Financing Solutions for Planetary Health High-Level Meeting

Connecting global & regional finance to projects

Bellagio, ItalyFebruary 25th, 2015

By: Christoph Waldersee,The Ecological Sequestration Trust

christoph.waldersee@ecosequestrust.org

1.1

1.2 Local is the new global

We need to collaborate for building a “Sustainable Society for Living”

Teamwork on all levels:On city level:

Master Plan for “Living”

and how to pay for it

(trusted tariffs)

On service level:Public, Private &

Community Sector: comprehensive

access to services

Cross sector communication & capacity building – integrated systems thinking & design

Integrated local development plan

Tangible linking of social/wellbeing benefit to physical intervention in the public services

Integrated planning of adapted systemsof technology & infrastructurethen split into individual projects

Mobilise adapted finance & investmentthen split into bankable projects

Tool for the Public Sector and

for Utility Companies:regional data cloud

and performance KPIs

1.3 Enter Cross Sector “Systems” Thinking

Cross sector “systems” thinking:

• Needs cross sector communication & learning on how to pay tribute to systems

• Uses an integrated systems thinking and design approach

• Understands both ends of the decision making process, for example in:Energy, Water, Housing, Transportation, etc. and Finance

• Honors checks & balances of the communication & integration process alongside the systems approach

• Invites all parties to participate in this process:Administrators, Citizens, Technicians, Financial Sources & Investors

2.0 Green Finance in General

1. What constitutes Green Finance?

2. How to then connect global & regional finance to projects?

Give the citizen a word in it,not only as a voter

2.1 Green Finance in General (1)

The European SRI (socially responsible investment) retail funds market has continued to grow over the 12 months from June 2012 to June 2013:

Assets under management (AUM) are now US$ 122 Billion(in over 920 funds)

While retail SRI is so far a niche (only 1.7% of the total European AUM) its significance varies from country to country, thus showing different levels of maturity of national industries, but it is growing.

Give the citizen a word in it,not only as a voter

2.2 Green Finance in General (2)

• Through June 2014 a record US$16.6 Billion in green bonds have been issued in 2014, driven by a surge in corporate self-labelled bonds and high volumes from large international institutions like World Bank

• The market is growing fast: at its current pace, total volume in 2014 will surpass US$ 40 Billion by the end of the year, triple 2013’s volume

• It still constitutes only a small fraction of the bond market: Global green bond issuance in 2013 was about 1% of the value of the US corporate bond issuance, which was over US$1.4 Trillion

2.3 Green Finance in General (3)

However:

The entrance of self-labelled green corporate bonds – bonds issued by corporations with proceeds ring-fenced for green investments – has opened up a new source of capital for the market.

So has the emergence of innovative asset-backed securities like distributed solar-backed bonds pioneered by SolarCity in late 2013.

In October 2014, SolarCity announced it would be offering up to US$ 200 Million in solar bonds to launch a new online website to buy the debt, the first registered public offering of such bonds in the United States.

2.4 Green Finance, Example 1

2.5 Green Finance, Example 2

The Western Riverside Council of Governments – a municipal agency in California – worked with Deutsche Bank to issue a first-of-a-kind securitised Property Assessed Clean Energy (PACE) bond.

The PACE programme allows governments to provide property owners upfront capital for energy efficiency improvements, which are in-turn repaid through additional charges on homeowner property taxes.

2.6 Green Finance, Example 3

In other words:

• Institutional investors, banks and private equity providers are constantly seeking new local investment projects.

• JP Morgan within its Impact Investor Survey reported in 2014 that its respondent group of 125 investors committed US$10.6 Billion in 2013.

• These intend to invest 19% more in 2014 and citing a “shortage of high quality investment opportunities with track record” as the most limiting characteristics of the market today.

2.7 Green Finance, Example 4

And:

• The insurance industry has US$9 Billion available for climate adaptation projects, in which they would contribute 40% of total cost.

• The insurance industry believe that 60% of disaster losses could be mitigated through adaptation.

• Disaster loss potential is hence for the insurance sector a requirement.

• Therefore the insurance sector are natural investment partners for adaption projects, otherwise not easy to finance.

3.0 How to get there?

How to get there?

How to tap that market?

What attracts the funding?

So, how to connect global & regional finance to projects?

