Looking back, moving forward: Financial strategies Daring Cities showcased to help cities fight climate change

Looking back on Daring Cities 2022, the virtual forum jointly hosted by ICLEI and the City of Bonn, one of the key takeaways is that the organizers delivered on their promise to showcase innovative, impactful financial strategies. Strategies designed to free up much needed capital to help finance the tremendous task that lies ahead for cities from around the world of fighting climate change… while creating more: resilient, inclusive, liveable communities.

Sessions that ‘drilled down’ on key financial strategies during Daring Cities included:  Public Private Partnerships and how they can be used by cities to significantly reduce greenhouse gas emissions as part of working towards a net zero future; Land Value Capture as a catalyst for revenue generation, investment and growth; Financing Data Driven Action to make greener investments; using Financial Disclosure to help cities to stay in step with their climate goals.

Fittingly on the last day of the event there was a high level discussion entitled Innovative Finance that centered on how cities can use some of the aforementioned strategies to accelerate positive change at the local level while continuing to promote multi-level collaboration leading up to COP27, which is only a few weeks away.

During the “Data Driven” session, Melissa Englund, Sustainability Coordinator for the City of Englewood, USA provided insight into the multiple benefits of harnessing such data collection tools as Google’s EiE (Environmental Insights Explorer). EiE is an online tool that leverages Google’s global mapping data to accomplish such tasks as measuring GHG emissions and detecting tree canopy coverage.

Englund described the use of such data as “a powerful funding mechanism” that cities can use to justify funding for specific projects. “For example… data that (shows) your community is ranked one of the top ten worst cities for air pollution, which is why you need grant funding dollars.” Or for predominantly  low income neighborhoods, use the data to justify “weatherization programs and how much benefit you provide if given funding.”

Engelwood, which joined ICLEI in March of 2022 has identified transportation as the city’s biggest carbon emitter and in response to that challenge and using Google EiE, Englund observed that “we’re able to see inbound and outbound emission calculations which can help us estimate CO2 reductions,” and then identify specific actions to take with the help of ICLEI USA’s Clear Path planning Tool.

During the same session Caglar Tukel from Izmir Metropolitan Municipality in Turkey said that his city established the goal of becoming carbon neutral by 2050 and has since accelerated that target to 2030. In addition the city has a Green City Action Plan and a Sustainable Energy climate action plan. The software engineer shared that in concert with the city’s goals “data collection and analysis is the key to monitor and manage … 61 actions in eleven sectors,” ranging from buildings to transportation to the environment and biodiversity.”

So not unlike Engelwood, Izmir is leveraging data collection to justify the finances needed for clearly defined initiatives.

In a previous interview with CityTalk, Julian Basking, the Principal Urban Advisor for Cities Alliance spoke of the need for massive investment “if we are to have any hope of lifting the world’s most vulnerable (countries) out of poverty,” and he said this won’t be possible without funding from the public sector. In light of this reality, the Daring Cities session on Public Private Partnerships to Drive Energy Innovation couldn’t have been more timely.

Seeking to transition its energy sector to renewable sources, the West African nation of Benin has established what’s known as Benin Energy Plus – a program designed to help cities in that country to fast-track a green transition, including using public/private partnerships to help bankroll solar photovoltaic projects. During the public/private session Felix Afrofi, Senior Officer, Sustainable Energy, ICLEI World Secretariat observed that all too often local governments in Benin “face a myriad of challenges. Some of these include the inability to assess the needed financing and also the limitation in their capabilities and capacities to be able to develop bankable projects to take this initiative forward.” In an ideal world he said, “local governments are supposed to develop and lead these partnerships but (often) they do not have the skill to do so.”

In response to hurdles, the Benin Energy Plus program ICLEI has helped to create is what he describes as a “public and private partnership toolkit (that is) focused on local and regional governments… (and is) a one stop shop where knowledge, resources come together in one place.”

The end goal of this initiative is to empower local governments with the knowledge needed to work with the public sector on energy projects and on the one hand “de-risk the space” and on the other “make the (energy) space more attractive for investment.”

A much needed private investment firm perspective was provided by Lisa Abraham with Brown Advisory during the Importance of Local & Regional Government Participation in Financial Disclosures workshop. From her perspective as Director of the firm’s Fixed Income ESG (Environmental, Social and Governance) Research, Abraham shared that “when we think about climate, we think about it from both a risk and an opportunity perspective… risks that could lead to operational disruptions, unforeseen expenditures or lost revenues… that could lead to increased risk in our investment portfolios. And then on the opportunity side… how companies as well as governments are proactively positioning themselves to mitigate and adapt to the impacts of climate change.”

Firms such as hers are becoming increasingly reliant on what’s known as Climate Related Financial Disclosure… a reporting process municipalities can use to provide greater insight into the climate-related risks and opportunities that they are dealing with.

“Our goal as investors is not to set unrealistic expectations,” she said, “but it is to understand what the process is for prioritizing climate action,” that cities have and furthermore, to understand “how are you allocating resources to address those risks? What are the timelines, what are the KPIs or goals that you have set and what’s the progress towards those goals?”

Yet another source of revenue for municipalities for sustainability initiatives was explored during the session on Land Value Capture. Luis Quintanilla Tamez a Policy Analyst with the Lincoln Institute of Land Policy observed that due to “unprecedented population growth in urban areas… (there is) an increased demand for what is called service land… essentially land provided with basic public services like water, sewage, roads, utilities, public transportation, parks, you name it.”

And in response to this demand, “value capture is a land based financing strategy, meaning that it harnesses the value of land to invest in public benefits, (such as) infrastructure, basic city services and housing.”

Referencing a study conducted by the Lincoln Institute on land prices in South America, Tamez spoke of “the multiplier effects of government actions on land prices… in rural to urban conversion this ratio is typically four to one… a 400 percent increment (in taxes),” adding that “for changes in zoning regulations that allow for greater densities… they may generate land value increments as well… ranging from  80 to 100 percent… especially when converting single story homes into five or six story residential buildings.”

During the Innovative Finance Solutions to Fund and Implement Urgent Climate Action workshop, Nikhil Chaudhary put the current climate crisis into perspective with a graph that showed that based on current trajectories, European countries will only achieve 50 percent of the carbon reductions they had hoped for by 2030. Chaudhary, who is an advisor with Climate-KIC, Europe’s largest public-private innovation partnership went on to observe that if the 112 European cities committed to getting to net zero by 2030 are going to be successful an estimated 28 trillion euros to finance the necessary projects will be required.

To reach such a goal will require “systematic innovation and… gradually moving away from a conventional project financing model… and a more portfolio finance model (that involves) financing a range of projects.”

So rather than one-off projects, the new mindset needs to be “a portfolio of projects that recognize (the project funding requirements of) multiple sectors, be it energy… transport or waste… (and that) help cities to prioritize which of the (carbon) emission domains they would like to act on.” And ultimately, “to work towards long term benefits and impacts.”

It was an observation that pretty much sums up where cities are at, in the wake of Daring Cities. The financial and logistical challenges cities face in the fight against climate change remain considerable. But thanks in part to some of the insights shared at Daring Cities 2022, participants will be better prepared moving forward.