Unravelling the black box of climate finance for cities

20 April 2018

Cities are the lifelines for climate action, but getting climate finance off the ground is a highly complex task, going beyond merely attracting investor money.This jeopardises the needed low-carbon transformation of cities to reach climate targets in line with the Paris Agreement.


An interview with LoCaL Programme Manager, Victor Gancel

Urban climate planning has, for the most, been disconnected from overall financial planning, as finance and climate departments of cities tend to work separately. But urban planning demands integrated planning of these departments and cross-sectoral expertise of technology and buildings etc.

Cities setting out to leverage climate finance face other challenges too — one of which is that they are complex systems themselves. If new low-carbon projects are not implemented with due consideration to the surrounding, such pinpoint interventions can cause disruptions to linked systems in, for example, the building, water or energy sector.

Cities are also embedded into a nation’s federalist structure, and have to operationalise and break down high-level political objectives and climate goals to city level. However, a vertical integration of national climate planning into urban planning doesn’t exist yet; and cities attempting to do climate planning face frictions with institutions and jurisdictions at state and national level, as well as transaction costs.

It is thus hardly surprising that cities are suffering a competence gap in how to plan climate finance, leverage investment-grade, low-carbon projects, and attract investors for funding. Public servants of cities are under pressure from mayors and various public decision-making bodies to increase their skills.

EIT Climate-KIC’s Low Carbon City Lab (LoCaL) solutions aim to empower cities and support them in becoming skilled and self-sufficient buyers of low-carbon projects with a project pipeline at hand to buy into.

Set up as a network including players of public institutions, academia and businesses, LoCaL can tap into cross-sectoral expertise and produce low-carbon and tailored solutions for cities.

LoCaL works as a multifaceted, open hub that any city or investor is welcome to join: we are a trainer who educates cities on access to finance, capacity building, and project preparation; an accelerator who catalyses deal flows by developing a pipeline of bankable green investments; and a solution provider who identifies and scales innovative funding models for cities, and supports the implementation of climate finance mechanisms in cities.

Cities can receive training by LoCaL through workshops and via an online learning platform. In January, we released free e-learning modules on green bonds and on results based finance. A course on sustainable infrastructure finance, given by active and former investment bankers on how to make a deal, will soon be published.

LoCaL also prepares project pipelines to accelerate deal flows. Together with CDP we built a matchmaking platform, a database of low-carbon projects from all over the world, which was launched at the end of last year. Through CDP’s Matchmaker service, investors can easily access investment-ready projects and take a systematic approach to urban finance. The platform numbers more than 1000 projects and 360 participating cities, and totals over 52 billion USD in terms of pipeline size. For this year, we have planned to run our training material with the cities participating in the platform.

To enable deal-making, LoCaL identifies innovative investment mechanisms. We have launched the first European City Finance Lab together with South Pole, a sustainability solution provider. The program brings expert support on innovative financial mechanisms to cities.

The City Finance Lab selects and endorses innovative financial mechanisms out of a pool of ideas that cities have submitted, and any chosen idea will be realised in cooperation with the city and our advisors. An innovative financial mechanism can, for example, be a voluntary carbon credits market at municipality level, which we are currently developing in a project called BoCaM in Bologna. The aim is to offset GHG emissions of local manufacturing companies, and use the proceeds to fund bicycle lanes.

Innovation is at the heart of unlocking climate finance for cities. New solutions are needed to fulfil the kind of multi-requirements and multi-stakeholder needs cities have to satisfy. Investment opportunities have to match the requirements that long-term investors like insurers and pension funds are looking for.

LoCaL is a lab that seeks to create these innovations to trigger transformational change, and supports cities with acquiring buying skills and expertise to enable deal-making.

Yet, unleashing climate finance starts with cities creating a cross-sectoral innovation space for climate action in their internal governance, a space where the finance and climate department collaborate.

Where would we be without our partners