3.1 Teamwork on all levels (1)

On city (e.g. local) level:

• A “Master plan for Living” in each city as the lowest planning entity

Ask:• How to & who will finally pay for it: The Citizen

• Therefore affordability studies on services (leading to trusted tariffs)• Communicate it to the citizens (= customers)

The political decision making remains:Is Operations & Management to be entrusted to the expert?In other words: Could/should it be done by the private sector?

3.2 Teamwork on all levels (2)

Cooperation with the next higher level: regional, national, international

What the respective lower level needs to know for its own success:• What is the development plan on the next higher level?• How is it linked to the social & well-being benefit and to the physical

intervention in the public services (e.g. any conditions stipulated)• What is the regional or national or international “hardware” ?

• Then: What are the factor & transaction costs?• What are the subsequent costs of legacy (environmental & societal) damage?

• Then: Reflected in an integrated technology, infrastructure & finance planning?• What does the subsequent plan for project implementation look like?

3.3 Teamwork on all levels (3)

• This will automatically serve to arouse & mobilise the necessary interest for finance, operations & management from the private sector

• A locally (city level) decided mix of public-private responsibility, asset infrastructure ownership, related obligations & acceptable profits

• A guaranteed communication channel between the public, the private investor/operations & management company & the customer is helpful

• Regular & open checks & balances process support trust into the system

• This is supported by data on KPI fulfilment as it informs all, the citizen and the utility companies, on the real performance, its costs & benefits

3.4 Teamwork on all levels (4)

On the national level:

• Link the planning & integration process nationwide

• Create thus opportunities for the private sector to create & support economies of scale

• This allows the private sector to make a profit, within a defined, socially sustainable though still attractive corridor, legally set framework

• Competencies may need to be adapted & re-arranged throughout the set-up of the planning & control mechanism (on all levels)

• Again: supported by data & KPI fulfilment this informs all, the user, e.g. citizen and the utility companies, on the real performance, its costs & benefits

4.0 What is the market reality?

How is it happening?

4.1 What is the market reality (1)?

Last week Citi Corp. has announced to spend US$ 100 Billion over 10 years for “lending, investing and facilitating” activities focused on mitigating climate risks and on meeting other sustainability solutions.Citi’s financial commitment is part of a larger five-year plan the bank has launched in New York. It outlines three “strategic priorities” for the bank that it says aligns the company’s corporate and sustainability strategies: 1. Combating climate change2. Championing sustainable cities3. Promoting social progress, including “universal human rights.”

This can also be seen as an encouraging example on what the private sector recognizes as its future field of market interest and growth area.

4.2 What is the market reality (2)?

In 2007, Citi Corp. already made a US$ 50 Billion pledge to invest over 10 years into, and finance projects that reduce global carbon emission.

It met that goal last year, three years early.

4.3 What is the market reality (3)?

“We're only going to do business that makes sense for Citi as a regulated financial institution”, said Marshal Salant, global head of Citi Alternative Energy Finance. “We're not going to do business that's not economic just to hit an environmental goal. But we will look at more possible alternatives, and if they pass our hurdles we're going to pursue them.”

4.4 What is the market reality (4)?

Citi also focusses its sustainability efforts on cities in general.Citi’s special cities program draws upon the company’s expertise in providing financing and advisory solutions to cities worldwide.Citi has partnered with the WRI Ross Center for Sustainable Cities and the C40 Sustainable Infrastruture Finance Network to find new ways to build & finance infrastructure in cities.“For example, instead of doing a giant, multi-billion-dollar wastewater treatment plant, cities are doing things like changing the tax code based on permeable square footage that a building occupies”, said Pam Flaherty, until recently Citi’s director of corporate citizenship.“You take those, and then you take different kinds of innovative finance, and the challenge for cities is how to put those things together.” she added.

4.5 What is the market reality (5)?

What does it look like from the other side, the debtor?

Dakar is selling a municipal bond

• The US$ 40 Million issuance was supposed to go on sale last week. It will pay for a new market hall to which more than 4,000 street vendors will be relocated.• However, the National Government of Senegal has blocked the city’s bond sale, for the time being.

It proves the importance of running an overall integrating and collaborative planning process and that a change in systems thinking has still some way to go!

Thank you