Addressing the City’s Climate Finance Gap

Swedish start-up ClimateView has released an “Impact Intelligence” upgrade to its SaaS ClimateOS platform, to help planners unlock crucial funds for city decarbonization and the net zero transition. In effect, it provides a digital twin for a city, allowing planners to efficiently model the impact of planning and investment decisions.

Cities are one of the main levers for action against climate change, standing at a crossroads between the development of national policies and local action. The figures are well known, as to their importance. Urbanization continues to be a macro trend, with around half of the world’s population living in cities and already connected to over 70% of global CO2 emissions.

By 2050, cities are expected to be home to around 70% of the world’s population and decoupling this growth from emissions is a major challenge, which will require significant investment to overcome. Catharina Sahlstrand, ClimateView Advisor and Head of Sustainability and Climate Action Group at Handelsbanken, said: “Cities hold enormous potential as high-impact climate investments. However, the quality and context of the data that cities can share with investors could still improve to direct funding towards policies with the greatest impact for the transition of each particular city.

Cities are key to tackling climate change, but funding gaps are problematic

According to the World Bank, the global financing need for green urban infrastructure is $4.5-5.4 trillion per year. Yet an analysis published in 2021 showed that only $384 billion is provided each year today – create a huge financing gap.

Funds available in the private or public sector are not lacking. There are trillions of private investment seeking projects to boost decarbonization (just $130 billion has been pledged through GFANZ by 2030), and fund managers are actively seeking sustainable investments. The public sector is also aware of the transformative potential of cities. In Europe, for example, the European Commission has allocated hundreds of millions of euros for 100 carbon neutral cities.

However, there is a lack of information to be filled. Investors are often averse to the risks associated with projects involving the complexity of city-level projects and struggle with how to effectively allocate the return. Even the EU’s Carbon Neutral Cities program is conditional on cities creating investable climate action plans – often referred to as climate investment plans.

Part of the problem is that cities are often unprepared to develop such plans – plans that link investment to impact. Such plans, when developed using the right data, can be an effective decision-making tool using data and modeling to understand how different investment decisions will turn out. Without this, cities struggle to access available funds.

Closing the financing gap with a climate investment plan

In order to close this gap, financiers need to understand the economic costs and benefits of proposed plans and policies before committing funds, which means cities need to be able to show both decarbonization and impact. economic that these investments will have. Measuring the carbon emissions reduction, economic benefits and costs of each policy in their climate action plan is not an easy task, requiring data manipulation, systemic modeling and quality analysis.

It also often requires different departments to work with each other, something many cities struggle with even in the age of digitalization. What cities need to do is combine urban planning data (which can range from health, education, work, energy access, mobility, etc.) to data and economic and environmental analyzes to understand how changes will impact city performance.

This detailed information helps cities understand how spending money in one area can improve outcomes or reduce costs in another. This can be financialized and used to create a long-term payment mechanism. In this way, a climate investment plan can be used to unlock private capital through the issuance of a city or municipal green bond, linking the money saved to a fixed payment to investors over time.

However, many cities have struggled to issue green bonds and access large-scale private capital. Local authorities accounted for just 0.8% of European sustainability bond issuance from 2019 to the first quarter of 2022, raising just $7.4 billion in 3.25 years. It is only by weighing the costs against the benefits over time that sensible and appropriate financing mechanisms can be deployed and funds for action raised.

This suggests that to raise finance at scale, cities need to align their climate finance offerings with existing frameworks used in capital markets.

Enable the development of Climate Investment Plans

According to Tomer Shalit, founder and CEO of ClimateView, the new upgrade to the company’s urban data platform ClimateOS, Impact Intelligence, does just that – by enabling the calculation of the economic costs and benefits of moving to low-carbon alternatives, such as increased recycling capacity. , changing the energy supply or increasing public transport. Not only that, but it makes it easy for planners to do so by seamlessly providing analysis and data in line with the CBI and ICMA frameworks, for every climate investment plan.

Shalit says, “Securing funding to achieve a city’s net zero goals is not an easy task for city planners. While cities may have ambitious climate goals, they generally lack the necessary analysis to be able to approach investors with their climate action plans. We developed Impact Intelligence to help city planners get the economic and environmental analysis they need to develop compelling climate investment plans that unlock public and private finance.

In Helsingborg, one of the first cities to test the module, the city must create a climate investment plan as one of the 100 EU mission cities. According to Niklas Bäckström, financial controller of the city of Helsingborg, what makes the Impact Intelligence tool useful is that it includes non-municipal financing considerations, such as consumer spending and other investments.

Helsingborg’s plan enables them to identify where to direct their investments and which actions offer the greatest and most profitable benefits. Bäckström explains: “It is a “systematic strategy to define the actions, impact, costs and capital needed to achieve climate neutrality by 2030”. It’s a huge task and ClimateOS makes it possible. Calculating and visualizing both the sustainable and economic arguments that ClimateOS provides us for our climate investment plan will certainly facilitate both decision-making and future financing.

In one example, switching to cycling in a city like Helsingborg could result in an economic benefit of €159 million by 2030. With a population of 115,000, if Helsingborg shifted 15% of its vehicle-kilometres to walking and cycling, the total economic benefit breaks down as follows: 74 million euros in fuel savings; 117 million euros of savings for the public health system, thanks to the improvement of health thanks to the bicycle itself; 3 million euros in savings for the public health system, thanks to improved health thanks to the reduction of local air pollution and noise from cars. This against a cost of 35 million euros in costs for the bicycles.

Digital twins can support the transformation of city climate finance

Digital twins are a digital representation of a city’s physical assets. It’s not only a great way to combine data that’s in different departments to get a better picture of how the city works, but by adding data analytics and machine learning planners, they can build models simulation. These can be updated and changed in real time to stay on top of a growing city as it changes, and it also means that simulation models can be built to identify how changes within the city will unfold over time.

What such an approach allows planners to do is direct capital allocation towards the most impactful net zero projects by optimizing the deployment of public and private finance. And it’s going to play a vital role in funding the transformation needed to tackle climate change on a city-wide scale.

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