Session 6.4: Building a

funding strategy for circular

economy projects

Gianni Carbonaro - Kieran Kearney

Municipal & Regional Unit,

Advisory Services Department

European Investment Bank

Overview

• Urban challenges and the impact investing paradigm

• 2007-2013 JESSICA strategic investing: The case of the

London Green Fund

• Potential sources of financial and non-financial support for

circular economy investing:

Urban challenges and the

impact investing paradigm

The global urban challenge

YEAR:

% OF URBAN

POPULATION 30% 70% 60% 50%

1950 2010 2030 2050

9,2

(6,44)

8,3

(4,98)

6,9

(3,45)

2,5

(0,75)

The global distribution of top 400 "urban areas" with at least 1,000,000 inhabitants in 2006

The need for strategic impact investing • The core element is to have efficient, productive, attractive and livable

cities characterized by low maintenance/management costs and low “break-even point” on fixed assets

• Cities need clear objectives, strategic planning, a roadmap, governance, technical data and systems to tackle market distortions/ long-term risks - managed through strategic impact investors.

• Circular economy impacts – need for strategy, skills and metrics

2007-2013 JESSICA strategic investing: The case of the London Green Fund

What is JESSICA?

JESSICA: Joint European Support for Sustainable Investment in City Areas

• A centrally-funded technical assistance initiative of the European

Commission and EIB supported by CEB in 2007-13 programming period

Mission: To assist Managing Authorities in defining long‐term strategies for:

• sustainable urban development through investment activity

• financed through investing some of their EU structural fund allocations

in “revolving” financial instruments.

Support for projects including: urban infrastructure, heritage or cultural sites,

redevelopment of brownfield sites, creation of new commercial floor space for

SMEs, IT and/or R&D sectors, university buildings, energy efficiency

improvements.

EIB role in implementing JESSICA

• Technical assistance, feasibility studies, evaluation studies to

establish viability of implementation;

• Supporting/contributing to networking platforms and “horizontal”

studies to promote the rollout of UDFs throughout Europe;

• Management of JESSICA Holding Funds; and

• Providing additional funding where possible and appropriate,

normally at project level.

JESSICA Cycle and success factors

Strategy

Stakeholder Identification

Incentive Structure

UDF Selection

Communication & Marketing

Project Selection

• The London Green Fund (a JESSICA Holding Fund) established in late 2009 to invest in carbon reduction projects in line with the Climate Change component of the London Plan

• Focused on energy efficiency, waste and decentralised energy as the “3 biggest carbon reduction opportunities for London”

• Governed by an Investment Board , chaired by a private sector independent, and with representatives from:

• Greater London Authority (as Managing Authority);

• Environmental Agency; and the

• London Waste and Recycling Board

• Strategic relationship between public sector sponsors and UDF managers in terms of identifying and/or co-financing projects

• Considered a “trailblazer” for the UK’s Green Investment Bank, which focuses on the same sectors, and is also a co-investor in one of the first waste projects…

Strictly private and confidential - Not to be disclosed without prior consent of the EIB

The London Green Fund - Strategy

The London Green Fund (a

JESSICA holding fund)

established in late 2009 to invest

in carbon reduction projects in

line with the Climate Change

component of the London Plan

Focused on energy efficiency,

waste and decentralised energy

as the “3 biggest carbon

reduction opportunities for

London”

Governed by representatives

from the Greater London

Authority, the Environmental

Agency and the London Waste

and Recycling Board. The

Mayor’s environmental advisor

sits on the Investment Board

Aiming to deliver outputs/impacts on job creation, tons of carbon saved, and minimum energy usage savings

11 JESSICA Financial Instruments – Into the new programming period

The London Green Fund (Holding Fund)

Energy Efficiency

Urban Development

Fund

£35m

ERDF

London Green Fund

£100m*

Managed by EIB

London Waste &

Recycling Board

London

Development

Agency

£50m

Private

finance

£ 50 m £32m £ 18 m

Urban Projects Urban Projects

Private

finance

Waste Urban

Development Fund

Equity type

investment

Loan type

investment

Low risk High risk

Min £50m Min

£35m

£12m Greener

Social

Housing

Fund

....the waste UDF will primarily finance, via

equity or equity-type investment, the

construction or expansion of:

Waste to energy/fuel facilities (excluding

incineration)

Value added re-use, recycling or

reprocessing facilities

Bank lending

Project sponsors

Venture capital trusts

Pension funds/ private investors

LWaRB £18m

London Green Fund UDF: £60m

Pari passu: £120m

Investment programme

£204m

In line with the Mayor’s municipal waste strategy, and in close collaboration

with the London Waste and Recycling Board…

JESSICA Financial Instruments – Into the new programming period

London – Foresight Environmental Fund (UDF)

Bank lending Project sponsors London Waste and

Recycling Board

Pension funds/ private investors

London Green Fund ERDF

£18m

UDF £60m

Investment Programme £200m+

The Foresight Environmental Fund UDF is primarily financing,

via equity or equity-type investment, the construction and

expansion of:

• Waste to energy / fuel facilities (excluding incineration)

• Value added re-use, recycling or reprocessing facilities

JESSICA Financial Instruments – Into the new programming period

Foresight Environmental Fund

Best practice

because…

It will also produce over 36,000 tonnes p.a. of AD digestate and 14,000

tonnes p.a. of compost for agricultural use

TEG will be central London’s first Anaerobic Digestion (AD) plant

The new facility will be capable of processing 49,000 tonnes per annum of food and green waste via AD and

In-vessel composting

The facility will generate approximately 1.4MW of electricity, sufficient to power approximately

2,000 homes

Background: Construction of a £21m organic waste TEG facility in the Sustainable Industries Park in Dagenham, London, the UK’s largest concentration of environmental industries

Strictly private and confidential - Not to be disclosed without prior consent of the EIB JESSICA Financial Instruments – Into the new programming period

Foresight Environmental Fund -TEG project

Building management technologies

As a provider of cheap debt, return expectations for the fund are low. The fund manager has a significant component of fees linked to maximising carbon reduction and energy efficiency impacts.

