For the 2021-27 programming period, cohesion policy support to sustainable urban development was reinforced. Member states have exceeded the 8% target set for the allocation of ERDF resources. This amounts to EUR 24.4 billion of EU resources to tackle environmental, social and economic challenges facing cities and urban areas.

In our fast-changing world, Europe is facing pressing challenges – health crisis, environmental degradation and climate change, the energy crisis, the digital revolution, demographic transition, migration and social inequalities – and cities are often in the frontline to deliver solutions. Their importance in driving the transition towards a sustainable way of living for all is recognised in the Urban Agenda for the EU and in global agendas.
Complex challenges faced by cities cannot be solved without strong and broad partnerships at the local level between citizens, civil society, industry and relevant levels of government. New forms of governance for better policy design and investments are already taking place in many cities, be it through fostering cooperation between urban and rural areas based on functional areas approach, long-term strategic planning, or involving citizens in all stages of policymaking.

The European Commission introduced a stronger urban and territorial dimension by introducing a new policy objective, “Europe closer to citizens”, supporting a place-based approach and the engagement of local authorities, civil society and citizens in delivering on local challenges. A new European Urban Initiative to support cities with capacity building, innovative solutions, knowledge, policy development and communication was launched.

Commitments in national and regional programmes fulfil or exceed the 8% target set for sustainable urban development support

Support to sustainable urban development is a requirement since the 2014-2020 programming period. Already then, Member States went beyond the minimum requirement of allocating 5% of the national allocation of the European Regional Development Fund (ERDF) to sustainable urban development by allocating 17 billion EUR, nearly 8%, to 950 integrated urban strategies. In the 2021-2027 programming period, the urban dimension of cohesion policy has been reinforced, and the earmarking increased to 8%. To more effectively tackle the economic, environmental, climate, demographic and social challenges affecting urban areas, including functional urban areas, the Member States have exceeded this goal and have earmarked EUR 24 billion (almost 12% of their ERDF allocation) to supporting investment projects based on sustainable integrated strategies that are placed-based and have multilevel, participatory governance arrangements.
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Supporting sustainable urban development: Which EU funds are involved?

The implementation of sustainable urban development strategies could be supported from different funds by programming the investments under different territorial tools (Integrated Territorial Investments, Community-Led Local Development, and Other territorial tools).
In the 2021-2027 programming period, funds used to promote sustainable urban development will amount to EUR 28 billion in total. These resources will come from 4 EU funds.  The vast majority, namely EUR 24.4 billion, will be allocated through the European Regional Development Fund (ERDF).  
Other EU funds such as the European Social Fund (ESF+), the Cohesion Fund (CF), the Just Transition Fund (JTF) and the Interreg (ERDF) will contribute with the remaining EUR 4 billion.
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A specific objective was created - PO5 "A Europe closer to citizens" - to privilege place-based approaches

For the 2021-27 period, the ERDF supports a stronger urban and territorial dimension by introducing a new policy objective “Europe closer to citizens” that enables full thematic flexibility and a number of requirements facilitating place-based approaches and multi-level governance arrangements.
The new Policy Objective 5 ‘Europe closer to citizens’ fosters economic, social, and environmental sustainability and resilience in all types of territories. It supports tailor-made investment strategies at the territorial level, in cities and local communities, to address their diverse challenges, and tap into their development potentials. It offers local authorities or territorial bodies opportunities to build their policy mix to the challenges they are.

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Sustainable urban development is found in all policy objectives

Through territorial instruments (ITI, CLLD and other territorial tools), funding can also be provided to sustainable urban development directly from other specific objectives under POs 1-4. They can provide linkages already at specific objective level, which ensures that sustainable urban development strategies demonstrate their contribution to EU and global agendas. Support to territorial instruments under PO1 and PO2 complies with thematic concentration, or with the thematic enabling conditions linked to specific objectives of PO1-4.
The second biggest contributor to sustainable urban development is PO2, with a significant drop to the next biggest, PO4.

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What do we finance under sustainable urban development?

Most sustainable urban development investments will take place under the dedicated Specific Objective 5.1 (SO 5.1) for the integrated development of urban areas and under SO2.8 for sustainable urban mobility.
PO5 specific objective 1 is focused on ‘Fostering the integrated and inclusive social, economic, and environment development, culture, natural heritage, sustainable tourism, and security in urban area’. In the 2021-2027 programming period, the EU will allocate EUR 12.5 billion to this specific objective. As it often happens for other fields of intervention, EU investments in this specific objective will be also supported by other public investments that will further boost the transition towards more sustainable urban areas.

