Climate Innovation Impact Goals - Goal 12 Foster Bankable Green Assets in Cities DRAFT WORKING DOCUMENT - Climate-KIC
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DRAFT WORKING DOCUMENT Climate Innovation Impact Goals Goal 12 Foster Bankable Green Assets in Cities
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DRAFT WORKING DOCUMENT Theory of Change: Climate Innovation Impact Goal Dossier Goal 12 Foster Bankable Green Assets in Cities REPORT DATE: 10th June 2018
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Contents
Executive Summary ...........................................................................................................................................2
1. Introduction ................................................................................................................................................3
1.1 Why is this impact goal important? ..............................................................................................................3
1.2 Why should it be a focus for EIT Climate-KIC? ..........................................................................................6
2. Theory of Change.................................................................................................................................... 14
2.1 How can society tackle climate change through systems innovation and transformation? ... 14
2.2 Our Theory of Change in Impact Goal Area 12 ....................................................................................... 16
3. Our Portfolio and Approach .................................................................................................................. 17
3.1 How does EIT Climate-KIC understand the system associated with the impact goal? ............ 17
3.2 How are we currently intervening in the system? .................................................................................... 20
3.3 What have we learned from our interventions? .................................................................................... 22
3.4 Where should EIT Climate-KIC focus in the future and who should we work with? .................. 24
3.5 How will we monitor, evaluate and learn from our approach? ......................................................... 25
1DRAFT WORKING DOCUMENT Executive Summary In 2015, the Stockholm Environment Institute estimated that 1/3 of the world’s remaining safe carbon budget could be determined by urban policy and investment decisions made in the following 5 years 1. In 2017, emissions from fossil fuel combustion increased by 1.8% in Europe 2, giving a serious blow to EU’s leadership and demonstrating that its economies had not yet decoupled economic growth and absolute emissions. EIT Climate-KIC is in a position to contribute to transformational change in the way capital is deployed in cities by raising capacities from cities, finance and solution providers and by enabling effective project financing. To do so, EIT Climate-KIC can leverage on a growing number of initiatives and established organisations to catalyse change. International organisations, the European Commissions and Member States and innovators have acknowledged the importance of financing as a crucial barrier for urban action. Several macro and micro-level factors are responsible for the current under investments in cities: from credit worthiness and market regulations down to the project financing skills of one municipal staff. By combining the strengths from Goals 1, 2, 3, 10, 11 and 12, EIT Climate-KIC is able to deliver transformational change in urban infrastructure finance, by identifying and actioning multiple levers of change. The innovations EIT Climate-KIC can support in this area cover business models and engagement frameworks for investors, project aggregation mechanisms, project preparation frameworks for cities and disruptive training for the +100k cities across Europe. These innovations won’t make an impact if a systemic approach is not undertaken, targeting the regulations currently prevent cities to access capital, finding the right incentives for investors to take part to the global challenge of urban infrastructure, aligning national with subnational climate strategies, while in Europe supporting a re-alignment of major EU city-oriented initiatives towards bankability-oriented project preparation. Over the last 2.5 years, the Low Carbon City Lab has successfully paved the way for meaningful change in the way investments are made with cities. In addition, successful fundraising activities, ongoing business development leads as well as the widespread recognition of city finance as a systemic issue to be addressed show that there is a market for the EIT Climate-KIC to sustain its activities and deliver its mission on the long run. One main gap in EIT Climate-KIC portfolio of partners and activities is the engagement with the financial sector and clarifying our mission, following this exercise, to public and private investors as well as leading EU programmes, will be critical in achieving our ambitions. 1 Erickson, P., & K. Tempest, 2015. Keeping cities green: Avoiding carbon lock-in due to urban development. SEI Working Paper No. 2015-11. Available at: http://www.sei-international.org/publications?pid=2829 [Accessed 4 June 2018]. 2 Eurostat, 2018. Early estimates of CO2 emissions from energy use. Available at: http://ec.europa.eu/eurostat/documents/2995521/8869789/8- 04052018-BP-EN.pdf/e7891594-5ee1-4cb0-a530-c4a631efec19 [Accessed 4 June 2018].
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1. Introduction
Goal 10
Inputs Activities Outputs Outcomes Impact
The financial, Actions taken or The products and The likely or Positive and
human, and material work performed services which achieved short-term negative, primary
resources needed. through which result from a and medium-term and secondary long-
inputs, such as activities; may also effects of the term effects, directly
data, funds and include systematic outputs. or indirectly,
other types of changes resulting intended or
resources are from the activities, unintended.
mobilised to which are relevant
produce specific to achieve the
outputs. outcomes.
Figure 1. DMF impact goals in a results chain - Adapted from Intrac (2015), “Outputs, Outcomes and
Impact” 3
1.1 Why is this impact goal important?
In 2015, the Stockholm Environment Institute estimated that 1/3 of the world’s remaining safe carbon
budget could be determined by urban policy and investment decisions made in the following 5 years 4. In
2017, emissions from fossil fuel combustion increased by 1.8% in Europe 5, giving a serious blow to EU’s
leadership and demonstrating that its economies had not yet decoupled economic growth and absolute
emissions.
In 2014, 54% of the world’s population lived in urban areas and this share is expected to grow to 66% by
2050. Europe will see less change but is already among the most urbanized regions of the world with 73%
living in urban areas 6. Urban areas are where the world economy creates most added value (also per capita)
and generates most emissions (whether this is also the case on a per capita basis is disputed). At the same
time, urban areas tend to have stricter climate targets than national governments. To follow a 1.5°C path,
cities should reduce emissions to almost 3t CO 2 e per capita by 2030, which requires investments of $1
trillion in C40 cities alone from 2016 to 2050 7. The EU funding gap towards investment into sustainable
3 Available at: https://www.intrac.org/wpcms/wp-content/uploads/2016/06/Monitoring-and-Evaluation-Series-Outcomes-Outputs-and-
Impact-7.pdf [Accessed April 30, 2018].