Insulation

Cooling equipment Low carbon heating

Designed to provide cheap loan financing for retrofit and low carbon heating projects in local authority, university, hospital, social housing and other public buildings

The EIB managed ELENA facility is providing technical assistance for project preparation

Low cost financing in exchange for carbon reduction benefits

Leveraging other EIB/EC products

JESSICA Financial Instruments – Into the new programming period

London Energy Efficiency Fund (LEEF)

Circular economy projects:

potential sources of

financial and non-financial

support

ESIF 2014-20 – Financial Instruments by Thematic Objective

ESIF 2014-20 – circular economy Financial Instruments potential

Financial Instruments (FI) 2014-2020

Objectives Trends

Available Funding

Clear & detailed rules

from the outset: COCOF, optimization, legal certainty

Support to Integrated Urban Development

Strengthening of revolving FI

Increased TA for MAs: combined with FIs,

advisory via EU platform

(Financial) Incentives for Managing Authorities

Expansion of FI: (i) all 11 thematic areas,

(ii) combination of resources from different ESIF and OPs,

(iii) more flexible implementation, (iv) more compatible with grants

Possible delegation of managing ESIF resources: combination of different

funding sources into an ITI measure

Dedicated resource

allocation under ERDF:

(i) min. 5% of the ERDF resources

to urban development,

(ii) more emphasis on

territorial interventions

One legal framework for all ESI Funds (CPR) and

bundling possible

Urban Development Network for capacity-building

and networking between cities

11 thematic sectors for 2020 (all „core” for cities)

FI: more leverage, multi-fund programmes

EU 2014-2020 Cohesion Policy: ca. EUR 325 bn

Contributions in kind (Art. 32 Financial

Instruments)

Energy: EUR 20-25 bn

ERDF resources for cities: 5%, ca. EUR 18bn

Leverage on budgetary finance: by a factor of 2-4

Tackling Regulatory Bottlenecks

Delivering the Europe

2020 Strategy: sustainable growth, jobs and innovation.

EE/RE investment at min. 20%

(developed regions) or 6% (less developed regions)

of ERDF

JESSICA Financial Instruments – Into the new programming period

S t a n d a r d F u n d / P r o d u c t T y p o l o g y

Strategy options for DFI utilisation: i. National dedicated Priority Axis (mono-/multi-thematic)

ii. Regional dedicated Priority Axis (mono-/multi-thematic)

iii. Integrated Territorial Investment Strategy (urban/local-based)

iv. Priority Axis for Financial Engineering Instruments

(national/regional)

National Managing Authorities EIB JESSICA Services

• Fund and structuring services (FSS) • Holding Fund (HF) • Middle Office (MO)

Competitive/Smart City

1. RDI 2. ICT 7. Sustainable transport 10. Education and training 11. Public Administration

Resilient/Social communities

3. Competitiveness of SMEs 8. Employment 9. Social inclusion

Energy Efficient City

4. Low-carbon economy 5. Adaption and Risk

management 6. Environment and

resource efficiency

+ Optional thematic objectives

+ Optional thematic objectives

11 Thematic

objectives

High growth/innovation metropolitan poles

Problematic/high unemployment urban areas

Eastern and Northern European countries

Priority area

targets

+ Optional thematic objectives

Rural investment product

9. … agricultural sector

+ Optional thematic objectives

Rural areas

EIB Advisory Services

• Technical Assistance Platform (TAP) • Support to ex-ante assessment

JESSICA Financial Instruments – Into the new programming period

ESIF 2014-2020 Financial Instruments (decentralised) Options

ESIF: Three forms of support available for Financial Instruments

EIB delivery of Technical Assistance Platform (TAP)

EIB may deliver at MA/MS request…

EIB may take part…

JESSICA Financial Instruments – Into the new programming period

EIB – Lending, Blending, Advising

Lending within the EU: • Cohesion and convergence (‘regional development’)

• SME financing

• Environmental sustainability

• Knowledge economy

• Trans-European Networks

• Sustainable, competitive and secure energy

Blending: • Combining grants and loans to leverage EU funds

Advising: • Sharing EIB know-how through technical and financial advice

EIB Financing support

Instrument Circular economy projects/programmes could

potentially access finance through:

Investment Loans Direct loan for a specific investment

project or programme, usually > EUR

25m

•Loan to a City to finance an urban renewal project

•Loan to co-finance an Integrated Territorial Investment

with structural funds

•Loan to a private partner

•R&D loans

Framework Loans Loan for a programme of investments

meeting defined criteria but not finally

prepared at time of signing

•Framework loan to a city or region to finance a

programme of small or medium investments

•Framework loan to co-finance investments under a

structural fund operational programme

•Framework loan to a bank to finance investments

Global Loans Credit lines to banks

•Multi-purpose credit line

Funds Investment in a fund

•Investment into an urban development fund, brownfield

fund etc

Municipal and Regional Unit /

Advisory Services Department

European Investment Bank 98-100 Boulevard Konrad Adenauer, L-2950 Luxembourg

www.eib.org/jessica

Gianni CARBONARO

Head, Municipal and Regional Unit

email: g.carbonaro@eib.org