No alternative: Making sustainable infrastructure the only option

Only a fraction of global climate finance is reaching European cities despite their crucial role in decarbonising the economy. Developing a bankable project pipeline and new finance solutions replicable across cities is key to meet the enormous need for sustainable infrastructure.

Despite various moves in Europe to boost sustainable infrastructure investment it is so far proving difficult to catalyse the financing needed to address challenges such as retrofitting buildings and developing sustainable transport networks across the region.

Cities in particular need to be at the forefront of financing the move to a 1.5C-aligned world as they generate more than 70 per cent of global emissions and 80 per cent of global GDP. Around €3.7 trillion annually needs to be spent on urban infrastructure by 2030, according to the Cities Climate Finance Leadership Alliance (CCFLA). An additional €1 trillion annually is required to ensure city infrastructure is low-carbon and climate-resilient, according to the CCFLA, an alliance of around 40 financial institutions and other organisations including EIT Climate-KIC.

This massive investment need “clearly shows that working in cities is an effective way of addressing climate change”, says Hans-Peter Egler, Director of Public Affairs, South Pole. But only around 15 per cent of global climate finance is directed towards cities, according to the CCFLA.

A small portion of this climate-aligned city financing reaches Europe, despite high-profile policy efforts such as the European Fund for Strategic Infrastructure (EFSI) – the so-called Juncker Plan. The fund was launched in 2015 to mobilise at least €315 billion of private capital to innovative infrastructure projects. While the EFSI said earlier this year it has exceeded this goal, the capital it aims to mobilise falls short of the €688 billion per year of infrastructure investment it is estimated that Europe needs by 2020. “If we look at city financing, we’re at the lowest level in a decade – so currently available finance mechanisms and policy initiatives haven’t really got us to the scale we need,” says Victor Gancel, programme manager of EIT Climate KIC’s Low Carbon City Lab.

“We need to figure out new financing models and new technical solutions to respond to this high need for infrastructure investment,” says Egler. He explains a major barrier to investment is the often low credit-worthiness of cities and the fact that the investment required in city infrastructure is significantly higher than what can be raised by cities and central governments. “We need to mix all different financial sources – concessional financing, private financing, public financing – they all should be better co-ordinated in order to create a superior output,” he says.

And capital is, in theory, available to help finance the shift towards low-carbon infrastructure in Europe and beyond. But investors and lenders often say there aren’t enough bankable and investment-ready projects. Gancel says expanding the project pipeline and finding innovative ways to finance these assets need to go hand in hand. The Climate Innovation Summit hosted by EIT Climate-KIC in Dublin from 6-8 November brought together investors, policymakers, entrepreneurs and others to scale up financial solutions for climate action in cities and beyond.

EIT Climate-KIC is running a sustainable infrastructure training programme through which a group of bankers and other experts share their insights with city and local government officials on how to prepare an investment case and the steps involved in a financial transaction. ‘Project development capacity has emerged as a key bottleneck, particularly in the early stages of project development, and there’s a lot of untapped potential we can address by providing training to municipal staff,” says Skylar Bee, Project Manager- Capacity Building for Climate Finance, EIT Climate-KIC. “At Climate-KIC we are taking a strategic approach to training and capacity building centered around stages of the project preparation cycle.”

It has also, alongside partner South Pole, founded the City Finance Lab to act as a knowledge and capacity-building hub for innovative financing solutions for sustainable urban infrastructure in Europe. “We saw that a lot of infrastructure financing issues in cities are the same across different cities,” says Egler. “So it must be possible to find a way to design interesting and new investment opportunities that are scalable also replicable in other cities – that’s what we’re looking at in the lab.”

The City Finance Lab was launched last year and is this year working on initiatives in France, Poland, Norway, the UK and Portugal. Its pilot initiative completed in August involved developing a local voluntary carbon market for the city of Bologna. “The scaling up of the local carbon market will help the city transition further toward a low-carbon resilient state,” said Giovanni Fini, Expert in Energy Efficiency and Urban Sustainability Policies, City of Bologna, at the time of the launch. He added that the City Finance Lab was instrumental in the development and helped address “existing financial and legal barriers”.

Another challenge in catalysing investment for sustainable infrastructure is that a massive investment pool, namely institutional investors, remains largely untapped. This is because many institutional investor mandates include a cap on investment to so-called alternative assets, a category in which infrastructure tends to fall. City Finance Lab partner Global Infrastructure Basel’s is working to design a global voluntary standard for sustainable and resilient infrastructure (SuRE) to establish a common language and understanding of sustainable infrastructure projects among developers, local authorities and investors. Gancel says these efforts aim to make sustainable infrastructure into a clearly defined and well-understood asset class and “move infrastructure from being an alternative investment to being the baseline”.

This article is part of an eight-part series by Climate-KIC and Environmental Finance discussing Mission Finance, the theme of the 2018 Climate Innovation Summit in Dublin on 6 – 8th November.  To see the series hub click here.

 
Location
Ireland
Related Goal
Goal 12: Foster bankable green assets in cities
Articles you may be interested in
In The News
In the face of complex challenges, Europe stronger together, says EU President...

European Commission President Ursula von der Leyen outlined her...

In the face of complex challenges, Europe stronger together, says EU President von der Leyen
In The News
New IPCC report reveals urgent need for climate innovation

The IPCC’s Sixth Assessment Report has launched. The report...