Under PO2 - A Greener Europe - specific objective 8, EU allocations for sustainable urban mobility amount to over EUR 6 billion. Investments will target sustainable solutions for increasing connectivity in cities and urban areas. This includes, for example, the planned construction of over 9 000 km of dedicated cycling paths in urban areas.
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Resources contributing to the achievement of Specific Objective 5.1 will mostly finance measures to physically regenerate public spaces and improve their security, protect cultural heritage, improve cultural services, improve public tourism assets and related services, prepare territorial development initiatives, and promote natural heritage and eco-tourism. The largest proportion of this is allocated to the field of urban regeneration of public spaces; public investments will jointly contribute to supporting these interventions.
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Spatial focus: promoting functional urban areas and tackling urban-rural linkages

Today, urban areas across the European Union face a wide range of different challenges, including affordable housing, migrants’ inclusion, social segregation, environmental footprint, traffic congestion, climate change, ageing and urban health. At the same time, they present opportunities for development for diversity, creativity and innovation.
Sustainable urban development strategies supported by EU cohesion policy are designed to target specific areas, with a distinct territorial focus.
Since the 2014-2020 programming period, sustainable urban development strategies can have the following spatial focuses:
  • area within city/town (districts/neighbourhoods), i.e. one or more specific districts or localities within an administrative area;
  • cities, towns or suburbs, i,e. an individual municipality with no restrictions regarding its population size or density;
  • functional urban areas of multiple municipalities, i.e. two or more municipalities that are combined for the sake of the strategy.
Analysis of the strategies implemented during the 2014-2020 programming period shows that most sustainable urban development strategies focus on cities, towns or suburbs (45%), followed by districts/neighbourhoods (31%), functional urban areas (20%), networks of cities (4%), and a portion of territory with specific features such as a park, an archaeological zone, or an island (0.4%).
In the 2021-2027 programming period investment in functional urban areas has experienced a considerable growth and more than half of the planned sustainable urban development funds under PO5 are allocated to FUAs.
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Functional urban areas encompass densely inhabited cities and their less densely populated commuting zones. This is a field where integrated strategies have a clear added value as they are crossing administrative boundaries.
The functional area approach to sustainable urban development introduces development policies based on the real needs and opportunities of territories rather than on administrative borders, encouraging territorial democracy and creating a flexible framework for development and planning.
 A functional area approach requires the coordination of resources for cost-effective solutions (e.g. for transport, service provision, green and blue infrastructure), and the avoidance of one territory creating negative externalities for others and moving problems around (e.g. congestion, pollution, retail, crime).
Functional urban areas are instrumental for tackling urban-rural linkages. The urban dimension of cohesion policy acknowledges the roles and responsibilities of cities in the harmonious and polycentric development of Europe and its regions, the need to manage concentration and depopulation to make urbanisation sustainable, and the importance of strengthening urban-rural linkages.
These linkages can take the shape of a city with an urbanised core and a peri-urban area or a functional area covering a central city and adjacent rural area, but they can also connect geographically distant places through functional links (e.g. linking agricultural production areas to urban markets).
In fact, urban-rural linkages are not attached to a specific town size or a certain type of spatial extension, even if they are especially relevant for polycentric networks of small and medium size cities.

Which territorial tools are used to implement sustainable urban development?

Territorial instruments are necessary for the delivery of integrated approaches as they enable cross-sectoral integration and bottom-up approaches in line with article 22 of the CPR.
All territorial instruments available in the 2014-2020 period remain available to address territorial challenges: Integrated Territorial Investments (ITI), Community led local development (CLLD) with the novelty of the possibility to use nationally developed tools, which are referenced in the Regulation as Other Territorial Tools.
The decision on which tool to use must be made on a case-by-case basis, according to the identified challenges and needs, lessons learned, and how well the instrument fits to the national territorial governance and institutional framework.
Integrated Territorial Investments (ITI) and Other Territorial Tools (OTT) designed by Member States are alternative ways to ensure that funding can also be provided to from other policy objectives or even from different funds or programmes. This enables multi-thematic support for integrated territorial development, and both need to respect the minimum requirements (integrated territorial strategy and empowerment in selection of operation).
Community Led Local Development (CLLD) also enables multi-thematic support and has a specific method to involve the local actors as defined in Art. 31-34 of the new CPR.
Policy objective 5 is not a separate delivery mechanism but can be programmed for any territorial tools to provide thematic flexibility for integrated territorial and bottom-up local initiatives. The direct contribution of other policy objectives and funds needs to be linked to PO5 via territorial instruments.
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The following charts show that the most used territorial delivery mechanisms are Integrated Territorial Investments. For the ERDF, other territorial tools are likewise widely used.

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Author: Gabriel ONACA, Laura HAGEMANN ARELLANO, Eleonora GIORGI, Johanna TEVERUS 
Text date: May 2023