4 Erickson, P., & K. Tempest, 2015. Keeping cities green: Avoiding carbon lock-in due to urban development. SEI Working Paper No. 2015-
11. Available at: http://www.sei-international.org/publications?pid=2829 [Accessed 4 June 2018].
5 Eurostat, 2018. Early estimates of CO2 emissions from energy use. Available at:
http://ec.europa.eu/eurostat/documents/2995521/8869789/8-04052018-BP-EN.pdf/e7891594-5ee1-4cb0-a530-c4a631efec19 [Accessed 4
June 2018].
6
UNDESA, 2014. World Urbanization Prospects: The 2014 Revision, Highlights, Available at:
http://esa.un.org/unpd/wup/Highlights/WUP2014-Highlights.pdf [Accessed May 2, 2018].
7 C40 & Arup, 2017. Deadline 2020, Available at: http://www.c40.org/researches/deadline-2020 [Accessed May 2, 2018].
3DRAFT WORKING DOCUMENT
infrastructure is of the order of 100 to 300 billion €8 annually and globally this amounts to more than 93
trillion USD over the next 15 years.
EIT Climate-KIC aims to accelerate investments needed to achieve the urban transition to GHG neutrality.
Our approach starts with recognition of systemic issues that limit progress. These issues limit both the
supply of investable projects and ‘ready-to-deploy’ capital.
Capacity – cities and solution providers lack the capacities, expertise, and resources to identify and scope
transformative projects, and to demonstrate their readiness as finance-ready projects that can align with
investment capital. Even high-performing measures generally lack business models designed for radical
increases in replication and scaled deployment.
Effective project financing – diverse investors lack tailored financing structures that align with value
streams, project aggregation platforms to manage risk, and adequate pipelines for following through on
major commitments to invest in resilient, sustainable cities. Willing investors need to engage much earlier in
the process in order to solve these issues.
An effective urban response to climate change imperatives would be a profound social transformation with
three distinct dimensions. One entails empowering cities to take action in support of aggressive goals to
reduce GHG emissions to zero in their jurisdictions. Cities that take action to scope and create finance-ready
projects activate private service providers and capital investors. Second, this urban focus is necessary to
align and integrate national and sub-national policies, plans, and programmes. Third, communities and local
economies would be reinvigorated through effectively engaging capital markets through financing platforms
built to match project pipelines with investors.
From a societal perspective, three main areas of progress can be identified.
Finance & pipeline generation are now widely acknowledged as a key barrier preventing large scale
decarbonisation in cities:
• UN HABITAT III New Urban Agenda calls for the development of financial mechanisms dedicated to
cities, and lists finance as a major action lever 9
• Leading city networks have recognised finance and project preparation as bottlenecks such as C40
“Financing Sustainable Cities Initiative” and the “Cities Finance Facility” 10. Both initiatives have the
explicit aim to make green infrastructure projects in cities (e.g., biking infrastructure, public
transport, energy efficient buildings, etc.) bankable. Through these initiatives, Mexico City for
example became the first Latin American city to issue a green bond (value US$50 million) in
December 2016, with EIT Climate-KIC LoCaL support brought to the Climate Bonds Initiative 11. On
the international level, alliances such as the City Climate Finance Leadership Alliance launched in
2015 are trying to increase collaboration across various public and private stakeholders with limited
success. In the United States, several green banks have launched in order to address market
barriers and stimulate growth in project investments. In addition, numerous initiatives are tackling
8 Dauderstädt, M., n.d. How to close the European investment gap? Available at: https://www.fes-
europe.eu/fileadmin/public/editorfiles/publications/562_European_investment-june_adpt.pdf [Accessed 4 June 2018].
9
UN Habitat, 2017. New Urban Agenda. Available at: http://habitat3.org/wp-content/uploads/NUA-English.pdf [Accessed 4 June 2018].
10 See here: https://www.c40cff.org/
11 See here: http://www.climate-kic.org/success-stories/green-bonds-cities/
4DRAFT WORKING DOCUMENT
issues of business models and transaction structures that limit rapid replication and increased
scale.
EU & national programmes and regulations are supporting cities in attracting private funding:
• EU has built several programs aiming at supporting project development and financing: Elena,
European Energy Efficiency Fund, H2020 Project Development Assistance but deployment rates
are still low, and it is common knowledge that cities are not yet able to transform climate plans into
investment plans.
• Various national programmes, such as the “Plan Bâtiment Durable” in France aims to accelerate
investments into building retrofit with a focus on aggregation vehicles (aggregating multiple small
retrofit interventions into an investment vehicle).
New financial mechanisms and tools have been developed and tested in many cities:
• New tools and instruments, such as Green Bonds, Property Assessed Clean Energy (PACE) in the
US, have sought to accelerate investments. The promising approaches offer benefits in terms of
standardisation, but market growth has not been as strong as needed. Issues of aggregation, risk
mitigation, and creditworthiness make structuring transactions complex and time-consuming,
which is exacerbated by the lingering lack of capacity among municipal governments to work with
solution providers to build pipelines.
• Cities and sub-national actors have taken on a major role in driving climate action over the past 20
years, with capacity building coming to the forefront as a key area for scaling climate impact 12. The
majority of major city initiatives that occupy the climate finance landscape such as C40, WRI, and
the Global Covenant of Mayors, include components on capacity building and training,
acknowledging that knowledge and know-how at the municipal level remain key barriers to climate
finance for cities.
This impact goal responds to (at least) three SDGs directly, namely SDG 3 “Good health and well-being”, SDG
11 “Sustainable cities and communities”, and SDG 13 “Climate action”. It is further connected to SDG 6
“Clean water and sanitation” and SDG 7 “Affordable and clean energy” depending on the type of the green
investments.
