In 1914 there were 22 regional stock exchanges across the UK, and the Halifax Building Society served the citizens of Halifax rather than the whole country. As cities look to finance their low-carbon ambitions, could local finance make a come-back?
This was just one of the questions discussed at our Ashden After Work debate on 3rd October focussing in on green city financing. Our panel, ably chaired by Ian Simm, CEO of Impax Asset Management, included experts from C40 Cities, Climate-KIC, the Climate Bonds Initiative and Ashden winner, Abundance.
Justine Leigh-Bell of the Climate Bonds Initiative began with the stark point that “if we won’t mobilise institutional capital for the climate change agenda, then we’ll fail”. Which is why the tripling of the climate-aligned bond market in the last six years is good news. China tops the country rankings, but Europe has the highest number of climate-aligned bonds outstanding. The UK is one of the leading bond issuers, but little of this money reaches cities. This is in sharp contrast to the US, where green municipal bonds are common. This point was re-iterated by Manisha Gulati of C40, who said that most of the “big fancy climate funds just weren’t reaching cities”.
Joint winner of the 2017 Ashden Award for Clean Air in Towns and Cities
Nottingham City Council
Given many cities now have big low-carbon plans, why aren’t they accessing green finance? According to Manisha, cities lack capacity in accessing private finance, particularly in aggregating projects into a ‘bankable’ pipeline. They have their objectives in sight, e.g. upgrading a bus fleet, but do not always have the experience to align this with the objectives of financiers. And there are inevitable challenges in making climate projects bankable – a city wanting to raise funds to retrofit homes needs to be able to guarantee a return, which can be difficult when energy savings are unpredictable.
Often low carbon projects help cities to avoid future costs, whether it’s saving on health costs or providing jobs; the challenge is how to transform this into a return for investors. CFOs in cities are essential partners in any low carbon endeavour, so getting them on board with this perspective and becoming stronger advocates for it is critical.
Tom Osdoba of Climate-KIC agreed strongly with the finance/project mismatch but did see hope. In his North American experience, once cities really got to grips with the complexity and potential of projects, such as setting up their own energy company, it often increased their appetite for reaping the benefits. If they were going to so much trouble, they wanted their city to benefit, rather than an external investor. But he warned of the risks of cherry- picking high return projects rather than building a strategic programme that takes a city towards carbon neutrality.
Carbon taxation is another option for cities to raise finance. London’s congestion and toxicity charges, though not aimed specifically at carbon emissions, have provided £150 million for funding of public transport projects. Another example is Ashden Award winner Nottingham City Council’s Work Place Parking levy, where employers pay a charge for each employee parking space.
But, as Tom pointed out, you need to decide whether your priority is to raise revenue or shift behaviour. He shared British Columbia’s experience – they introduced a carbon tax 10 years ago, on a revenue neutral-basis, so that all of the money raised is handed back to businesses and families. This achieved buy-in from citizens but dispersed the funds across residents in low impact amounts. A more far-sighted approach, he argued, would have be to aggregate the revenue and to use that substantial amount for much higher impact programmes to tackle climate change.