Financing the net-zero transitions in cities

'They spoke enthusiastically of carbon-negative agriculture, clean energy, fleets of sailing ships, fleets of airships, carbon-based materials created from CO2 sucked out of the air and replacing concrete; thus direct air capture of CO2, a necessary component of the drawdown effort, would provide most construction materials going forward. ... you could literally fill a medium-sized encyclopedia with the good new projects already invented and waiting to scale. ... Eleven policies would get it done... carbon pricing, industry efficiency standards, land use policies, industrial processes emissions regulations, complementary power sector policies, renewable portfolio standards, building codes and appliance standards, fuel economy standards, better urban transport, vehicle electrification, and feebates. ... Really, there were no mysteries here, in either the nature of the problem or the solutions. "And yet it's not happening," Mary observed.'

~ The Ministry For the Future, Kim Stanley Robinson p250-252

As part of Vancouver's?Greenest City Action Plan, our team at the Vancouver Economic Commission was tasked with delivering a green economy strategy, focused on green economy business programming, from innovation labs, capital attraction programs and cluster development, to technology demonstration programs, knowledge mobilization, and action research. We worked in lockstep other teams at the City of Vancouver, most critically the Sustainability Group, Buildings and Transportation, as well as Engineering and Social Planning. Between 2010 and 2020, our efforts helped to grow green jobs 90 percent.

Vancouver has since declared a climate emergency, and has accelerated its decarbonization plans to achieve a 50 percent reduction by 2030. One billion people live in jurisdictions that have declared a climate emergency, including over 38 million residents of Canada which declared a climate emergency in 2019 and is committed to a 40-45 percent reduction in emissions federally.

A 2021 Queens University report estimated that a 40-45 percent reduction in Canada’s emissions would require an investment of $201 billion. Canada is already warming twice as fast as the rest of the world, and the $201 billion does not include the additional billions in infrastructure investments Canadian cities need to prepare for climate impacts such as extreme heat, wildfires, flooding, and sea level rise, which the Federation of Canadian Municipalities estimates at $5.3 billion per year.

Government cannot finance these investments alone. In order to catalyze the transformation required for these plans, financial institutions have an important role to play in unlocking private capital to deploy clean solutions at scale and facilitate the massive physical transition to net-zero that is required.

Vancouver Green Economy Snapshot 2010-2020

1. Cleantech and capital programs

Programs to connect cleantech, circular, and social impact founders with capital. E.g. Capital Mentorship Program,?Angels for Climate Solutions.

Marketplace platform to enable local governments to access innovation (working within procurement rules). Initially a 'Green and Digital demonstration program' that evolved into?Project Greenlight, a platform for innovation open to other government agencies, the port and transit authority, and private sector partners.?

2. Small business supports

Programs to support small businesses with their efforts to lower their carbon footprint, including Thriving Vancouver knowledge platform,?reverse pitch sessions, industry innovation labs, and a?Climate Business Pledge?in the lead up to Paris in 2015 (businesses signed up to commit to 100% renewable energy).

3. Data driven insights

Data-driven approach focused on measuring green jobs and summarized every two years with a green economy report. Vancouver Green Economy 2018 report:?https://vancouvereconomic.com/focus/green-economy/

Economic Transformation Lab?as a platform to collaborate with academic institutions on green, resilient, and circular projects and data.?

4. Green buildings

Vancouver has one of the greenest building codes in North America (recently bringing in?embodied carbon?requirements). Created a model to help investors understand the huge market for clean technologies?(including heat pumps, heat recovery ventilators, high performance windows etc) that is driven by these building codes.

5. Infrastructure investment and policy

Vancouver has been carbon neutral since 2010 and there are a number of corporate infrastructure projects including?Green Fleets,?as well as policies that have driven market transformation, such as requiring EV infrastructure in new developments since 2008.

6. Post secondary education

Partnerships such as?City Studio, a collaboration between 6 local?educational?institutions and the City of Vancouver which harnesses post secondary students to work on green and other related urban innovation?projects.        

One approach is through blended finance, with the simple objective of leveraging public capital, sometimes on a concessional basis but not exclusively, to improve the risk-return profile and mobilize more private investment towards green projects. The Canada Infrastructure Bank was set up with this objective and a budget of $35 billion. About $19.4 billion in projects has been approved, along with $7.2 billion announced from private and institutional investors for joint projects. The Government of Canada also issued its inaugural 7.5-year $5 billion green bond earlier this year, as well as a new $15-billion Canada Growth Fund, with a stated objective to attract at least $3 of private capital for every public dollar invested.?

In addition to unlocking private capital, investors must ensure that the negative risks and externalities associated with investments into carbon intense industries are priced into investment decisions. There is a fiduciary duty of both corporate directors and pension trustees to identify, manage, and disclose these risks. The UK has made Task Force for Climate-Related Financial Disclosures (TCFD) disclosures mandatory across the economy, but a proposal from the Canadian Securities Administrators (CSA) may be put on pause. The proposed national instrument does not mandate reporting of Scope 3 or even Scope 2 emissions, or disclosure of ‘scenario analysis’ (which TCFD considers fundamental to the identification, measurement, and management of risk).

To prevent greenwashing, financial tools must be accompanied by a clear green taxonomy that identifies emissions-reducing projects. The EU has such a taxonomy but the effort to create a made-in-Canada taxonomy had to be reset recently, because of fundamental differences of opinion on whether the taxonomy should include ‘transition’ activities that would actually increase investments in fossil fuels. The government-appointed Sustainable Finance Action Council is now reviewing the approach to a taxonomy, although the group is comprised of representatives from banks and institutional investors without broader civil society representation to strengthen its processes.?

Where does this leave cities, like Vancouver, that sorely need investments to support their goals for emissions reductions and climate-proof infrastructure? Globally, cities represent about 70 percent of emissions yet local governments like Ontario get just 9 cents of every dollar collected in taxes. A number of global initiatives are trying to tackle the challenge and channel finance into high-quality low-carbon and climate-resilient urban infrastructure projects, including the City Climate Finance Gap Fund and the Cities Climate Finance Leadership Alliance, which assist cities with capacity building and prioritizing investments. C40 shares six approaches to help cities drive climate finance, from TCFD disclosure to help mainstream climate considerations into budgeting process, to city scale carbon markets, investment funds, or even Green Banks.

More than 75 percent of cities have set more ambitious GHG reduction targets than their respective national governments, and this climate leadership presents a massive need for innovation in climate finance. In Vancouver, our Green Buildings Market Forecast and associated Shift investment tool set out a pathway for realizing a $3.3B market opportunity for green building products and clean technologies, from heat pumps and heat recovery ventilators to high performance windows and doors. The Angels for Climate Solutions program supports investors as they learn to navigate the ins and outs of early-stage investing, while helping founders prepare for the capital-raising process. Using challenge-based calls for innovation, Project Greenlight enables public and private sector members - including cities, ports, real estate developers and transit authorities -?to rapidly source, screen and onboard clean solutions, while the Economic Transformation Lab acts as a collaboration platform to work with academic institutions on green, resilient, and circular economy projects and data. The new Zero Emissions Innovation Centre will leverage its $21.7 million endowment and a combination of impact investing, granting, partnerships, and capacity building to scale innovation related to green buildings, renewable energy and transportation.

While the climate emergency is daunting and overwhelming, I'm excited and energized by the potential for transformative action at the intersection of cities-decarbonization-finance, and if you would like to connect, I'd love to talk!

Thanks for reading, and I'd love to hear your comments below.