SDG Goals and Targets EIT Climate-KIC’s contribution
Goal 3 - Ensure 3.9 By 2030, substantially reduce the number of deaths Supporting Climate & Clean Air approaches:
healthy lives and and illnesses from hazardous chemicals and air, water sustainable transport systems, non-polluting
promote well-being and soil pollution and contamination heating, increased energy efficiency
for all at all ages
Goal 11 - Make cities 11.2 By 2030, provide access to safe, affordable, Enabling large scale investments in
and human accessible and sustainable transport systems for all, sustainable transport (achieved through
settlements inclusive, improving road safety, notably by expanding public policy, business models & project
safe, resilient and transport, with special attention to the needs of those structuring)
sustainable in vulnerable situations, women, children, persons with
disabilities and older persons
12
CCFLA, 2015. State of City Climate Finance 2015. Cities Climate Finance Leadership Alliance (CCFLA). Available at:
https://wedocs.unep.org/bitstream/handle/20.500.11822/7523/-The_State_of_City_Climate_Finance-2015CCFLA_State-of-City-Climate-
Finance_2015.pdf.pdf?sequence=3 [Accessed 4 June 2018].
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11.3 By 2030, enhance inclusive and sustainable Support mechanisms for financing climate
urbanization and capacity for participatory, integrated action, better integrate policy making from
and sustainable human settlement planning and national to subnational level (empowering
management in all countries the latter)
11.5 By 2030, significantly reduce the number of Support the development of adaptation
deaths and the number of people affected and business models for urban projects. Create
substantially decrease the direct economic losses bankability-oriented metrics to be
relative to global gross domestic product caused by integrated into the investment decisions
disasters, including water-related disasters, with a from investors
focus on protecting the poor and people in vulnerable
situations
11.6 By 2030, reduce the adverse per capita Same as 3.9
environmental impact of cities, including by paying
special attention to air quality and municipal and other
waste management
Goal 13 -Take urgent 13.1 Strengthen resilience and adaptive capacity to Enable the generation of a pipeline of
action to combat climate-related hazards and natural disasters in all adaptation/mitigation projects in cities
climate change and its countries
impacts
13.2 Integrate climate change measures into national Favour integration between subnational and
policies, strategies and planning national levels
1.2 Why should it be a focus for EIT Climate-KIC?
EIT Climate-KIC has unique capabilities to align expertise on all aspects of urban transformation work, and
to do so with key partners who also are helping cities in their efforts. Basic capacity-building, expertise on
GHG-reducing interventions and replicable/scalable business models, project analysis and financing, and
capital markets engagement all need to be addressed in support of city efforts. While no single entity can
deliver on all aspects alone, EIT Climate-KIC has the EU mandate and resources to be a driver of
transformative work.
Even though cities make up 70% of global energy related CO 2 emissions and will require $1.1 trillion of
additional investment in low carbon and climate-resilient infrastructure per annum, only 15% of global
finance has reached cities. City-focused investments, outside of traditional municipal bond markets, are
complex and time-intensive. Figure 1 below, highlights key barriers to city climate investment and their
effects. Overarching barriers can derive from very different factors, from the macroeconomic to the locally-
dependent. Indeed, city creditworthiness can be impacted by country creditworthiness, national regulations,
local authorities’ competences in deal structuring.
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Figure 2. Barriers to city climate investment and affects
Main barriers include the lack of capacity, and project finance funding. Cities often lack the expertise and
resources to identify and scope transformative projects, and to demonstrate their readiness to attract
private capital. Moreover, many cities have limited innovation capacity due to lower administration
capacities at the municipal level compared to the national/regional level. When combined with unfavourable
procurement guidelines, urban project bankability and private sector involvement can be seriously limited.
Adding the lack of standardised solutions, and replicable project financing structures to this situation, puts a
serious limit to market access and activity. Cities especially lack tailored financing structures that align with
value streams, project aggregation platforms to manage risk, and adequate pipelines for following through
on major commitments to invest in resilient, sustainable cities. Willing investors need to engage much
earlier in the process in order to solve these issues.
Often the role of the city jurisdiction in national authorities is unclear, and this lack of clarity can lead to a
perceived lack of mandate from the electorate, as well as a lack of understanding by cities that low carbon
and climate resilient projects can reduce and avoid costs- ultimately resulting in low political will in the city
to drive the climate change agenda forward.
This lack of policy frameworks at the national level increase investor risk and often lead to legal, procedural
and ownership barriers that prevent the raising of capital. More generally, barriers to transition include high
transaction costs, uncertainty in national and international frameworks, a lack of resources in making green
and sustainable projects attractive to investors, and gaps in knowledge about available finance options and
mechanisms. In some instances, regulation prevents institutional investors from engaging in green
infrastructure investments. Depending on the regulation, project finance structures (such as most
infrastructure investments) are often considered ‘alternative investments’. As in many countries, such as
Switzerland for example, pension funds are restricted to investing 15% of their assets in alternative asset
classes. Regulation to tag and exclude green and sustainable infrastructure assets from the alternative
category would therefore be an important enabler to raise sufficient capital from institutional investors.
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However, despite these barriers, opportunities for scaling up city climate finance exist. Long periods of low
interest rates and increased market liquidity enhance the opportunity for cities to begin to tap into financial
markets to further mobilize private finance, and leverage on existing expertise to create effective financing
solutions.
Innovation is crucial as the current market forces have not allowed public and private capital to be efficiently
allocated to cities in need. Investors are waiting for bankable projects to arrive while cities are struggling to i)
define transformative climate action plans with ambitions in line with Paris Agreements and ii) transform
those plans into investment plans. The New Climate Economy estimates that 2-5% of the total
infrastructure development costs can be attributed to preparation and structuring. Given the initially stated
investment needs, this amounts to 2 to 15 billion € per year in the EU alone for project preparation, an
amount that public finance cannot cover alone. Existing mechanisms and capital markets typically struggle
to fund these early per-commissioning phases of infrastructure development, which leads to a currently
insufficient project pipeline, although funding for more developed projects would be available.
