Green Finance to Catalyse the Transition to Sustainable Cities

The urban environment is increasingly being recognized as a critical player in transitions towards a sustainable society. Cities worldwide are prioritising climate change action. Yet, financing the transition proves to be one of the key challenges. This was the issue Climate-KIC and the City of Gothenburg intented to find solutions to at a workshop in March

Thus far, it has been difficult for cities to generate the finance needed to get low-carbon projects off the ground. From the financial side, focus has traditionally been on the single bottom line. Social and environmental aspects have not been up to much internal scrutiny amongst financers. Now, however, financers are increasingly requesting data on the environmental and social performance of their investments. They want to signal that they are conscious and ahead of the game. It is therefore crucial to identify the key to unlocking these green investments.

Local governments can play an important role in connecting the dots and accelerating the green bonds market. They account for the majority of public sector investments and many cities have set ambitious climate targets. An example of such a city is Gothenburg, Sweden, which is regarded a pioneer in the realm of green bonds. In 2013, the City established the world’s first municipal green bond. Thus, Gothenburg was the perfect backdrop for Climate-KIC’s workshop on Green Finance on 21-22 March 2017.

Green Finance Workshop

Invited to the two-day workshop organised by Climate-KIC Nordic and the City of Gothenburg were policy-makers, investors, researchers and consultants. The goal was to inform, explore and encourage the use of green finance initiatives in order to accelerate green projects and low-carbon infrastructure at the municipal level. The workshop included presentations from prominent speakers from local governments and the financial sector, who shared their experiences and lessons learned.

Mats Olausson

On the first day of the workshop, Magnus Borelius, chairman of the City of Gothenburg’s Treasury Group, and Sara Pettersson, from the office for Urban Development, reflected on their experiences and success factors that enabled the City to get green bonds off the ground.

Critical success factors include leadership, a well-functioning environmental department with high levels of expertise on sustainability projects, and close trust-based collaborations and transparent discussions between the financial and environmental departments.

During the workshop, the presenters argued that the use of green bonds leads to more engagement and an enhanced level of awareness regarding sustainability projects among financers.

The experiences in Gothenburg demonstrate that green city leadership can accelerate low-carbon urban development, while at the same time boost the city’s reputation. This is reflected by the City of Gothenburg’s receiving the UN Climate Solutions Award 2016 and the WWF’s Earth Hour Capital Award in 2015.  

Establishing the role of the finance sector

Antti Kontio

How can city governments draw on financial institutions to reach the required levels of investment to reach their climate targets? Representatives from financial institutions issuing green bonds, including Mats Olausson from SEB, Björn Bergstrand from Kommuninvest and Antti Kontio from Municipal , reflected on the role of the finance sector in realizing the untapped potential of green finance. All emphasized that they expect to grow their green loan portfolio significantly during the next decade as they are experiencing increasing demand from investors for green projects.

In fact, a key message from the finance sector was that

It is the availability of suitable investment opportunities, not the availability of capital, that represents the limiting factor to the growth of green finance.

Many investors have signed the UN’s principles for Responsible investment, thereby committing to integrate social and environmental considerations into their investment decisions.

To be able to ensure that investors’ money goes to financing green projects, financial institutions and municipalities need to co-develop internal procedures that guarantee the effective selection, verification, monitoring and reporting of green projects. For instance, to ensure that the financed projects generate a long term positive environmental impact, the issuers have set up external review committees consisting of environmental experts.

Suggested next steps

The experiences of the front runners demonstrate the great potential of green finance as a catalyst of urban sustainability transitions. Yet, tasks lie ahead and during the workshop a number of conditions were identified that need to be addressed:

  • Increasing awareness about the potential and benefits of green bonds among municipalities.
  • Developing clear definitions and criteria for green projects to make sure that they are really promoting green innovation and not ‘greenwashing’.
  • Making projects bankable. This includes smaller projects with potential higher risks and smaller projects led by actors that have less experience with working with investors and donors. A possible solution would be to bundling smaller projects with higher risks with larger projects with lower risks.
  • Creating an enabling policy environment. An enabling environment for green finance needs to be created at the international and national level. Governments can incentivize the use of green bonds using tax incentives.
  • Developing tools to assess and evaluate the benefits of projects. There is a need for standardized tools to assess and compare the impacts of projects in order to bring green finance procedures into the mainstream.

