Initiative aims to make more green infrastructure projects ‘bankable’

Many of London's green infrastructure projects are “still considered too small, too risky — common problems to all cities,” said Shirley Rodrigues, the city’s deputy mayor for environment and energy. (Jannoon028/Shutterstock)

Take a glance at the business section of any major city’s newspaper, and the headlines will often announce investors pumping millions of dollars into private real estate deals. Much rarer are stories of investors putting their money behind vital urban infrastructure for addressing climate change.

A new partnership, announced 4 April at London City Hall, hopes to change that scenario by sharing proven ideas from the financial world with cities eager to boost their transit options and ramp up the construction of energy-efficient buildings.

The Financing Sustainable Cities Initiative is a joint effort of the C40 Climate Leadership Group, World Resources Institute and Citi Foundation. Backers hope the initiative can help correct an imbalance: While demand for sustainable infrastructure such as green buildings and bike-share systems is high, the supply of capital from the investor community remains relatively low.

Such projects are often deemed too minor or too problematic relative to their expected return, especially when compared with flashy luxury condominiums that have an obvious profit motive. As a result, there are relatively few projects seen as “bankable” when it comes to urban infrastructure.

[See: Lessons from Mexico City’s green bond, the first municipal issuance in Latin America]

This is a major problem even in London, the global financial centre that hosted this week’s launch amid the second annual C40 Financing Sustainable Cities Forum.

“Almost a year ago Sadiq Khan was elected mayor on a platform to make London a zero-carbon city by 2050, to clean up London’s toxic air, to provide enough decent homes for London’s growing population, as well as the transport infrastructure to support the city’s needs,” said Shirley Rodrigues, the city’s deputy mayor for environment and energy.

“Significant capital expenditure will be required,” Rodrigues said, pointing to an older estimate of more than a trillion pounds, even before Khan unveiled his own vision. But she also warned that many of the city’s green infrastructure projects are “still considered too small, too risky — common problems to all cities.”

[See: Cities unveil time frame for ‘localizing’ climate finance]

The deputy mayor called for stronger relations between cities and the investment community in order to come with up new financing options, as well as increasing the use of “innovative” mechanisms such as green bonds. Forty such bonds are currently listed on the London Stock Exchange, worth around USD 10.5 billion, she noted.

Replicating success

Despite the looming concerns, there are success stories in how cities are learning to fund their sustainability efforts. And those are what the Financing Sustainable Cities Initiative now seeks to highlight and replicate.

“There are over 3000 low-carbon infrastructure projects in planning stages across C40 cities worldwide, with over 700 in the buildings sector alone.”

Mark Watts
Executive Director, C40 Cities

For example, electric buses can cost up to 50 percent more than diesel buses, which is a hard sell for municipal governments whose procurement rules usually require going with the cheapest option. Despite that price tag, the initiative’s partners identified 280 transit systems using these low-emission buses. In turn, they analyzed 26 business practices in 20 cities to see what could help other urban areas get on board.

[See: Four cities announce landmark ban on diesel vehicles]

Researchers found that there are both carrot and stick approaches to getting electric buses onto city streets. Manufacturers eager to sell the buses are offering their own low-interest lines of credit, price reductions and in-kind maintenance to get their foot in the door of a potentially huge market.

Likewise, public-sector tax incentives and loan programmes can help provide extra financing. And municipal regulations such as quotas for a minimum percentage clean fleet can force adoption even if diesel remains cheaper.

With these models in hand, the initiative team recently advised Santiago, Chile, as it prepares to renew the bus fleet contracts for its flagship bus-rapid-transit system, Transantiago.

[See: Pension funds are key to Africa’s transformation — and city officials can help]

“Twenty-seven cities have signed up to C40’s Clean Bus Declaration, with a collective target of 45,000 clean buses on the road in the next four years,” the group’s executive director, Mark Watts, said in London in prepared remarks. “At the current price north of 350,000 pounds paid for a fully electric or hydrogen bus, plus the cost of charging infrastructure, we are talking about a market of at least 10 billion pounds and possibly tens of billions in the next few years.”

C40 has co-produced a new report, along with CDP (formerly the Carbon Disclosure Project), outlining low-carbon investment projects currently under development in its network’s cities. “An initial dive into the CDP data found that there are over 3000 low-carbon infrastructure projects in planning stages across C40 cities worldwide,” Watts said, “with over 700 in the buildings sector alone.”

Common goals

In addition to electric buses — the subject of the financing initiative’s first dedicated “academy” — the project also has studied transit-oriented development, bike-share, bus rapid transit, energy-efficient new construction and energy retrofits for municipal buildings.

Cities in nearly a dozen countries — Argentina, Brazil, Chile, Colombia, France, India, Mexico, Norway, New Zealand, the United States and the United Kingdom — are part of the conversation, which works as a peer-to-peer network so local officials can learn directly from each other.

[See: Explainer: What are ‘green bonds’ and why are cities so excited about them?]

In the meantime, the initiative’s backers continue to broker such knowledge transfer. For example, they have distilled the lessons learned from bike-share’s success in Boston, New York City, Mexico City and Washington to help Indian cities that are poised to adopt the popular short-distance transit solution as part of that country’s 100 Smart Cities push. Bhopal, a state capital of 1.75 million, expects to launch such a project this month with 500 bikes and 50 stations.

Ultimately, the initiative hopes to fill a gap as the world stares down a common set of goals agreed upon over the past two years. In a joint statement, C40, WRI and the Citi Foundation said: “We work closely with cities across the globe. … In doing so, we aim to support the growing ecosystem of people working to implement the New Urban Agenda, Sustainable Development Goals, and the Paris Agreement to create more prosperous, inclusive, and sustainable cities.”

[See: Explainer: What is the Paris Agreement on climate change and what does it mean for cities?]

And if recent events are any indication, such help with the financing hurdle will be needed now more than ever. At a recent meeting of the Group of 20 (G20) industrialized economies, finance ministers declined to mention “climate change”, while U. S. President Donald Trump’s proposed budget would significantly draw down American support for urban development around the globe.

“It is important to note when talking about hundreds of billions of dollars of investment that this is not extra money,” Watts said. “Mostly we are talking about investing more wisely.”

Carey L. Biron contributed to this report.

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Gregory Scruggs is a senior correspondent for Citiscope. Full bio

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