Coalition seeks to combine business know-how with priorities of the urban poor
AMSTERDAM, The Netherlands — The challenges are enormous: 70 percent of the world’s population will live in cities by 2050. Even today, slums hold a billion people, but that figure is expected to triple in coming decades. And with cities under mounting pressure to improve infrastructure and resources strained by rapid urbanization, it’s the poor who already are feeling the brunt of bad sanitation, pollution, overcrowding and increased vulnerability to climate change.
Against this backdrop, a new effort unveiled here last week will seek to coordinate the private sector around this set of concerns. The Human Cities Coalition (HCC), a smaller iteration of which was founded by Dutch paint and coatings firm AkzoNobel a year and a half ago, publicly launched last Thursday at the company’s Amsterdam headquarters.
The coalition brings together 150 stakeholders and 20 partners in a notably broad public-private collaboration that will seek to find — and finance — new efforts toward sustainable and equitable cities. (The coalition is open to new members.) In particular, the effort will seek to incubate ideas that are scalable and replicable.
Under AkzoNobel, the initiative has been doing preliminary work in Jakarta and Manila, undertaking needs assessments and building coalitions. As the project now expands with new partners, it will continue to work in those cities, with plans to move into other urban areas if those operations are successful.
The HCC is being organized with an eye to a new global goal on sustainable cities, Sustainable Development Goal 11, part of a U. N. framework that came into effect last year. “SDG 11 is often translated into ‘smart’ cities, ‘resilient’ cities or ‘transparent’ cities. But HCC wants to make them ‘human,’” said Ton Büchner, chief executive of AkzoNobel.
How do they plan to do so? Collective innovation will be key, Büchner suggested. “We have 4,000 scientists,” he said, referring to AkzoNobel. “But together with our partners and academia, we can make it 100,000. In that way, we create a snowball that becomes bigger and bigger as it goes.”
In addition to this focus on scalable solutions over project-by-project applications, HCC aims to distinguish itself by involving the private sector from the start. The coalition’s leadership wants the group to bridge the needs of local communities with the knowhow and financial resources of the private sector. Slum dwellers are equal partners in the coalition, and it is their priorities upon which any interventions will be based, organizers say.
Sheela Patel, who chairs Slum/Shack Dwellers International (SDI), said the coalition is unique precisely in that inclusivity. “We are a partner in a process where otherwise we would be a beneficiary,” she said at the launch, in a video message from Delhi.
Others say they hope the approach can push back on the top-down interventions that typically take place in informal settlements.
HCC organizers say local communities will be considered a partner at all points in the process — identifying their own needs, doing their own data collection, and deciding on the HCC’s interventions and even playing a core role in subsequent operations.
“Our priorities are water, sanitation and tenure security,” said Ofelia Bagotlo, a slum federation leader in Manila. “Until now, the government never consults us. We are getting evicted from our homes, as if there’s no place in the city for us … There has been a lot of talking about solving our issues — I hope this time words will come into action.”
Enticing the private sector
As a development approach, of course, community consultations are not unique. But HCC’s backers hope to differentiate the new initiative by matching local interests with those of the private sector, as well as with government plans already in place.
One of the coalition’s main goals is to engage a mix of public and private financing (known as “blended” finance) in ways that can measurably reduce urban poverty, stimulate local economies, respond to urban infrastructure and affordable-housing gaps, and build the resilience of vulnerable communities to climate change.
HCC organizers recognize that these are weighty goals but note that there are broad sectors in which the private sector has not yet been fully engaged. They say the coalition will seek to fill a gap in areas where neither the public nor private sectors have been able to keep up with urban demand.
“Urban development and the provision of basic services are a public responsibility, but the delivery of these goods can be private,” explained Fleur Henderson, who coordinates the HCC together with Ronald Lenz. “Public institutions, including multilateral development organizations, do not have the means to finance public goods themselves, while private parties cannot carry the risks alone.”
Ronald Lenz and Fleur Henderson lead the Human Cities Coalition.
So what types of mechanisms will the coalition seek to foster? One could be “social impact” investments, where the public sector covers early financial risks. Another could be an impact bond, in which services are kick-started using private money and then fostered by the public sector. In future, the HCC wants to attract not only business but also banks and pension funds.
Currently the coalition is heavily Dutch. AkzoNobel has given USD 2 million so far, while other Dutch businesses such as Arcadis and Philips also have signed on. The group also is supported by the Dutch Ministry of Foreign Affairs.
This Dutch connection is probably no accident. The Netherlands has multiple companies seen as global frontrunners in sustainability, and corporate entities in the country also have long experience operating in multi-stakeholder initiatives. There is even a word for such projects — the Dutch call this the “poldermodel”, referring to a consensus-driven approach by which solutions are to be found together with all stakeholders.
But the coalition’s organizers don’t see the project as only about the Dutch private sector. “It’s also very much about building strong local coalitions in Jakarta and Manila,” Lenz said. “Ideally, Dutch and local companies work together to produce the best solutions.”
Speaking the language of business
Still, bringing in the private sector has not been easy, both Lenz and Henderson say. “You really have to speak their language, and there needs to be some interest for them,” Henderson said. “They are not used to going to meetings that don’t immediately translate in actions or where there’s no direct stake. So we’re seeking to formulate a good value position.”