Giving the very short window for meeting Paris Agreements targets 13 , innovations are desperately needed
in the following areas:
• Service offerings from businesses with the skills to engage property owners, municipal
governments, and project finance partners to radically accelerate project scoping and analysis
• Business models and engagement frameworks for investors involvement at earlier phases in
projects life
• Aggregation mechanisms to allow multiple small projects to reach minimum investment size
required by investors
• Project preparation frameworks that will enable support to multiple cities in developing quickly and
at scale a pipeline of bankable assets
• Innovative training mechanisms to raise competences and skills from staff working for the +100k
cities across Europe
• Project structuring to manage risks, assure cash flows, and better match capital with project type is
vital to rapid deployment, replication, and increased scale.
Cities, financiers (public and private), solution providers, governments (and supra governmental level),
citizens form an intricate ecosystem that is currently designed to produce a sub-optimal number of assets.
Systems innovation is needed to move several pieces at the same time, in an ordained manner:
• Solutions providers must build the capacity and tools to drive market activity
• Regulations preventing cities to access finance from investors, and preventing investors in funding
infrastructure assets
• Provide the incentives for investors to move away from their historical practices and engage with
projects earlier, accept longer time horizons
• Better align national & subnational levels of decision making and investment plans
• Realign leading European initiatives towards bankability-oriented project preparation
13 Erickson, P., & K. Tempest, 2015. Keeping cities green: Avoiding carbon lock-in due to urban development. SEI Working Paper No. 2015-
11. Available at: http://www.sei-international.org/publications?pid=2829 [Accessed 4 June 2018].
8DRAFT WORKING DOCUMENT
A multi-partner and multi stakeholder approached is crucial to unlock investments at scale. The current
system is dysfunctional with the following stakeholders all working at different levels and facing the
following challenges. A more systemic approach across jurisdictions enhances learning and rapid project
development and replication. Cities by their nature learn from each other, and other parties to this work can
accelerate this process.
• Engagement from investors into project preparation phase, understanding and addressing their
barriers to invest more at city level and provide them the right business models, mechanisms and
incentives, provided the projects meet their risk-reward expectations
• Support mechanisms cities in de-risking their projects (e.g. guarantees) and acquire the skills to
bring them to a level or bankability meeting the private sector requirements, accelerate project
generation through engagement mechanisms with investors and solution providers
• A better integration and collaboration with major EU initiatives targeting sustainable urban
infrastructure (e.g. Elena, ESIF, EEEF)
More generally, pan-European cooperation is necessary because the EU has overall emission targets to
achieve, which requires coordinated action. Currently emissions are growing in the EU and the investment
gap remains very large especially in CEE. There is a need for closer East-West Europe integration both in
terms of policy and knowledge exchange.
EIT Climate-KIC and its Low Carbon City Lab (LoCaL) are uniquely positioned to make a meaningful
contribution in improving access to finance for cities worldwide (see below). The current momentum behind
cities’ contribution to the fight against climate change is strong, opening new growth opportunities in the
years to come. Leveraging on its strengths and nature, EIT Climate-KIC has the unique opportunity to make
a meaningful contribution to accelerating city-level investments worldwide, starting in Europe. EIT Climate-
KIC combines unique features: being the European climate innovation arm, responsible for the largest public
private innovation partnership, a flexible mandate, rapid prototyping and parallel innovation potential.
Furthermore, EIT Climate-KIC can leverage and strengthen its network of cities to position itself as a partner
in their project structuring and fundraising activities, use its EU umbrella to will secure partnership with EIB,
EBRD and other relevant EU programs and networks, and scale and disseminate its unique aggregated set
of competences through online training and physical training delivery, and given EIT Climate-KIC’s status as
the largest public-private community acting on climate change and, as recognized by the CCLFA activity
mapping, LoCaL is recognized as the most inclusive initiative focused on city climate finance.
EIT Climate-KIC is in a unique position to spot and accelerate new ideas and business models and to activate
citizen engagement. In addition, by working closely with city-facing organisations, However, such as C40,
WRI, and the Global Covenant of Mayors, better alignment can accelerate learning on particular capital
deployment models, replication, and increased scale.
With its public-private nature, the EIT Climate-KIC can bring value and complement initiatives such as:
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Geography Initiative Scope Linkage
World Bank Creditworthiness Improving countries rating LoCaL can link up throughout all its
Academy Supporting cities in developing leading activities: matchmaking
City Climate sustainable infrastructure between cities and investors, project
Planner Train city stakeholders to account GHG preparation support to service
Numerous emissions providers and city staff, cross-sector
technical training and capacity building
assistance
programmes
IPCC AEGIS Various programmes are aiming at Numerous past and present LoCaL
Global Nazca integrating the subnational and projects: Verify (H2020 project), Waste
Covenant of national level. This integration starts Miti², Carbocount City, Compact of
Mayors with GHG emissions reporting and States and Regions. Potential for the
WMO verification, to better account for the KIC to build the foundations for near
National responsibilities and performance of all real time tracking of emissions from
inventory state and non-state actors. cities in a standardised format.
agencies
European Urbis EIB backed financial advisory to cities, Some projects identified in LoCaL are
Commission dedicated urban investment advisory already leading to development
platform within the European opportunities with these programmes
Investment Advisory Hub (EIAH). URBIS and the numerous EC Staff from
is set up to provide advisory support to DGEASME and leading EU city
urban authorities [1] to facilitate, networks have expressed interest in
accelerate and unlock urban collaborating with LoCaL on training &
investment projects, programmes and capacity building, project development
platforms. and financial innovation. EIT Climate-
KIC main added value with these
EC Action Plan (DG High level initiative in EU aiming to programmes is its ability to source
FISMA unlock climate finance transformative projects and financial
ELENA ELENA provides grants for technical mechanisms, creating dealflow and
assistance focused on the knowledge with key EU stakeholders.
implementation of energy efficiency,
distributed renewable energy and
urban transport projects and
programmes.
