Agenda item

Steve Turner, Director, 3Ci will present.

The following 3Ci reports are enclosed:

·  Our Pathway Towards Net Zero Investment and Growth

·  Unlock Private Investment for Net Zero – A Practical Guide for Local Authorities

More  can be found here: 3Ci.org.uk

Steve Turner, 3ci Director and  Zoe Jennings, Head of Climate Investment  presented.

The chair invited questions from the commission on the last three presentations combined: 3ci, Abundance, and the Green Finance Institute (GFI). 

The following points were made:

·  GFI referred to research by the Committee on Climate Change, who have estimated that reaching zero carbon by 2050 will cost the UK 1.4 trillion pounds, about a third of which is expected to come from the public sector. Therefore about two thirds of is expected from private capital. The presentation showscurrent finance that is available to Local Authorities on their capital spending. The Public Works Loans Board is the vast bulk of that. There is also some grant funding.  The UK Infrastructure Bank, which has launched in the last year and a half has now added an extra 4 billion pounds that local authorities can borrow. However this is still is not enough money, furthermore the Public Works Loan Board is reaching capacity. Therefore projections for 2030 include a small proportion (5%) of funding from local climate bonds, which Abundance deliver. 

·  GFI explained that one of their roles is to look at barriers to investment. They bring together various coalitions, including policymakers, banks, and some of the pension funds. People in the relevant sector look at why is capital is not flowing even when the technology already exists. This includes examples such as barriers to uptake of green mortgages and why pension funds are not purchasing District Heating Networks in the UK like they do in the Nordics and Baltics, which would help with decarbonizing our heat sector.

·  Members asked about potential miss matches between project and investor needs. 3ci said that while the projects they are supporting are still too early in the pipeline to answer that definitively, it is hoped that early engagement will enable a good match.

·  Abundance advised that Municipal Bonds rest on local trust and so councils must be wary of any greenwashing. Residents will expect ethical delivery. There are some projects, such as solar, which can easily deliver steady returns, whereas rewilding or growing trees do not usually produce a profit, however they can be delivered through the donated part. Communication and transparency are key.

·  Abundance noted that when individuals invest in a Municipal Bond they are not simply thinking about the financial return, they are also thinking about what their money is doing in the world. This interest has been increasing over the last decade, whereas back 50 years most people were completely unaware what their money in a bank, savings account, or pension fund was invested in. Now people are becoming increasingly aware and this growing desire to invest sustainably and ethically is almost on an exponential growth curve.

·  Municipal Bonds not only raise money they also raise engagement. In delivering Net Zero councils have a direct role in decarbonizing their estate and influencing the wider infrastructure, but Local Authorities also have a role in mobilising the wider community to take action. One way of illustrating the impact of Municipal Bonds is in retrofit. If this is done under only the council’s auspices it has a local impact, but often nobody hears about it. However, if this is done through a Municipal Bond then it raises community awareness of the new technologies that we need to adopt. If the council retrofits to save energy and then installs a heat pump then people in the community who learn about this are more likely to then retrofit and install heat pumps in their own lives if they see other people doing it. The same if true of EV charging and solar installation.

·  A member commented that London Bridge Business Improvement District (BID) is presently working on the potential to build a District Heating Network, and working with local landlords and stakeholders on this. 3Ci said this is the sort of project that could be a good fit and recommended the 3ci portal and events to assist in bringing this forward.  GFI commented that BIDs are a good forum to develop the place based initiative recommended by their research to be the best value for money, by maximising  environmental and local economic benefit. 

·   GFI referred to the Greater Manchester Climate Bond in development for two electric buses,  where funding is being provided for this as a proof of concept initiative, with a view to larger projects being funded by Public Works Loan Board.

·  Municipalities have large capital investment programmes to deliver environmental benefits, and some of these will be revenue generating and so can be a good fit for Municipal Bonds and 3ci projects.

·  There was a discussion on profit and acceptable levels for residents. Carbon Tracker referred to previous public projects such as PFI, which built hospitals and schools until recently, and the private bank loans linked to LOBO interest rates, which many councils took loans out on.  These rates were at double or nearly double the Public Works Loan Board rate of the day, and generated often millions in profit over the course of the project. Municipal Bonds interest rates are much better value for Local Authorities as the interest rate is set just below the Public Works Loan Board Rate,  which is cheaper than public loans, and are not an extractive rate of profit . The LOBO loan rate was also hidden and only exposed through FOI requests. Adopting transparent finance models from the outset and benchmarking performance in local delivery of projects will build resident confidence.

·  Abundance commented that that there are different risk appetites in councils and one large Net Zero infrastructure project in Bristol is looking at combining funding from Abundance as well as private finance .

·  There are several councils who now have Abundance Municipal Bonds, or they are in the pipeline. This is building confidence amongst officers and investor awareness and willingness amongst residents. 30 – 40 years ago municipal bonds were common, so this is in part about reviving an old tradition.

·  Abundance said that rising interest rates, and resultant increase in the Public Works Loan Board interest rate, is making it easier to deliver projects as shaving 0.5 % off a rate of 1.5% is harder than a rate of 4.5%.  Against this they are competing against more attractive saving account rates. However in this scenario it is possible that there will be a higher donation rate – where investors donate more of their profits to the council fund. Currently on average , around 8% of all interest paid out is donated back and used for projects such as tree planting, or rewilding, which are the hard to fund element of a Net Zero plan, but also often very attractive to residents.

·  A member commented that now they understood more about the potential for Municipal Bonds it is a scheme that they would consider investing for environmental, community and economic benefits, and perhaps donate the interest, and considered other residents would too, if they understood more. GFI endorsed this by citing research that showed around 70% of the population would be willing to invest in similar schemes. Furthermore there is huge potential – for every 100,000 people there is £4 billion available in savings, and this only includes wealth that can be invested in crowdfunded platforms such as Municipal Bonds, with further wealth more locked up in Pension Funds.  Building awareness around the benefits, and reassurance that residents’ savings are safe, is key to building a willingness to invest in Municipal Bonds.  GFI said it is possible to grow your pool of investors - and vary interest rates over time.