Recognition of that underlying fact has also significantly impacted on the HCC’s strategy. For instance, the group won’t immediately target a city’s poorest communities — those living on less than USD 2 a day.
“That’s still a role for the public sector,” Henderson said. “HCC’s focus is more on the working poor. We are not in the very worst slums, but in slums where there’s at least some purchasing power. The ‘bottom of the pyramid’ asks for a different model. We really want to develop business propositions.”
Sheela Patel of Slum/Shack Dwellers International says the Human Cities Coalition makes the urban poor a “partner in a process where otherwise we would be a beneficiary.”
In the search for such propositions, HCC’s backers are focusing on two priority areas: water and housing.
In Jakarta, for instance, the housing backlog over the past decade has topped 700,000, which is growing at some 70,000 units per year. Most of the city’s poor work in the informal sector, and therefore are largely barred from taking standard bank loans.
The International Financial Corporation (IFC), the World Bank’s private-sector arm, is working to increase the supply of affordable housing for that group. As such, IFC is currently contemplating partnering with HCC in this area.
“The banks only reach the top 10 percent. Anybody lower than that is underserved,” said William Britt Gwinner, head of housing finance at IFC. “We want to get to the base and bring loans to lower income people.”
IFC and other groups are looking to expand micro-credit initiatives. Gwinner points to India, where he says lenders provide small loans of USD 8,000 to USD 12,000 at an interest rate of 12.5 percent. “In that way, they can buy their houses within 15 years by spending not more than 40 percent of their monthly income on paying off the debt,” Gwinner said.
International financial institutions also increasingly are looking at social housing, to see whether some kind of blending could take place. “Governments can partly subsidize the housing, adjusting the amount of subsidy to suit the capacity of a household to pay, and partly give them a microfinance loan up to the point they can afford it,” said Gwinner. “Instead of paying for the whole house, a government then only needs to pay for a part — and so limited public funding can help many more households.”
While there appears to be business potential in such efforts, HCC’s organizers are forced to continue running up against a key question: Why would corporations such as AkzoNobel or Arcadis engage in such a coalition? Lenz distinguishes three kinds of motivation for companies to step in.
“There are those with long-term visions, who want to work on a sustainable world, such as AkzoNobel,” he said. “Then there are companies who see more direct links to their core business, such as Arcadis or [engineering consultancy] Witteveen+Bos. Third, there are those that move corporate social responsibility to their core business.’
For André Veneman, AkzoNobel’s sustainability director, the decision to support the HCC was obvious.
“In the Netherlands, we had the Sustainable Trade Initiative for farmers, a cooperation between business, NGOs, government and farmers — and that worked great. So why don’t we do something similar for cities?” he said. “We can do it — all the resources are there. There is all this money for big infrastructural projects, so then there must be money to make the cities liveable as well.”
He continued: “The only thing is: We need to join forces to make it happen. Public-private partnerships accelerate financing, pool expertise and encourage innovation. They pave the way for a much larger impact than any of us could have individually.”
So when the Sustainable Development Goals, and the cities-focused Goal 11, were adopted in 2015, Veneman decided to follow up. The company already had experience with working in cities with its Human Cities Initiative. Under that project, launched in 2014, the company had helped paint houses in the favelas of Rio de Janeiro, seeing this as a way to make the neighbourhoods livelier and even safer. In the process, the initiative almost doubled the value of the homes, organizers say.
HCC now allows AkzoNobel to expand that type of activity on a much larger scale. Still, Veneman sees his company’s role in the coalition more as a facilitator than as a direct operator. “Sure, if we can help paint schools so they won’t develop fungus, or offer fireproof paint for hospitals, then that’s great,” he said. “But our ambition is bigger than that.”
He continued: HCC gives us networking opportunities so we really can understand the city of the future. That’s important for us, because it’s happening in the city. We need to understand their markets.”
Arcadis, on the other hand, sees its involvement in the HCC as a key part of its corporate social responsibility and even charitable engagement, according to chief executive Gert Kroon.
“While businesses direct their attention to those parts of the city where money can be made, HCC focuses on those vulnerable areas that are out of focus but do deserve our attention,” Kroon said. “We give our technical know-how on a nonprofit base, in order to give people the tools to develop their own plans. In that way, we can help steer the engine that will create a base for economic activity.”
The vision here is long-term, too. “Ultimately, the neighbourhoods will develop, a middle class comes up,” he said, “and then there could be more viable business opportunities for us, as well.”
In a certain respect, this focus on corporate social responsibility contrasts with HCC’s ambitions to make viable business cases that are in the private sector’s interests. The disconnect underscores that matching private sector interests in poor urban areas remains difficult.
Today the coalition is in a nascent phase, and no projects have yet been identified. There is clearly some brewing interest in many areas, however, about what could be an innovative approach: researching priorities on the ground, developing plans incrementally, identifying potential business and funding opportunities, and — hopefully — finding a match in the process.
Of course, the efficacy of this approach remains to be seen. “The proof of the pudding is in the eating,” said SDI’s Patel. But, she continued, “If we are to find good ways with this coalition, then we have a true model to replicate and build upon.”