UK DFID & BEIS The Department for International Targeted at emerging economies,
Development (DFID) leads the UK’s LoCaL and EIT Climate-KIC could
work to end extreme poverty. They complement DFID and BEIS work in the
tackle the global challenges of poverty areas of financial innovation (e.g.
and disease, mass migration, insecurity creation of an African City Finance
and conflict. Lab), training and capacity building.
The Department for Business, Energy
and Industrial Strategy (BEIS)[2] is a
government department, bringing
together responsibility for business,
industrial strategy, and science and
innovation with energy and climate
change policy
BNL Sustainable The aim of the Sustainable Finance Lab The Sustainable Finance Lab is focused
Finance Lab is a stable and robust financial sector on circular economy finance, which the
that contributes to an economy that EIT Climate-KIC could complement in
serves humanity without depleting its waste and the building sector.
environment.
Triodos A specialist bank offering integrated So-development and scaling of
lending and investment opportunities innovative finance mechanisms.
for sustainable sectors in a number of Retrofit finance listed by Triodos as a
European countries. key innovation area.
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FR & MED Meridiam Meridiam is a global investor and asset Goal 12 can generate a pipeline of
manager based in Paris specialized in bankable assets for Meridiam to invest
developing, financing and managing in. Meridiam already involved in the
long-term public infrastructure LoCaL EU Public Building Retrofit
projects. Platform being launched in Spain, Italy
and Hungary.
AfD French Development Agency (Agence Same as DFID and BEIS, combination of
française de développement, AFD) is a training, project preparation and
public financial institution that financial innovation for emerging
implements the policy defined by the countries. Bridges being built between
French Government. It works to fight AfD work in Western Africa and
poverty and promote sustainable Morocco as part of the MAVA
development. Foundation project (training in
Institut Français de la Méditerranée sustainable infrastructure finance),
managed by LoCaL.
Government Plan The Sustainable Building Plan federates LoCaL can complement through the EU
Bâtiment a broad network of building and real Public Building Platform project and
DurablePlan estate stakeholders around promoting through its various innovations:
Bâtiment Durable the implementation of energy and sourcing with subnational authorities a
environmental efficiency objectives. pipeline of building retrofit projects,
co-definition of innovative mechanisms
(e.g. SME-oriented EPC contracts,
awareness raising etc.)
CCFLA An alliance of over forty leading The EIT Climate-KIC co-authored the
organizations actively working to first mapping of its members activities
mobilize investment into low-carbon in 2016. Goal 12 supported projects are
and climate-resilient infrastructure in regularly featured in its
cities and urban areas internationally. communications. EIT Climate-KIC can
bring innovative solutions to meet the
needs identified by the CCFLA.
DACH GIZ GIZ supports the German Government GIZ Felicity has expressed interest in
in achieving its objectives in the field of our training hub.
international cooperation for
sustainable development.
IKI The IKI is a key element of Germany's Many unexplored collaboration (and
climate financing and the funding fundraising) opportunities: creation of
commitments in the framework of the emerging countries city finance labs,
Convention on Biological Diversity. training hub
Nordics Nordic Council of The Nordic Council of Ministers is the Goal 12 already supporting the Nordic
Ministers official body for inter-governmental co- Council of Ministers in building a
operation in the Nordic Region. Nordic Climate Finance Platform.
SIDA Sida is a government agency working Same as BEIS and AfD
on behalf of the Swedish government,
with the mission to reduce poverty in
the world.
Nordic Climate The platform has been established to LoCaL currently part of a project aiming
Finance Platform promote more efficient exchange and at creating a Nordic Climate Finance
channeling of information on Nordic Platform to facilitate knowledge
and international innovations and exchange and dealflow generation
emerging best practice related to
mobilizing climate finance.
EIT Climate-KIC has launched a Flagship, LoCaL which is a global innovation hub within the Decision Metrics
and Finance theme that aims to unlock climate finance for cities, identify options to raise capital, and
facilitate investment in fundamental low carbon and climate resilient urban infrastructure projects. LoCaL
recognises the demands of a booming urban population, globally, pose challenges for infrastructure,
11DRAFT WORKING DOCUMENT
buildings, energy, water systems and drainage, sanitation, waste management, housing and mobility. Cities
need to be resilient, and able to deal with climate risk and impact.
Responding to the identified barriers, LoCaL has highlighted three main priority areas: training and capacity
building, project preparation, and investment mechanisms.
There is also a clear link with the work of the Urban Transitions theme (Goals 1,2 and 3) and specifically the
Smart Sustainable Districts flagship which sits within that theme.
Training and capacity-building:
Knowledge sharing is needed on the different modes of subnational and local project financing including
newly-developed financial models, standards, instruments, and risk mitigation mechanisms. The sharing of
experiences and information on project financing can contribute significantly in shaping and rethinking the
various risks and issues implied by urban infrastructure development. Given that cities lack the internal
competences to access climate finance and prepare attractive projects to investors, a key pillar of LoCaL’s
strategy focuses on training and capacity building to help bridge this knowledge gap.
• LoCaL has launched a city finance dedicated training hub as part of the wider EIT Climate-KIC
learning platform, enabling the delivery of blended learning in the form of both online courses and
in person workshops for cities and project developers. First courses cover green bonds, result based
finance, and sustainable infrastructure finance for cities
• LoCaL secured funding from the MAVA Foundation to develop training courses on sustainable
infrastructure finance, which will be scaled up over the course of 2018 and 2019.
