By 2050, two-thirds of the world's population will live in cities. Most of those cities aren’t built for the climate they are about to face. Sponge cities offer one of the most compelling responses to that problem, but getting them to scale requires solving a financing challenge that the field has barely begun to address.
What is a Sponge City?
A sponge city is an urban water management model designed to mimic natural hydrological processes. Instead of channeling rainwater away from cities through concrete drainage systems as quickly as possible, a sponge city allows the urban landscape to absorb, store, infiltrate, and slowly release water [1]. The concept treats stormwater as a resource rather than a problem [2].
In practice, this means replacing impermeable surfaces with living infrastructure: green roofs that intercept rainfall at source, bioswales and rain gardens that filter pollutants while slowing runoff, permeable pavements, urban wetlands, and naturalized river corridors [2]. These aren't new ideas. Many are rooted in ancient practices of living with water rather than against it [2]. What is new is their application at city scale, backed by an increasingly strong evidence base [2].
The concept has gained significant traction in China, where a formal Sponge City Program was launched in 2015 with 30 pilot cities. It has since expanded nationwide [3, 1]. But variants of the same idea are being adopted under different names across every continent: Sustainable Drainage Systems in the UK, Water Sensitive Urban Design in Australia, Low Impact Development in the United States, and Nature-Based Solutions across Europe [4].
Singapore's Active, Beautiful, Clean (ABC) Waters Program, launched in 2006, is perhaps the most cited benchmark. A water-scarce island with high annual rainfall, Singapore redesigned its approach to water entirely, transforming concrete drainage canals into naturalized rivers and creating blue-green corridors that function as floodplains during storms and community spaces during dry weather [5]. The most cited example is Bishan-Ang Mo Kio Park, where a utilitarian concrete canal was converted into a meandering river that now serves both flood management and recreational functions simultaneously [5].
What are the Benefits?
The case for sponge cities rests on a body of evidence that is growing rapidly. On flood management alone, well-designed interventions can reduce surface runoff by 30% to 75% [6, 7]. Urban greenery can reduce surface temperatures by up to 15.6 degrees Celsius, directly addressing the Urban Heat Island effect that raises city temperatures several degrees above surrounding rural areas [8]. Green infrastructure also acts as a carbon sink, sequestering CO2 while reducing the energy demand of buildings for cooling [7].
What makes sponge city design particularly compelling, from a finance and investment perspective, is that these benefits stack. A single green roof intercepts rainfall, reduces heating and cooling costs, extends the lifespan of the roof membrane, improves air quality, and contributes to biodiversity [2]. A naturalized river corridor manages flood risk, creates recreational amenity, increases surrounding property values, and provides habitat for wildlife [9, 10]. Traditional gray infrastructure delivers one function. Nature-based infrastructure delivers many.
The economic case is significant. Nature-based solutions are often around 50% more cost-effective than conventional engineered alternatives when the full range of co-benefits is accounted for. Evidence from multiple cities shows that well-designed green infrastructure can increase local property values by up to 10%, creating a direct and measurable return that is independent of the avoided cost of flood damage [11].
There are social benefits too. Green spaces created through sponge city design function as hubs for community life, recreation, and, in many cities, as refuges from heat for elderly and low-income populations who are most exposed to climate-related health risks [3, 7]. In Singapore, the ABC programme deliberately embedded community stewardship into its design, creating not just infrastructure but a relationship between residents and their water environment [2].
Financing and Scaling Sponge Cities
This is where the real challenge lies. China's Sponge City Program is estimated to require upwards of US$1 trillion in cumulative investment to meet its target of 80% urban compliance by 2030. Government subsidies have covered only 15–20% of construction costs in the pilot phase [3, 1]. The financing gap isn’t a minor shortfall; it’s structural [3].
The core problem is that nature-based solutions generate returns that are predominantly public and non-market in character. Avoided flood damage, improved public health, carbon sequestration, and biodiversity enhancement [3, 7]: these are real and often very large in aggregate, but they don't flow naturally to a private investor in the form of revenue. Traditional infrastructure finance was built around assets that generate user fees or government payments; sponge city assets mostly don't.