New IPCC report reveals urgent need for climate innovation
In The News
Moving beyond ‘brown coal’ in Europe’s rural regions

Together with Partners, EIT Climate-KIC is leading a process...

Moving beyond ‘brown coal’ in Europe’s rural regions
In The News
EU’s “Fit for 55” to spur policy innovation for climate action

The European Commission has released its “Fit for 55”...

EU’s “Fit for 55” to spur policy innovation for climate action
In The News
Munich Re and ERGO invest in EIT Climate-KIC carbon removal programme

Major German corporate group sets the ambition to accelerate...

Munich Re and ERGO invest in EIT Climate-KIC carbon removal programme
In The News
23 pilot projects selected by EIT to unlock higher education’s innovation po...

The European Institute of Innovation and Technology (EIT) has...

23 pilot projects selected by EIT to unlock higher education’s innovation potential in Europe
In The News
Investing in start-ups scales the offering of climate adaptation solutions in ...

A partnership between EIT Climate-KIC and CDC Group, the...

Investing in start-ups scales the offering of climate adaptation solutions in African and South Asian countries
In The News
Irish Aid extends support for innovation and development from the ground up

The Government of Ireland’s development assistance programme, Irish Aid,...

Irish Aid extends support for innovation and development from the ground up
In The News
EIT Climate-KIC showcases climate innovation at R&I Days

EIT Climate-KIC participated in the European Commission’s Research and...

EIT Climate-KIC showcases climate innovation at R&I Days
In The News
Branch Magazine wins Ars Electronica Award for Digital Humanity

Branch Magazine, a collaboration between EIT Climate-KIC, Mozilla Foundation...

Branch Magazine wins Ars Electronica Award for Digital Humanity
In The News
Cross-KIC project to boost circular economy in Western Balkans

The circular economy concept is of crucial importance to...

Cross-KIC project to boost circular economy in Western Balkans
In The News
Exploring new horizons with Pioneers into Practice

Enrolment is now open for placement hosts and participants...

Exploring new horizons with Pioneers into Practice
In The News
Circular bioeconomy start-up receives €2 million from European Innovation Co...

EIT Climate-KIC supported Lixea (formerly Chrysalix Technologies) has received...

Circular bioeconomy start-up receives €2 million from European Innovation Council Fund
In The News
Embracing a new approach to climate change in Moldova

Moldova is one of Europe’s most modest contributors to...

Embracing a new approach to climate change in Moldova
In The News
Krakow: transforming the city towards climate neutrality

Poland’s former capital and one of its oldest cities,...

Krakow: transforming the city towards climate neutrality
In The News
Is Europe doing enough to tackle climate change?

On 23 April, EIT Climate-KIC CEO Kirsten Dunlop spoke...

Is Europe doing enough to tackle climate change?
In The News
EU Commission publishes sustainable finance taxonomy

The European Commission has published its EU-wide classification system for...

EU Commission publishes sustainable finance taxonomy
In The News
New European Bauhaus: what kind of future do you want to live in?

On 22 and 23 April, the first conference dedicated...

New European Bauhaus: what kind of future do you want to live in?
In The News
Estonian innovation to help stabilise grid as renewables increase

EIT Climate-KIC supported Estonian start-up Sympower has raised €5.2...

Estonian innovation to help stabilise grid as renewables increase
In The News
Five EIT Climate-KIC community members in Forbes 30 under 30 list

Twelve entrepreneurs from across the EIT community have been...

Five EIT Climate-KIC community members in Forbes 30 under 30 list
In The News
These eleven organisations are building a greener Europe

Google, in partnership with EIT Climate-KIC, launched the €10...

These eleven organisations are building a greener Europe
In The News
New equity crowdfunding programme unearths cleantech start-ups

Found by us, funded by you, a new start-up...

New equity crowdfunding programme unearths cleantech start-ups
In The News
From start-up to 100-person industry player in 18 months: air up is launching ...

It’s a beverage revolution: Healthy hydration while fooling your...

From start-up to 100-person industry player in 18 months: air up is launching in new markets
In The News
#TurnItAround: an event for all climate solutions seekers, suppliers and enabl...

As part of the fifth SDG Global festival of...

#TurnItAround: an event for all climate solutions seekers, suppliers and enablers
In The News
New EIT initiative to boost innovation in higher education

The European Institute of Innovation and Technology (EIT) is...

New EIT initiative to boost innovation in higher education
In The News
Just transition within reach for Polish coal city Rybnik

“We are preparing plans for the next decade. Mentality is...

Just transition within reach for Polish coal city Rybnik
In The News
Inclusive guide helps communities build urban resilience

The new Urban Action Kit, launched by the International...

Inclusive guide helps communities build urban resilience
In The News
Climate app among DigiEduHack 2020 global finalists

The DigiEduHack, supported by EIT Climate-KIC as well as...

Climate app among DigiEduHack 2020 global finalists
In The News
GreeMko receives Climate Reality Project Award in Spain 

GreeMko (for Green Management Technology), a Spanish start-up that...

GreeMko receives Climate Reality Project Award in Spain 
In The News
What’s the future of trade in a climate crisis?

EIT Climate-KIC Chief Executive Officer Kirsten Dunlop addressed the...

What’s the future of trade in a climate crisis?