• The Training Hub represents an opportunity to leverage on our partners expertise.
Project Preparation:
Project preparation support has been identified by organisations such as the CCFLA as key in creating the
requisite conditions for bankable projects to emerge. Technical and capacity building support to the early -
mid stage of the project development cycle has become an urgent priority in order to generate pipelines of
low-carbon, climate resilient infrastructure projects. Having prioritized Project Preparation support, LoCaL is
interested exploring the gaps in urban project preparation steps specific to cities, particularly on what
hinders cities from designing low-carbon and resilient projects at speed and scale.
• Creation of the biggest project pipeline database with CDP in the form of the Matchmaker project.
Matchmaker identified +1000 projects coming from 362 cities globally. Access to the database is
now sold to investors.
• Launch of a Public Building Retrofit Platform, in order to accelerate investments in deep retrofit
across EU, securing engagement from Budapest, Bologna, Valencia and Copenhagen, as well as
Meridiam, a public infrastructure investor.
• Creation of district-level stakeholder engagement and project identification mechanisms (the
Neighbourhood Economics Project), leading to the identification of investment opportunities and
creating a scaling opportunity through the various districts EIT Climate-KIC is collaborating with.
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Investment mechanisms:
Extreme urban growth will drive demand for transport, water, housing and energy infrastructure. Given past
investment levels have not been high enough to support economic growth and development, adequate
financing must be provided specifically to urban areas now. This will require addressing both investor and
cities barriers and challenges, developing catalytic and innovative investment mechanisms which are
adapted to their constraints.
• Creation of standards and frameworks such as the Gold Standard Sustainable Cities Standard, a
result-based framework enabling climate finance mechanisms, baseline setting for commercial and
residential building green bonds issuance
• LoCal has supported the ‘City Finance Lab’, which is Europe’s first dedicated platform to help
develop innovative finance solutions for green urban projects. The City Finance Lab provides
technical assistance to the developers, while the project preparation and facility strand is building a
pipeline of bankable urban mitigation and adaptation projects, through a network of multi-
competence centres that evaluate the finance and technical expertise of urban projects.
• The City Finance Lab is working to engage cities and municipal finance stakeholders, through
tailored support from international climate finance experts, to develop finance that is longer-term,
more attuned to emerging risks and more efficient at delivering returns for the economy and wider
society. The City Finance Lab is working to leverage $500 million over the next five years in
additional finance for climate action in cities.
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2. Theory of Change
2.1 How can society tackle climate change through systems
innovation and transformation?
Scientific models tell us that if we are to avoid the worst impacts of climate change (above 2°C), Europe
must stop being a net emitter of greenhouse gases by 2050 at the latest. While there are some encouraging
signs of progress, we are currently only taking baby steps towards this target. To be on track, the evidence
is that we need to be cutting emissions at least six times faster than we are now. Gradual improvements are
not going to be enough to achieve the scale and speed of decarbonisation we need. Instead, we need change
that is much more radical; in the way all of us live, work, travel and play.
We believe that this challenge presents that world’s biggest, most exciting and most urgent innovation
opportunity. As Europe’s foremost climate innovation network, EIT Climate-KIC has the responsibility to act
and offer a Theory of Change 14 for how Europe is going to achieve its decarbonisation and resilience targets,
and create jobs and growth in a new climate-compatible economy. This must be credible, bold, inclusive,
radical and inspiring.
We are working towards an inclusive, climate resilient society with a circular, zero emissions economy. Our
economy won’t generate waste, won’t emit greenhouse gases and people will have the capacity to adapt to
a changing climate that minimises negative impacts. By 2050 at the latest, buildings, industry and transport
must not be contributing to emissions and land-use should be net-zero emissions too. By 2050, everyone
should have the ability and the capacity to avoid, reduce and minimise remaining climate change impacts.
But 2050 may be too far in the future to be motivating, so we have set nearer term, 2030 Climate
Innovation Impact Goals that we will contribute to achieving. These serve as a lightning-rod for our
combined efforts, pinpoint where innovation is most needed and provide an indication of whether we are on
track for 2050. These impact goals have been chosen by our community for (a) their consistency with the
Sustainable Development Goals, (b) the precise nature of Europe’s decarbonisation and resilience challenges
and (c) where our collective expertise is concentrated. These goals are focused on cities, land-use, industry
and finance.
Our impact pathway
Transformation of whole systems (such as those detailed by our impact goals) can be achieved by exposing
the weaknesses of existing systems and nurturing something better. We can contribute to this by
unleashing a series of strategically-targeted experiments on the different forces that shape such systems.
For example, the future of urban transport in Europe will be influenced by policy and regulation, finance and
investment trends, people’s behaviours and choices, and the technologies and skills people possess. EIT
Climate-KIC will build on our existing work to assemble a portfolio of experiments that enact on these forces
simultaneously; testing and learning what works and helping to create a stronger agency that leads to
change. We want to catalyse and instigate options, momentum and excitement that gives Europe a chance
for achieving 2050 targets. Innovation in just one area alone will not be enough, so instead we must connect
communities of change-makers across Europe and beyond, to reach tipping points quickly.
14 A Theory of Change is essentially our hypothesis for how change happens and the pathways we need to follow to achieve our vision.
14DRAFT WORKING DOCUMENT
Table 1 shows EIT Climate-KIC’s Innovation Impact Goals, with cities, land-use, industry and finance
describing the systems requiring change.
Table 1. EIT Climate-KIC’s Climate Innovation Impact Goals (1-12)
Around each of our themes and impact goals, our portfolio of experiments focuses on levering change in
finance, policy, skills, behaviours, and technologies. It builds on existing work to include the following:
• Experiments designed to accelerate learning and foster collective action in networks of high
ambition places and organisations that are committed to transforming systems (climate innovation
ecosystems and flagships).