Three financing approaches are showing the most promise.
Green bonds have emerged as the most developed mechanism for channeling institutional capital into resilient urban infrastructure. Washington D.C. issued a US$25 million environmental impact bond for stormwater management [12]. China's development banks have issued bonds specifically for water resource protection [12]. The instrument exists and the market is growing. What is still needed is standardized frameworks for measuring and reporting the adaptation outcomes that underpin these bonds, so that investors can assess and compare impact with confidence.
Land value capture is arguably the most underused tool. If green infrastructure raises surrounding property values by up to 10%, municipalities can capture a portion of that uplift through tax increment financing or developer contributions and recycle it directly into further investment [11]. This creates a self-reinforcing cycle: green infrastructure increases land values, which funds more green infrastructure. The mechanism is well understood in urban finance. It has rarely been applied systematically to nature-based solutions.
Payment for ecosystem services schemes offer a third pathway, particularly relevant where sponge city interventions provide downstream benefits to water utilities, insurers, or agricultural users. If a wetland in the urban fringe reduces downstream flood peaks and lowers insurance claims, there is a legitimate case for those beneficiaries to contribute to the cost of maintaining it. Making these transactions work in practice requires clear governance frameworks and the kind of standardized impact measurement that the field is still developing [13].
Public-private partnerships have been explored extensively but have proved difficult to structure well in this context, partly because the revenue streams are diffuse and partly because governance fragmentation across municipal departments creates coordination problems that private operators find hard to price [14]. Better results tend to come from blended finance structures where concessional public capital absorbs first-loss risk, de-risking the investment sufficiently to attract private co-investment [13].
Beyond finance, scaling sponge cities requires three enabling conditions that are currently absent in most contexts. First, regulatory frameworks that mandate sponge principles in new development and retrofitting, rather than treating them as optional add-ons. Wales has done this with mandatory Sustainable Drainage Systems legislation [15]. It is the exception rather than the rule. Second, standardized monitoring and measurement systems embedded from project outset. The current shortage of performance data is one of the main reasons private investors remain cautious: there is simply not enough of a track record to price the risk comfortably [14]. Third, catchment-scale planning that moves beyond site-level interventions. Many early pilots have been limited in their effectiveness precisely because they treated green infrastructure as individual features rather than as components of an integrated water management system [3, 8].
The global picture is nonetheless one of accelerating momentum. Rotterdam pioneered water-sensitive urban design in the late 2000s [16]. Berlin embedded sponge principles into law for new development after severe flash floods in 2017 [15]. London has developed its first city-wide Surface Water Strategy [15]. Milan is implementing a EUR 50 million sponge infrastructure plan [17]. In the Global South, cities in Thailand, India, and Malaysia are adapting the model to tropical monsoon conditions, often at lower cost and with strong community co-design [18].
The question is no longer whether sponge cities work. The evidence on that is increasingly clear. The question is how quickly the financing architecture can catch up with the urgency of the need. That is a problem I find genuinely interesting and one I expect to be working on for some time.
About the Authors
Sabrina Bachrach is an independent advisor specializing in adaptation and resilience finance and climate policy strategy. She works with international organizations, financial institutions, consultancies, and governments to design strategies that are credible, investable, and aligned with global frameworks. She has advised KPMG, PwC, UNFCCC, and the Atlantic Council Climate Resilience Center, among others.
Lydia Dai is a climate policy and nature finance specialist with experience spanning UN climate negotiations, adaptation finance research, and international stakeholder engagement. She has advised national delegations across successive UN Climate Change Conferences, served within the Technical Secretariat of the Race to Resilience campaign, and contributed to the UN Climate Change Secretariat's Adaptation Division. She holds a First Class Honours degree from University College London and is completing her MSc in Environmental Sciences and Policy at ETH Zurich, where her research examines the financing of nature-based solutions for climate resilience in developing countries.