The Role of Climate-KIC

The Climate-KIC community can play an important role in addressing these challenges. During the workshop, the knowledge, expertise and competencies of the attendants was mapped out and avenues for future projects and collaborations on these issues were discussed. Climate-KIC will follow-up on these ideas in the coming months, aiming to take the learnings from Gothenburg concerning the present state of the municipal green finance landscape and build upon it. This will be done by initiating the process of establishing procedures and best practice for packaging municipal green assets, engaging investors and reporting on active projects.

Climate-KIC aims to facilitate the coming together of actors from all sides of the process in order to work with tangible existing green assets and uncover together how to adequately package, promote and structure them so that their attractiveness becomes apparent to investors.

Through its flagship programme Low Carbon City Lab (LoCaL), Climate-KIC aims to unlock climate finance for cities. LoCaL is a community of investors, solution providers and cities that together develop new and innovative ways to provide cities with training, project preparation and finance support as well as impact assessment tools.

LoCaL is always on the lookout for new ideas and partners and thus welcomes innovators and pioneers interested in defining the mechanisms that will help fund low carbon and resilient action at city level. For more information about LoCaL and its activities, please visit http://local.climate-kic.org/

 

 
Articles you may be interested in
In The News
City Finance Lab completes successful pilot with City of Bologna

Supported by EIT Climate KIC’s Low Carbon City Lab...

City Finance Lab completes successful pilot with City of Bologna
In Detail
Increasing the resilience and sustainability of European forests

What are the climate challenges faced by European temperate forests? What is their potential for climate mitigation, directly, and by relieving commercial pressures on...

Increasing the resilience and sustainability of European forests
In our community
Interview with Christopher Lee, CEO, Climate-KIC Australia
Interview with Christopher Lee, CEO, Climate-KIC Australia
In The News
Zero-water shampoo start-up wins Smart Agrifood Summit award

A biodegradable cosmetics start-up using agricultural waste to make...

Zero-water shampoo start-up wins Smart Agrifood Summit award
In our community
Marie Dittmann, creator of Future of Farming MOOC
Marie Dittmann, creator of Future of Farming MOOC
In The News
Solar Impulse network joins forces with EIT Climate-KIC to accelerate innovati...

EIT Climate-KIC, Europe’s main climate innovation initiative has joined...

Solar Impulse network joins forces with EIT Climate-KIC to accelerate innovation
In The News
Hyperloop pioneers welcome a new era in high-speed transportation with industr...

Leading hyperloop companies TransPod (from Canada), Hardt Hyperloop (from...

Hyperloop pioneers welcome a new era in high-speed transportation with industry-first international alliance
In our community
We’re in innovation, right? So why interact in such traditional ways?
Dr Michelle Zucker EIT Climate-KIC Community Management Lead
We’re in innovation, right? So why interact in such traditional ways?
Innovation Spotlight
How mushroom mycelia are transforming industrial materials

In Innovation Spotlight, we explore some of the most promising innovations from around our community. This week,...

How mushroom mycelia are transforming industrial materials
In The News
EIT Climate-KIC’s Carbon Delta takes on climate disclosures project with...

Carbon Delta, the climate risk analysis company supported by...

EIT Climate-KIC’s Carbon Delta takes on climate disclosures project with the UN
In our community
Interview with Prof. Jacopo Gaspari of EIT Climate-KIC’s PhD Catapult
Interview with Prof. Jacopo Gaspari of EIT Climate-KIC’s PhD Catapult
In The News
Introducing the Innovation Review

EIT Climate-KIC this week launches Innovation Review — a...