• Testing innovative ideas, whether through start-up businesses or early-stage, exploratory
innovation projects (entrepreneurship and early stage innovation).
• Trialling bigger demonstrations of innovations and pathways to scaling their uptake and impact
(larger stage innovation).
• Taking the best and brightest and nurturing their skills to be leading climate innovation change
agents.
• Exploring how communications, collaboration platforms, knowledge and learning processes can
influence people’s behaviours and catalyse social movements.
We will continually assess the results of these experiments in terms of the prospects for change, and
regularly adapt our approach.
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2.2 Our Theory of Change in Impact Goal Area 12
Figure 3. The Theory of Change in Impact Goal 12 Foster bankable green assets in cities
16DRAFT WORKING DOCUMENT
3. Our Portfolio and Approach
3.1 How does EIT Climate-KIC understand the system
associated with the impact goal?
System Mapping
To develop and set out the theory of change at the goal level, EIT Climate-KIC has followed a process
facilitated by the system change and sustainability non-profit Forum for the Future. The stages of this
process are illustrated in the figure below. It starts with a review of the current articulation of the goal and a
discussion on what the change the goal is creating is. Through a set of questions EIT Climate-KIC built its
understanding of what the system is that we need to create change within, in order to further our goal and
to set clear in-out scoping boundaries for this system. The next stage was to map this system as it currently
is. This was done onto the Multi-Level Perspective Framework, an analytical approach to describe processes
of innovation and transitions in socio-technical systems with the aim of better understanding the context
for system innovation projects. The mapping was conducted in facilitated sessions in person and in virtual
work spaces.
Identifying Leverage Points
Through discussion and EIT Climate-KIC’s existing analysis the next stage was to identify potential leverage
points in the current system that if activated would create change towards the outcome of the impact goal.
We then rated the current ability of EIT Climate-KIC to activate each leverage point against 'resources' and
'power'. Resources include skilled staff, financial funding; power includes remit, agency with the
stakeholders involved. This enabled us to understand which leverage points we are already equipped to
have high impact with and those that we would need to increase power and/or resources to activate.
Reviewing the Portfolio Hypotheses
We then reviewed the hypotheses within our current portfolio of projects and initiatives that support the
goal to review which leverage points these currently activate and how they cumulatively impact the goal.
Theory of Change
Recording assumptions ensures that there is an understanding of what those developing the theory of
change are relying on outside of the agency they have to run their portfolio of work that is nonetheless
important to its success.
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Figure 4. Systems Map on Impact Goal 12 Foster bankable green assets in cities
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Then we rated the current ability of EIT Climate-KIC to activate each leverage point against 'resources' and
'power'. Resources include skilled staff, financial funding; power includes remit, agency with the
stakeholders involved. This enabled us to understand which leverage points we are already equipped to
have high impact with and those that we would need to increase power and/or resources to activate.
Based on the analysis of leverage points and the cumulative impact of our current portfolio EIT Climate-KIC
then assessed which leverage points to include in our theory of change for the goal, which current activities
we wanted to continue in the portfolio and what new activities we wanted to introduce, reviewing this
against the ambition of the ultimate impact goal. We also recorded the assumptions EIT Climate-KIC is
holding that need to be true for the theory of change to reach the impact goal and the wider enabling
conditions they relied upon. Below are the assumptions underpinning the systems map:
• There isn't enough volume of projects
• Post economic crisis, volatile finance markets, reduced access to debt and trend towards raise of
interest rates
• Cities struggle to translate climate ambitions into investment plans
• The technologies needed are already available but not all scalable
• Low carbon infrastructure is politically attractive but not as high as other priorities
The process of developing a Theory of Change results in a number of choices for EIT Climate-KIC:
• Are we a policy advocacy organisation?
• Should be build a city network?
• Ensure we can build this around the projects that are currently being developing under Urban
Transitions. Where LoCaL can be the financing for these, within our comprehensive "city offer"
• What is the relation with national governments?
• How are we best placed to engage with project prep, given the costs/time of preparation?
• Are we service provider, or should we fund those support?
• What are we able to deliver and do we want to deliver ourselves and what through our partners (we
might also be more the matchmaker/facilitator instead of really provide TA for instance)?
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Figure 5. Leverage Points of Impact Goal 12 Foster bankable green assets in cities
3.2 How are we currently intervening in the system?
Transforming entire systems does not only require a good understanding of the systems themselves, but
also a good understanding of how EIT Climate-KIC is currently intervening in them. To capitalise on the
relations and inter-connections between the interventions, we are taking a much stronger “one portfolio
approach” in which we treat all we do as contributing to one or more Impact Goal (s).
On the following page, we have included a graphical representation of our 2016-2017 portfolio addressing
the Impact Goal to provide you a snapshot of the work we have done over the past couple of months. You
will see funding, intervention types (types of programmes), driving force focus, geographic spread and
stakeholder type breakdowns - the sort of information that can be valuable in making choices about where
we put our efforts and resources.
20DRAFT WORKING DOCUMENT
Goal 12: Foster bankable
Total Funding: Key Driving force
€6,800,000
Information / Market
Policy
green assets in cities
Knowledge structures
Category
Total funding Stakeholder Individual No driving
€
behaviour Finance force
Technology Skills Startup
= 1 intervention
Organised by Intervention Types Organised by Single Interventions
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77 €2,286,129
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Flagship: 2 1
LoCaL
€6m
€746k €28k €11k
Total Interventions:
Organised by Stakeholder Types 20
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€2.3m €1.5m
€1.4m €1.3m €257k €28k
Organised by Geography Organised by Top 10 stakeholders
South Pole Carbon Asset Management Ltd. / Switzerland
DACH Nordics Mediterranean UK & I €1,232,017 (13)
Suez Groupe SAS / France
Switzerland Germany Sweden Norway Denmark Spain France Italy UK
€777,184 (3)
22 19
1 4 4 11
14 CDP Worldwide / United Kingdom
4
2 €552,969 (6)
€2m €1.8m
Chalmers Tekniska Hogskola Aktiebolag / Sweden
€349,275 (1)
€490k €410k €365k €416kDRAFT WORKING DOCUMENT
What is important to note is that while an intervention might be addressing multiple driving forces, the
current view only captures one of them (the one we considered as main contributor) due to the static format
this is taking. See ANNEX 1 for more background information on the data and design of the visuals.
