London sets the benchmark for mobilising climate finance

The New Perspective on Climate Finance for Cities report from Siemens, Citi and the C40 Cities Climate Leadership Group (C40) launched today (12 July) at the World Cities Summit in Singapore, has unveiled six “innovative financing mechanisms” that could mobilise investment opportunities for cities looking to transition into the low-carbon economy. The report called on cities to “regenerate” areas in a similar vein to how London has through the London Green Fund.

“Following the historic Paris climate agreement, we must now take bold action to protect our planet for future generations. The only way to do this is dramatically increasing climate financing and attracting more investments,” C40’s director of research, management and planning Seth Schultz said.

According to the report, emission trading schemes should be utilised by cities to offer flexibility as it encourages companies that seek to reduce emissions while penalising others that don’t. The report noted that the combined value for trading schemes in 2015 reached $34bn and covers 12% of total emissions globally.

Another highly influential recommendation from the report is the use of green bonds. Despite recent studies highlighting that businesses are failing to utilise third-party funding, the report notes that the green bond market provides long-term security for infrastructure projects, while more cities are looking to issue their own labelled bonds in order to access a $42bn windfall.

For developing markets and cities, the report recommends turning to loans from International Financial Institutions (IFI) or Export Credit Agencies as a means to gain planning permissions for projects considered too risky by commercial banks. Another option is the Green Climate Fund, which is sitting on $10bn in investments for the developing world.

The final two options recommended in the report are city government backed funds, which can open up new markets when the private sector is reluctant to do so and equity capital options in order to encourage further private sector funding as debt or equity. Institutional investors are already managing $71trn in assets across 35 OECD countries.

The report notes that scaling up climate finance is an “iterative process” and national governments need to create strategies and policies that embed some of the listed recommendations to allow for public-private collaborations.

London calling

One of the case studies that the report alludes to in highlighting best practice is London. The report highlights how investing in London’s waste and energy infrastructure created a “revolving investment fund” – aided by EU funding which may soon become unavailable – that helped in the regeneration of certain areas in the capital.

The main aspect of the regeneration was the London Green Fund – managed by the European Investment Bank – which matches a £50m European investment with the same amount from the Mayor of London and the London Waste and Recycling Board (LWaRB).

The fund provided equity for “higher risk” projects that cover waste, energy and green buildings and attracted private sector funding and interest across the entirety of London. As of June 2015, the London Green Fund had invested £97m in 16 projects valuing approximately £700m.

London’s finance model may have provided a successful case study for boosting low-carbon finance and projects, but that hasn’t stopped the capital from being scrutinised over its energy and waste commitments.

New Mayor of London Sadiq Khan has promised to spark a “clean energy revolution” in the capital after growing disillusioned by slow Ultra-Low Emission Zone (ULEZ) movement and “woeful” air quality records.

Last week, food waste recycling company Bio Collectors urged London boroughs to develop the “circular economy of food” in order to rejuvenate plateauing recycling rates and boost activity in surrounding anaerobic digestion (AD) plants. In regards to green buildings, the city has also been criticised for a quantity over quality approach to building standards.

Matt Mace