Webinar: What does successful Net Zero levelling up look like? Getting finance into cities and regions

The APPG on Sustainable Finance held a virtual roundtable discussion on the 20 July, to explore the crucial issues of what successful Net Zero levelling up looks like and how to mobilise public and private finance into low-carbon infrastructure and projects across our cities and regions. Watch the recording here.

Kevin Hollinrake, Chair of the APPG on Fair Business Banking and the Conservative MP for Thirsk and Malton, chaired the discussion. He began by emphasising the need to create new green industries, skills and jobs to level up the economy and deliver the Net Zero transition, requiring both public and private finance. Kevin suggested that the UK Infrastructure Bank could be critical directing this flow of finance to place-based low-carbon projects, by kickstarting early-stage projects which are not yet commercially viable. This argument that the UKIB should provide development capital to de-risk projects to encourage private investors to come on board is firmly made by UK100 – the APPG’s Secretariat.

Net Zero levelling up means a Just Transition, ensuring that the Net Zero transition does not disproportionately impact the most vulnerable people – Marvin Rees

 Marvin Rees, Mayor of Bristol, spoke next about how levelling up essentially means a Just Transition, which ensures that those currently working in dirty industries are provided with access to good green jobs and that low-income groups do not bear the costs of transitioning to Net Zero. He emphasised that levelling up must not only be applied geographically, as there are also vast inequalities within Southern areas, meaning that disadvantaged groups within cities like Bristol would be left behind. He argued that levelling up means rebuilding our cities to minimise our contribution to the likelihood of future global shocks – climate shocks, economic shocks, health shocks and social shocks. He highlighted the imperative that the international community must not leave COP26 merely with targets but rather with commitments on what we will do to meet these targets.                      

He argued that to deliver Net Zero all climate announcements must:

1. Be attached to concrete places where existing housing, transport and energy systems must be transformed through partnership between national, regional and local governments.
2. Come with commitments to sufficient finance to actually deliver the transition. National government must make it easier for local governments to raise money, rather than requiring their financing mechanisms to go through Treasury approval first, which slows down action.
3. Be tied to clear deadlines to mobilise action and to enable us to assess whether we are on track to meet our commitments.

Marvin argued that there is ample private finance looking for low-carbon investment opportunities, but due to underfunding and so a lack of staffing capacity, local authorities are struggling to develop investable propositions for private partnership. As Bristol City Council has a larger Energy team than most councils, they have been able to develop City Leap – which has developed invitations for £1 billion of investment through long-term partnership with business on designing and building energy infrastructure for low-carbon energy production, storage and distribution.

He outlined three key asks that local and regional government has of national government:

1. For the U.K Government to front-load investment for decarbonisation.
2. To make finance predictable and long-term rather than based on competitive bids which only certain local governments can win, while others receive nothing.
3. To ensure that climate policies are integrated with levelling up and tackling poverty, making sure that we have a Just Transition to Net Zero.

There is a golden opportunity in recognising cities as an integeral and leadership level of governance in delivering on climate change – Marvin Rees

The event next moved onto roundtable discussion led by questions posed by the chair, Kevin Hollinrake MP. Polly Billington, Chief Executive of UK100, addressed a question on the U.K Infrastructure Bank (UKIB), highlighting that the Government hasn’t yet stated whether the UKIB will provide development capital for local authorities. She explained that it is crucial that capital is invested at the early stage of market development to absorb early-stage financial risk and provide patient capital, which will then mobilise private investment. Polly gave the example that Leeds City Council has taken on the risk of developing a district heating network because the market wouldn’t take that financial risk as district heating is at such an early stage of development. The UKIB should provide funding to local governments to develop these sorts of projects at a much larger scale than is currently possible.

Stephen Peacock, Executive Director of Energy and Regeneration at Bristol City Council, pointed about that Bristol has had to take on significant financial risk to develop their City Leap Partnership for private investment. He argued that not all councils are willing to take such financial risks, and that the provision of predictable, front-loaded and patient capital by the UKIB and Government is crucial to enable local governments to develop investable propositions for low-carbon projects on a large and long-term scale.

An attendee raised the question of what role pension funds can play in directing finance away from fossil fuels and into place based, low-carbon investment. Sarah Teacher, Executive Director of the Impact Investing Institute, raised the issue that pension fund providers are often unaware of local opportunities for investment. She explained that the Impact Investing Institute is working upon facilitating dialogue between local authorities and pension funds so that investable propositions can be developed and invested in. 

Ryan Jude, Associate at the Green Finance Institute, introduced their local climate bonds initiative, which aims to mobilise people’s savings into low-carbon investment in their local areas. The Green Finance Institute is looking to work with more local authorities, who would issue bonds in which the funders are local residents, which would engage local people in the Net Zero transition in the area. The first climate bonds initiative launched in West Berkshire, and investors were given the option to forego interest payments on their investments to help local authorities to spend more money on local infrastructure, leading one fifth of residents to forego receiving interest in the interests of their local community. 

Kaisie Raynor, Climate Change Lead at Royal London, provided a financial sector perspective on how it is currently extremely difficult to invest in the place you live, while you can invest in cities across the world. She argued that Government regulation within this space is essential, for example to financially guarantee initiatives like municipal green bonds. She argued that we need climate bond type initiatives to be scaled up, to enable large-scale low-carbon investment by shareholders and pension schemes.

Local Governments as place-convenors are in a position to be able to value the co-benefits of low-carbon investent and also to mitigate possible negative impacts of the Net Zero transition – Cheryl Hiles

Cheryl Hiles, Director of Energy Capital at the West Midlands Combined Authority, spoke about the WMCA’s Net Zero Neighbourhood prototypes project. This project is designing Net Zero places and considering how to make them scaleable and how to harness the co-benefits of investment, including economic, health and social benefits. She raised the WMCA’s suggestions for national Government to consider to drive the Net Zero transition, which can be found here.

Stephen Peacock raised a key point underpinning the entire conversation – that currently local authorities must send all their proposals for financing local projects for the Government to review, which slows down the process of developing partnerships with investors to deliver low-carbon systems and infrastructure for their communities. He called upon the Government to give local governments the power to raise finance for their projects:

We’re accountable to the people of Bristol, but we can’t fix the flood problems of Bristol, because we’re reliant on decisions being taken 180 miles away in Westminster. Give us the opportunity to make the decisions and fund them – Stephen Peacock

Throughout the discussion there was consensus between local government officers and those working in financial institutions, that for finance to flow to place-based, low-carbon investment, local governments must be given more powers, more funding to develop their internal capacity in order to develop investable propositions, and the power to raise finance through private partnership.

Resources 

UK100 comprehensive report on Local Authority Powers and what national regulation limits them

The Impact Investing Institute’s place-based impact investing project

The Green Finance Institute’s local climate bonds initiative

UK100’s work on how the UKIB can best support the development of place-based Net Zero pathways