A few highlights to note from the preliminary analysis are:
• The Low Carbon City Lab Flagship (LoCaL) is the key driver, while the part of the Building
Technology Accelerator Flagship (BTA) is contributing to the Impact Goal as well
• There is a rather even distribution of funding across diverse stakeholder types, which are mainly
located in Switzerland, France and the UK
• LoCaL also influence “Finance” and “Market structures” Driving Forces which are not visible in this
version of the portfolio view
• There are particularly strong synergies with Impact Goal 10: Mainstream climate in financial
markets through LoCaL
This is just the beginning. For the next development round, we are exploring ways to make these portfolio
views more dynamic and interactive to facilitate learning across the EIT Climate-KIC network.
3.3 What have we learned from our interventions?
Initiatives that manage to bring investors and cities together and involve investors early in the project
development seem to be more successful. On the one hand, such initiatives make the project requirements
from an investor’s point of view clear to city officials. On the other hand, such initiatives can succeed in
bringing the investor on board earlier in a project phase (e.g., planning, construction, etc.), thus bridging the
classic funding gap in the development phase. Investors must be given the incentives and tools to take
responsibility for the investment gap as their unwillingness to invest at early stage, support testing and
learning and work on structuring is on par with cities current lack of capacity to deliver a pipeline.
The success of making green city assets bankable depends substantially on the general interest rate and
hence both the economic environment and the creditworthiness of a city. In the wake of the financial crisis,
Western Europe and the Nordics have seen very low interest rates, which contributed to a favourable
investment environment. Although still insufficient (e.g., regarding EU targets), the situation tends to be
even worse in Eastern and Southern European cities, that face deterring levels of interest rates (i.e. return
expectations of investors). It should be noted that even in this prime environment, capital has not been
invested at scale, representing both a policy and a financial sector failure.
Matchmaker
Matchmaker 15 is a collaboration between EIT Climate-KIC and CDP that seeks to “bridge the gap between
cities and investors, bringing them together to help ensure funds are channelled to green projects, and
accelerate climate action”. To help cities attract investment and advance implementation of these low-
carbon and climate-resilient infrastructure projects, Matchmaker offers project data disclosure and
stakeholder consultation. Subscribers (investors) get access to information on low-carbon and climate-
resilient infrastructure projects worldwide through a specialised project dashboard derived from the unique
15 http://www.climate-kic.org/success-stories/matchmaker/
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CDP Cities disclosure platform and our partners. Matchmaker has identified +1000 projects from 362 cities
in 2017, representing USD+50 billion of investment opportunities.
Climate-related activities in cities are often isolated from economic development outreach, creating
communication and information barriers between cities and potential investors. Matchmaker bridges this
divide by working with cities to highlight projects in flood control, waste management, sustainable
transportation, renewable energy, water management, and energy efficiency. Through Matchmaker, cities
can showcase these planned projects to the finance sector in a way that better positions them to attract
investment and therefore mitigate against and adapt to climate change.
Neighbourhood Economics (accelerating district finance)
This project Neighbourhood Economics (NE) intend to unlock climate and sustainability investment in 2
neighbourhoods in Bologna and Malmo covering areas as renewable energy, energy efficiency,
transportation, waste, mobility and social inclusion. The NE project has developed a stakeholder
identification and engagement methodology, as well as a project bankability assessment framework. The
project has already identified a 30m€ investment opportune it in commercial building retrofit.
The NE can pave the way for streamlining project identification and bankability-oriented project preparation
at district level, to be rolled out in any interested eco-district willing to attract finance for climate action.
WasteMiti2
WASTE MITI² is designed to address current barriers to implementation of climate-friendly waste
management practices. In 2017, WASTE MITI² project addressed the identified knowledge gaps and
development hurdles required to support future commercialization of complementary services and
solutions, in particular for the landfill sector. As part of the 2017 stream of work, a Quick Scan Service was
developed. It consists of quantifying GHG emissions fluxes, proposing mitigation strategies and evaluating
the benefits of mitigation. ln 2017, this new business entered the landfill market. The Quick Scan service has
been sold for 4 landfills in the UK. Moreover, an offer has been made for two measurements in Qatar. Given
the reach of Suez as a multinational corporation, the WASTE MITI² project has potential to scale globally.
The Quick Scan Service can mobilize global waste management operators in understanding their emissions
hotspots and addressing them. This project represents a successful knowledge transfer between Research,
SMEs, large corporates and NGOs. The Quick Scan Service brings value to its customers by improving their
sites managing, reducing their exposure to lawsuits and by opening new funding opportunities through the
use of Climate Finance. The methodology developed by SUEZ can now be used in a result-based finance
context, i.e. being used to estimate precisely the amount of emissions reductions generated by a waste
project (sales of carbon credits).
While since its creation in 2015 LoCaL has grown portfolio of more than 35 innovation projects with many
instances of success, key learnings around what has or hasn’t worked have emerged from various areas:
• Support to point innovations and interventions (e.g. a one-off decision-making tool) whose overall
success is limited by the ability of the carrier to penetrate a larger market have proved difficult to scale;
• A lack of early engagement with key multipliers and players such as investors, EU funds/programmes,
EU city networks and relevant policy makers has proven to be a key gap in the EIT Climate-KIC partner
ecosystem, particularly in the city space where the input of investors and policy makers are key
variables in the equation for unlocking local climate finance;
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