References
[1] Zheng, Z., Zhang, X., Qiao, W., & Zhao, R. (2025). Emergency Response to Urban Flooding: An Assessment of Mitigation Performance and Cost-Effectiveness in Sponge City Construction. Water Resources Management. https://doi.org/10.1007/s11269-025-04139-0
[2] Lim, H. S., & Lu, X. X. (2016). Sustainable urban stormwater management in the tropics: An evaluation of Singapore's ABC Waters Program. Journal of Hydrology, 538, 842–862. https://doi.org/10.1016/j.jhydrol.2016.04.063
[3] World Bank. (2024, March 16). Nature-based solutions in China: Financing "sponge cities" for integrated urban flood management. World Bank Blogs.
[4] Fletcher, T. D., Shuster, W., Hunt, W. F., Ashley, R., Butler, D., Arthur, S., & Viklander, M. (2015). SUDS, LID, BMPs, WSUD and more – The evolution and application of terminology surrounding urban drainage. Urban Water Journal, 12(7), 525–542.
[5] Liao, K.-H. (2019). The socio-ecological practice of building blue-green infrastructure in high-density cities: What does the ABC waters program in Singapore tell us? Socio-Ecological Practice Research, 1(1), 67–81. https://doi.org/10.1007/s42532-019-00009-3
[6] Zhao, L. (2023). A Case Study of ABC Water System Innovation in Singapore. Frontiers in Management Science, 2(2), 28–32. https://doi.org/10.56397/fms.2023.04.03
[7] Chai, H., Xu, C., Peng, S., Xia, Y., Zhao, H., & Gong, Y. (2026). Unlocking the Carbon Mitigation Potential of Green Infrastructure: Evidence from China's Sponge City Program. Environmental Science & Technology, 60(7), 5479–5491. https://doi.org/10.1021/acs.est.5c14290
[8] Kibria, M. G., Parvin, G. A., Abedin, M. A., & Shaw, R. (2025). Urban Blue-Green Infrastructure Approach for Food Security and Climate Disaster Resilience. Springer Nature.
[9] Mabrouk, M. (2025). Toward Climate-Resilient Cities: A Review of Nature-based Solutions for Urban Flood Management. Advance in Sustainability, 5(1), 28–39. https://doi.org/10.26855/as.2025.06.004
[10] Han, N., Ibrahim, R. B., & Mat Noor, M. S. B. (2025). Assessing Cultural Ecosystem Services in Sponge City Infrastructure: A Systematic Review and Framework Proposal. Sustainability, 17(11), 5130. https://doi.org/10.3390/su17115130
[11] Chye, K. T. (2019). Building Singapore's water management. McKinsey & Company. https://www.mckinsey.com/capabilities/operations/our-insights/from-resource-to-asset-building-a-water-resilient-singapore; Centre for Liveable Cities. (2025). The Active, Beautiful, Clean Waters Programme: Water as an environmental asset. Centre for Liveable Cities Knowledge Hub. https://knowledgehub.clc.gov.sg/publications-library/the-active-beautiful-clean-waters-programme-water-as-an-environmental-asset/
[12] Sidner, L. (2018, November 22). Sponge cities promise a wide range of benefits. World Resources Institute.
[13] Cities Climate Finance Leadership Alliance. (n.d.). Financial Instruments Toolkit. https://citiesclimatefinance.org/financial-instruments
[14] Chan, F. K. S., Griffiths, J. A., Higgitt, D., Xu, S., Zhu, F., Tang, Y.-T., Xu, Y., & Thorne, C. R. (2018). Sponge City in China — A breakthrough of planning and flood risk management in the urban context. Land Use Policy, 76, 772–778.
[15] New Civil Engineer. (2026, March 18). With sponge city strategies rolling out globally, how is the UK keeping pace? New Civil Engineer.
[16] Reasons to Be Cheerful. (2023, May 30). Cities are becoming more like sponges. Reasons to Be Cheerful.
[17] Ecomondo. (2025). Sponge city, a water management model for urban sustainability. Ecomondo.
[18] Yu, K. (2024). Interview. In Kongjian Yu discusses his Sponge City projects. The Architect's Newspaper, November 1, 2024.
Written by Lydia Dai and Sabrina Bachrach
