QUICK READS
Quick Reads are short overviews of key NetZeroCities concepts providing essential information in a practical and visual way. More comprehensive resources and additional information will be available in the knowledge repository.
FINANCING THE MISSION
Cities will need unprecedented amounts of capital to achieve climate neutrality. Mobilising these resources with a clear priority to achieve maximum climate impact and societal co-benefits requires cities to understand the potential pathways towards climate-neutrality and their funding and financing needs. Investment planning is thus a core element of the journey and of a Climate City Contract.
Cities will indeed need multiple financial mechanisms/instruments, facilities, institutions, and funding programmes to provide the capital needed to realise their climate ambition. Public funding alone will not be enough to achieve climate neutrality by 2030 - rerouting existing public investment streams and leveraging private and participatory finance are essential. Therefore it is important to effectively align public resources with private capital. Identifying new sources of international and national investment capital is important for cities to maximise the impact of their funds. This can be difficult but, across Europe, emerging good practices already enable cities to drive the financial aspects of their transition.
An Investment Plan Framework will guide cities with the capital and investment planning necessary for the Mission. As a central element of the Mission’s Climate City Contracts, an Investment Plan will articulate how a Mission city will seek to strategically mobilise and organise public resources and to attract private capital to fund and finance their transformation, as outlined in their corresponding Climate City Contract Action Plans.
Cities will indeed need multiple financial mechanisms/instruments, facilities, institutions, and funding programmes to provide the capital needed to realise their climate ambition. Public funding alone will not be enough to achieve climate neutrality by 2030 - rerouting existing public investment streams and leveraging private and participatory finance are essential. Therefore it is important to effectively align public resources with private capital. Identifying new sources of international and national investment capital is important for cities to maximise the impact of their funds. This can be difficult but, across Europe, emerging good practices already enable cities to drive the financial aspects of their transition.
An Investment Plan Framework will guide cities with the capital and investment planning necessary for the Mission. As a central element of the Mission’s Climate City Contracts, an Investment Plan will articulate how a Mission city will seek to strategically mobilise and organise public resources and to attract private capital to fund and finance their transformation, as outlined in their corresponding Climate City Contract Action Plans.
Key principles to finance the transition to climate-neutrality
Plan Investment
To understand the required effort and rewards of financing the transition to climate-neutrality, cities need to evaluate in detail both the costs and the benefits of action in each domain of carbon emissions. Practically, this also means integrating co-benefits such as alleviating fuel poverty, driving economic activity and supporting improved health outcomes as a key part of the equation and including the ever-increasing cost of inaction in budgets.
Implement environmental policies
Introduction of supportive policies, such as green procurement, increase in taxes for fossil fuels or congestion charges will play a fundamental role in securing diverse sources of capital to achieve climate-neutrality. The timing of these policies will affect the allocation of the available capital over time.
Identify and mitigate core risks
Cities need to consider and actively manage climate impact risks, internal capacity and capability risks, institutional adaptation risks and risks related to changes in the valuation of cities assets as they move towards climate neutrality. For example, a potential lack of capability or experience around transition finance in city officials could be a risk for the implementation of an Investment Plan if not responded to. Transparency about risks, like the risk of doing nothing, could enable private and civic co-investment.
Adopt blended finance approach
Public capital alone will not be enough to address climate-neutrality, given the likely scale of costs. The adoption of innovative mechanisms allows cities to attract large scale private investments by effectively utilising public funds and resources.
Mainstream climate considerations
Prioritising climate considerations across all elements of a city's budget, capacity allocation and investment decisions will unlock maximum level of support for the transition and ensure investor confidence.
Inspiration
Helsingborg
Helsingborg is a pioneer in this field, being the first city to issue a city sustainability-linked bond (SLB). The bond, listed on Nasdaq’s Sustainable Bond Market, ties its returns to Helsingborg’s ambition to achieve net-zero greenhouse gas emissions. Under this framework, which was developed in collaboration with Danske Bank and in accordance with the International Capital Market Association's Sustainability-Linked Bond Principles, the key performance indicator for the SLB is the trajectory of the city’s yearly emission reduction efforts. Failure to achieve these targets will lead to penalties.
NORTH OF TYNE COMBINED AUTHORITY
The Green New Deal Fund is a new low carbon fund established in partnership with the North of Tyne Combined Authority (‘NTCA’) in order to help the region meet its net-zero strategy, providing finance to both the public sector and to Small and Medium-size Enterprises (‘SMEs’). The GNDF can provide loans, equity and grants to fund small and medium sized projects that deliver significant carbon and energy savings in the region’s green and low carbon industries. Projects that the GNDF can fund include community energy schemes, Electric Vehicle (‘EV’) charging solutions, building retrofits, small scale renewables, natural capital and low carbon heating systems.
MALMÖ
The city of Malmö has systematically mapped its biggest emission sources, using a dynamic model to create an integrated economic case for decarbonisation. This enabled them to prioritise key levers of change, and to gather key stakeholders to align strategies, goal setting and investment. Importantly these include the city’s key private and public utilities in, for example, the energy system.
Going Further
- Financing the Local Climate Transition Through Local Climate Funds
- European Commision’s portal - sharing of knowledge, funding, and other urban policies and initiatives
- Climate Action in Cities - Overview 2020 a short note by the European Investment Bank
- Effective data-driven decision-making tool by URBIS
- EBRD Green Cities - Identifying, prioritising and connecting cities’ environmental challenges with sustainable infrastructure investments and policy measures.
- Blended Finance - OECD, the OECD’s blended finance portal
- The State of Cities Climate Finance - CPI, a report by the Climate Policy Initiative on the current barriers to reaching the needed investment levels for climate action in cities.
- Catalysing Private Sector Investment in Climate Smart Cities, a World Bank and UNDP report
- European City Facility - Designed by cities for cities
- ELENA - provides technical assistance for energy efficiency and renewable energy investments targeting buildings and innovative urban transport.
- Some cities have used impact modelling tools to measure impact achieved and turn their climate goals into action through platforms that enable smarter collaboration around key data. Some tools include ClimateView, Futureproofed Cities, and Kausal.
- With easy-to-use platforms like Abundance Investment, cities in the UK are raising investment directly from citizens, who receive interest on the money they invest for local climate transition.