Financing the Transition: sustainable infrastructure in cities

                                                              

Financing the Transition: sustainable infrastructure in cities

WWF International
Solution proposed by: 
WWF and Z/Yen Group Ltd
In a Nutshell: 
A joint project with Long Finance Z/Yen Group, the report reviews financing instruments commonly used to finance infrastructure and assessed their potential to finance the transition towards sustainable infrastructure, with a focus on energy efficiency and renewable energy.
Where and When: 
Global context, published March 2015, summary version with infographics published December 2015
Challenges: 
The way cities develop, particularly large and fast-growing cities in developing and emerging economies, will have profound and long-term implications for humanity’s future. With this in mind, it is imperative that decisions and investments in urban infrastructure are leveraged to achieve sustainable economic growth within the carrying capacity of the planet’s systems and resources. This is a unique opportunity to carefully consider investment for sustainable urban infrastructure that avoids the long-term lock-in effects of unsustainable fossil fuel-based technologies and development leading to run away climate change.
Innovation: 
The report is innovative in that it is one of the first that provides an overview and analysis of financial instruments that are commonly used to finance infrastructure development, specifically looking at their potential to support the transition towards sustainable infrastructure, with a primary focus on energy efficiency and renewable energy at city level. It is based on detailed international research including 20 semi-structured interviews with senior city and finance professionals, over 180 responses to an online questionnaire, a global webinar and a comprehensive literature review.
Concept: 
Cities are faced with the huge challenge of providing infrastructure that meets the needs of a rising urban population with limited public resources. Cities already account for over 70% of global greenhouse gas emissions and energy consumption and face rising climate change-related risks. The way cities develop, particularly large and fast-growing cities in developing and emerging economies, is likely to have profound and long-term implications for both climate change and the global economy. Decisions and investments in urban infrastructure must be leveraged to achieve sustainable economic growth within the carrying capacity of the planet’s systems and resources. More importantly, this is a unique opportunity to carefully consider investment for sustainable urban infrastructure that avoids the long-term lock-in effects of unsustainable fossil fuel-based technologies and development leading to run away climate change. Sustainable infrastructure includes assets and projects that: reduce the environmental impact of urban infrastructure such as energy efficiency and renewable energy projects; improve the climate resilience of urban areas by improving the ability of infrastructure to cope with the consequences of climate change; help to protect biodiversity and ecosystem services; support the integration of nature-based assets into urban development.
Description: 
Financing the required infrastructure upgrading and development is a big challenge. Financing sustainable infrastructure is an equally big – and more urgent – challenge. Central governments and cities are unlikely to fund the required infrastructure developments by themselves given their budgetary deficits and significant debt levels. Taxpayers are weary of having to provide any more funds following the financial crises, bank bailouts and subsequent stalled economic growth in many economies. Investors, whether banks, institutional investors, specialist funds and investment firms, need a return on investment and are unlikely to commit funds to infrastructure unless tangible opportunities with clear funding streams that meet their risk reward criteria can be identified. Cities, also governments at provincial or national levels, commonly finance, initiate or approve infrastructure development. Given competing public priorities, limited public financial resources and rising needs for infrastructure upgrading and development, other sources of financing must be targeted. Cities have a critical role to play not only to leverage other sources of finance but also to ensure that future infrastructure upgrades and developments are sustainable through adequate policies and targeted financial support and incentives. Sustainable urban infrastructure projects can be perceived as entailing relatively higher costs and risks compared to conventional infrastructure projects. Evidence however increasingly demonstrates how investment in sustainable infrastructure can boost infrastructure productivity and result in accumulated savings over time. Sustainable infrastructure projects should be structured, marketed and financed according to how anticipated savings and other quantifiable benefits can be monetised. For projects where technological risks or project uncertainty are more pronounced, public financial instruments or leverage tools can be used to improve their risk-return profile. Further, third party platforms and resources providing independent and expert guidance on sustainable infrastructure options and proven technologies can inform cities and investors’ decision-making particularly in areas where they lack in-house capacity and expertise.
Impacts: 
Key findings of the report: Finding 1 – Some financial instruments have a higher potential to support investment in sustainable infrastructure. Finding 2 – The lack of investable projects seems to be the main issue preventing sustainable infrastructure investment at scale rather than the lack of finance. Finding 3 – Cities can develop an attractive investment proposition for sustainable infrastructure financing and development, based on a ‘product & marketing approach’ to infrastructure financing. Finding 4 – Collaboration across city departments, government entities at all levels and among stakeholders is key to unlock investment in sustainable infrastructure.