How a German-backed initiative is reshaping urban climate finance in Latin America and the Caribbean

By Anina Hartung and Matteo Bizzotto, ICLEI – Local Governments for Sustainability

Across Europe, the conversation on climate risk is shifting. What was once framed mainly as a long-term environmental challenge is now understood as something far more immediate: a threat to lives, homes, infrastructure, and the financial systems that underpin them. Floods in Germany and Belgium, heatwaves in Southern Europe, and storms across the Atlantic coast have exposed a difficult truth: climate risk is measurable, material, and increasingly expensive.

At the same time, cities remain on the frontline. They manage roads, hospitals, drainage systems, social housing, public transport, and emergency services. When disaster strikes, local governments carry both the human and fiscal burden. Yet many lack the tools to quantify their exposure or access timely finance.

While this challenge is global, one of the most innovative responses is currently unfolding in Latin America and the Caribbean – backed by Germany and designed with cities themselves. Known as ProUrbano, the initiative brings together insurance and adaptation finance in a way that has never been done before at municipal level. For policymakers, investors, and insurers, it offers a glimpse of where urban climate finance may be heading.

A €58 million safety net built for cities

Launched in 2021 and expanded in 2025 at COP30 in Belém, Brazil, ProUrbano is led by ICLEI – Local Governments for Sustainability – with support from the German Federal Ministry for Economic Cooperation and Development (BMZ) through KfW Development Bank. The new phase scales up the program to more than €58 million through 2030.

ProUrbano combines two complementary instruments:

• The Urban Infrastructure Insurance Facility (UIIF), which helps cities understand and transfer climate risks through innovative insurance solutions.
• The Urban Adaptation Financing Facility (UAFF), which supports cities in turning risk insights into investment-ready adaptation projects.

Together, they form what ICLEI describes as a “new safety net for cities.” In practice, this means local governments can access liquidity after disasters while simultaneously investing in long-term resilience.

This approach directly complements initiatives such as the Global Shield against Climate Risks, launched under Germany’s G7 presidency to provide rapid financial protection. While the Global Shield operates nationally, ProUrbano focuses on municipalities. This dual-layered architecture – sovereign and municipal risk finance aligned – signals an important evolution in how climate resilience may be structured globally.

The missing link in Disaster Risk Management: Quantifying urban risk

ProUrbano integrates the entire risk management cycle – prevention, response, recovery, and long-term transformation.

In fact, insurance only works when risk is understood. Yet many cities worldwide rely on narrative assessments and hazard maps that raise awareness but do not translate into financial decisions.

Through the first phase of UIIF, ICLEI introduced Urban Risk Assessments (URAs) as a key component of the program. These assessments move beyond qualitative descriptions and quantify potential economic losses, impacts on essential services, and effects on vulnerable populations.

Local officials identify which hazards matter most, which assets must be protected, and which communities face the highest exposure. Technical advisors then model potential losses and test insurance feasibility. This sequencing ensures that political choices remain with elected leaders, while technical and insurance expertise translates those choices into credible financial instruments.

For insurers and investors, this structured approach reduces uncertainty. For cities, it expands options. Risk can be reduced through planning and infrastructure. Residual risk can be transferred through insurance. Adaptation investments can then lower premiums and long-term losses.

Two facilities for true integrated resilience

The first phase of UIIF supported ten cities across four countries in Latin America and the Caribbean, with their Urban Risk Assessments. Following, these municipalities will have a chance to co-design insurance solutions tailored to their public infrastructure and social priorities.

The expanded phase goes further. By linking UIIF to UAFF, cities can also design and finance projects that reduce their underlying vulnerability – such as improved drainage, resilient public buildings, or nature-based solutions.

This integration addresses a persistent fragmentation in climate governance. Too often, adaptation planning, disaster response, and financial management operate in silos. ProUrbano deliberately bridges these divides.

Why this matters for Europe’s financial sector

For European stakeholders, this offers a relevant lesson. As EU taxonomy rules evolve and climate risk disclosure becomes more rigorous, cities and regions will need similarly integrated frameworks. Insurance without adaptation will likely continue perpetuating losses. Adaptation without financial protection leaves budgets exposed.

Europe is home to some of the world’s largest insurers, reinsurers, and development banks. As climate-related losses rise globally, the insurance gap – the difference between total economic losses and insured losses – is widening. Innovative municipal insurance pooling, early market sounding, and structured Urban Risk Assessments could inform future European models. This while institutional investors increasingly seek credible, structured, impact-oriented investments backed by robust analysis.

A trusted catalyst between cities and capital

One recurring lesson from ProUrbano is that cities cannot navigate complex insurance and finance markets alone. Nor can insurers design workable urban solutions without understanding public governance realities.

This is where ICLEI’s role becomes central. As a global network of over 2,500 local and regional governments, ICLEI operates as a neutral convener and technical partner in a climate finance landscape often criticised for fragmentation. It structures risk assessments, facilitates peer learning, and connects cities with insurers, brokers, and financiers – all while ensuring that cities remain in the driver’s seat.

For municipalities, this builds confidence. For financial actors, it ensures credibility and consistency. For development partners like KfW and BMZ, it provides a scalable platform grounded in local demand.

The broader conversation on how to scale and transfer these lessons will find a natural home at the European Resilience Forum (EURESFO) in June 2026 in Guimarães, Portugal. EURESFO has brought together local and regional governments on climate adaptation and disaster risk since 2013. Driven by ICLEI and the European Environment Agency, and co-organised this year by the City of Guimarães, the 2026 edition will feature thematic sessions on financing resilience, creating a timely opportunity to debate, stress-test, and scale the kind of integrated municipal finance models that ProUrbano represents.

A world first – and a model in motion

ProUrbano represents one of the first structured attempts to link municipal insurance pooling with adaptation finance at scale. It moves toward a replicable model, supported by a major G7 donor and aligned with global risk finance initiatives.

While currently focused on Latin America and the Caribbean, its implications are broader. The financial architecture built today in one region may inform solutions elsewhere tomorrow. For Europe, this may well be a preview of how urban climate finance could evolve domestically: quantified risk, pooled insurance, integrated adaptation investment, and strong municipal networks as intermediaries.

To learn more about ProUrbano and its work with cities, please visit ICLEI’s Urban Infrastructure Insurance Facility: uiif-resilience.org