Nations pledge, cities deliver

This article features in issue two of Connected Places magazine.

Cities are responsible for over 70% of global energy-related carbon emissions yet cover only 3% of the Earth’s surface. They are already home to more than half the world’s population and by the end of the century that will be closer to 80%. Our cities are the engine rooms of national and global economic activity – vibrant, chaotic melting pots of trade, culture and innovation.

Yet cities are the places where so many of humanity’s greatest challenges play out too – from warfare and social unrest to economic shocks and severe weather events. So it’s not surprising that cities are grabbing our attention more than they did only a few short decades ago.

Because if temperature rises stay on their current trajectory, and both the Paris Agreement and 2050 net-zero emissions targets are not met, the outlook is bleak. According to the Swiss Re Institute, without action over the next 30 years global temperatures could rise by 3°C and the world economy could shrink by 18%. The scale of investment required to mitigate that scenario is eye-watering. It is estimated that $4 trillion per year in infrastructure investment is needed in developing countries alone.

Yet adapting to the climate crisis also has its opportunities. The New Climate Economy for instance has estimated that bold action could result in a direct economic gain of $26tn by the 2030s.

Either way, without finance, cities will not achieve a green transition at the scale and pace required. One of the problems is that cities vary significantly in their ability to attract new finance for low-carbon infrastructure. Cities the world over struggle to access private investment. This is often due, among other challenges, to institutional capacity, limited taxation powers, and the constraints of national policies.

The World Bank Group has estimated that among 500 large cities in developing countries only 5% have credit ratings that are recognised on international capital markets. According to the C40 Cities Finance Facility, only 0.8% of the capital managed by pension funds, sovereign wealth funds, insurance companies and other institutional investors is currently allocated to infrastructure.

So as cities themselves are grabbing our attention more, the question of how to finance the transition to a low-carbon economy is also grabbing the attention of those who lead them.

One of the ways in which that question is being answered in the UK is through the Cities Commission for Climate Investment (3Ci). It was established, with the support of the UK Government, to address these challenges of collaboration and scale head-on. A joint initiative between the Connected Places Catapult, Core Cities, and London Councils, 3Ci is a coalition of 12 of the UK’s largest cities working together with the wider local government sector and the M10 mayoral group to tap into new ways of securing private investment into place-based net-zero infrastructure.

What 3Ci has found is that, by aggregating the low carbon investment plans of the UK’s largest cities – worth an estimated £330bn – it’s possible to create a more attractive and substantial proposition for investors. Projects include the retrofit of homes and commercial properties, integration of renewable energy, shifts to sustainable transport, circular waste management, and improvements to green spaces and waterways.

Local authorities, even large cities, tend to lack the in-house skills and expertise for the scale of the net-zero investment challenge. So 3Ci is creating a national technical assistance programme to grow the skills base for investment. On the ground a series of geographically diverse pilots will help test and demonstrate the delivery of new financial models that can aggregate opportunities across different sectors and facilitate investment at scale.

Longer-term plans include a development fund to secure £100bn of financing, as well as an investment fund to provide capitalisation worth £200bn, contributing a 10% increase in Gross Value Added and 10,000 new jobs across the supply chain.

The work of 3Ci is in response to the rise of innovative finance in cities – new experiments in combining technical innovation with policy, regulation and bespoke finance instruments to create new ways to fund net-zero infrastructure.

It would be tempting to think that this is mostly a question of how to raise money for a city’s existing spend requirements, for example a project that has a funding gap. It is true of course that cities are now experimenting with new blends of public and private finance, debt and equity, as well as mixing infrastructure investments into portfolios of tradable assets. Performance-based green bonds are being tested where the return to the investor is directly correlated to the impact achieved and the cost of debt then falls as targets are met.

It’s also true that there is a growing appetite for community investment structures where citizens can invest in new infrastructure in their own areas. This is where financial tools can enable a local culture of innovation to develop around the low-carbon economy. Fostering local entrepreneurialism can be a practical way of recognising that municipalities may not have the answers, but the start-up and social enterprise sectors may well do. This is where angel investment funds and equity stakes can support successful start-ups in ways that align them with the city’s own climate objectives, while generating a return so that capital can be reinvested.

But while all of these new finance tools are important, in the long term cities also need to be thinking more innovatively at the project design stage. Designing projects that are fit for private investment from the get-go, and in ways that will maximise their chances of getting funded is crucial.

A powerful way of doing that at scale is for cities to join forces. To support this, 3Ci is developing a National Net Zero Project Pipeline of local and regionally led bankable projects. This has been informed by a series of regional investor forums that have brought cities and local governments together – often for the first time – with investors to showcase opportunities and build confidence and trust.

In many cases, the technical solutions are largely known and are already being successfully financed and implemented at the local level. The aim is to demonstrate the level of public and private investment required across the UK, and where opportunities might lie for scaling.

Nationally, the UK is aiming for 55% of vehicles on its roads to be electric by 2032. But the London Borough of Hackney plans to smash that target by aiming for a 90% uptake by 2030. This is already being facilitated by a rapid roll out of electric vehicle (EV) charge points from around 300 council-owned points today to 3,000 (at least one per estate) by 2030.

The charge points will be powered from 100% renewable sources and in some cases locally generated. But they will also be sustainable in another sense because the scheme is projected to raise more than £9m in income for the council.

Councillor Mete Coban MBE serves as Hackney’s Cabinet Member for Energy, Waste, Transport and Public Realm. For him, the scheme is helping local residents make the green transition easier while complementing other projects to promote active travel and electrify the Council’s own fleet of vehicles.

“These new charging points will help reduce the concerns some people have about switching to an electric vehicle,” he says. “In turn, this will benefit all of our residents as it will also help enhance the borough’s air quality.”

The City of Belfast has a thriving innovation economy centred around its Titanic quarter. The Council and Artemis Technologies have launched the world’s first 100% electric foiling workboat which is creating new, low-emission ways of moving goods and people across its waterways. The Belfast Maritime Consortium is also now developing a high-speed zero-emission electric hydrofoil ferry, with the first vessel expected to launch as a pilot ferry service between Bangor and Belfast in 2024.

The speed of this development highlights the advantages of bringing together place leaders, investors and inventors. Clare Guinness is the Belfast Innovation District Director and for her it’s an example of how Belfast is punching above its weight and a testament to the power of place-based innovation and collaboration:

“With the talents of Artemis Technologies”, she says, “an anchor tenant in Belfast’s thriving Innovation District, and its revolutionary range of green sea vessels, the city is once again set to be at the forefront of global change, and we couldn’t be prouder.”

3Ci is a first for the UK and it is already attracting attention from around the world. The Commission is also now creating a wider partnership, including UK Government, Innovate UK, Metro Mayors, Combined Authorities, Scottish and Key Cities, Counties and Districts and a growing league of private investors, financiers, advisors, developers and built environment technology professionals.

Want to find out more about 3Ci?

This article features in issue two of Connected Places magazine.