Introducing the Innovation Review
Opinion
We need mandatory due diligence on investments, says EU rapporteur
Molly Scott Cato MEP for the South West of England and Gibraltar; Green Party speaker on Brexit and on Finance
We need mandatory due diligence on investments, says EU rapporteur
In The News
Renewables crowdfunding platform Lumo acquired by Société Générale

Renewable energy crowdfunding platform fintech Lumo, supported by EIT...

Renewables crowdfunding platform Lumo acquired by Société Générale
In The News
Clean energy, urban farming and sustainable housing hacked at urban solutions ...

Clean energy, urban farming and sustainable housing were the...

Clean energy, urban farming and sustainable housing hacked at urban solutions conference
Innovation Spotlight
Ombrea’s smart agriculture system overshadows climate change

In Innovation Spotlight, we explore some of the most promising innovations from around our community. This week,...

Ombrea’s smart agriculture system overshadows climate change
Innovation Spotlight
Business is blooming for microalgae start-up MiAlgae

In Innovation Spotlight, we explore some of the most promising innovations from around our community. This week,...

Business is blooming for microalgae start-up MiAlgae
In our community
Mariia Murasheva, Secretary, EIT Climate-KIC Alumni Association
Mariia Murasheva, Secretary, EIT Climate-KIC Alumni Association
In Detail
Low carbon opportunities in Europe’s building sector

The first analysis of deep retrofit in Europe, the Building Market Briefs presents a survey of Europe’s building sector value chain. The building sector...

Low carbon opportunities in Europe’s building sector
In Detail
Transformative innovation for prosperous and low-carbon industry

How can a more circular economy contribute to cutting CO2 emissions? This report explores a broad range of opportunities for the four largest materials...

Transformative innovation for prosperous and low-carbon industry
Innovation Spotlight
2nd SKIN paves the way to decarbonise Europe’s existing housing stock

In Innovation Spotlight, we explore some of the most promising innovations from around our community. This week,...

2nd SKIN paves the way to decarbonise Europe’s existing housing stock
In The News
EIT Climate-KIC to boost innovation capacity in Croatia, Greece and Lithuania

EIT Climate-KIC is expanding its network with the creation...

EIT Climate-KIC to boost innovation capacity in Croatia, Greece and Lithuania
In our community
Interview with Alberto Bellini, Project Coordinator for eCircular
Interview with Alberto Bellini, Project Coordinator for eCircular
In The News
EIT Climate-KIC aims to slash industrial plastic use through innovation in dig...

EIT Climate-KIC and partners have launched an exciting programme to...

EIT Climate-KIC aims to slash industrial plastic use through innovation in digital tools
In The News
Europe’s students begin summer-long Journey to tackle climate change

The Journey, the world’s largest climate innovation summer school,...

Europe’s students begin summer-long Journey to tackle climate change
In The News
EIT Climate-KIC shines the spotlight on distributed ledger technology at Innov...

As it’s a relatively new technology, practical applications for...

EIT Climate-KIC shines the spotlight on distributed ledger technology at Innovate4Climate
In The News
City Finance Lab to launch beginning of June

A new initiative run by South Pole Group and...

City Finance Lab to launch beginning of June
In The News
Can cities find sustainable solutions in Copenhagen?

 EIT Climate-KIC this week (23 May) hosts the Sustainable...

Can cities find sustainable solutions in Copenhagen?
In The News
Fresh boost to industrial symbiosis in Europe

EIT Climate-KIC has teamed up with five partners to...

Fresh boost to industrial symbiosis in Europe
In The News
Europe’s annual climate innovation summit to be held in emerging green finan...

The 2018 Climate Innovation Summit, Europe’s leading event on climate...

Europe’s annual climate innovation summit to be held in emerging green finance centre Dublin