us.