Have you thought about: Funding and Investment?
With local authorities seeking to deliver on some of their declared priorities to address the climate emergency, attention is turning to how to fund some of the ideas and initiatives.
In the coming weeks as budgets are set, there will be increased focus as to how committed a council may be in identifying funds for some measures. Councils can analyse green initiatives through various lenses: they could be revenue saving; revenue generating; or producing indirect or co-benefits. But if these measures are to be approved, they will need to be funded and/or the investment case made.
There is not much capacity in the funding system and current rules may not address or deal with funding or investment in these longer term projects. There are many schemes that could be provided or delivered with different risk profiles, for example, whether in the authority's ownership or engaging with private providers.
Matters to consider:
- Existing capital programmes will have significant demands for the use of funds and may not be geared towards green or environmental projects. However, some councils are committing to such investments, with Oxford City Council recently announcing an £18m investment to deliver on some of the recommendations from their Citizens' Assembly
- The autumn increase in Public Works Loan Board (PWLB) rates will undoubtedly have an adverse impact on the availability of funds for use on energy efficiency projects and other climate change mitigation projects. Some projects may not deliver acceptable financial model outputs on the traditional basis, or the council may have other uses for available PWLB monies
- Some sources of funds require returns within five years - that may not be achievable on many projects such as the retrofitting of homes
- Investment business cases may not account for lower returns (traditionally slighter lower for Environmental, Social and Governance (ESG) but perhaps not always to be the case), or properly account for co-benefits that may arise - such as reduction in fuel poverty and improved health
- Divestment is a complex debate but is popular with citizens, so having a narrative and/or approach to current investments will need to be part of any revised investment strategy
- There have been recent moves by councils to raise monies (for housing and wider use) in the capital markets through the issue of public bonds as well as private placements. In light of the increasing appetite for ESG, investing councils may be able to attract new funds to support the delivery of their projects with the possibility of green (or ESG) bonds being issued by councils as a possible instrument (as an alternative to a more generic bond issue). These could fund projects that could secure a return (as well as offer revenue savings from business as usual).
What questions to ask?
- How are new projects to be assessed and appraised? Is there a need for improved financial modelling to account, for example, for co-benefits?
- Are new funding resources required? If so, what is the process for assessing available funds and the criteria for assessment? Are green bonds viable?
- What do you need to do internally to re-shape your rules, and does CIPFA have a role?
Three points to think about:
- Review your Capital Strategy and consider inclusion of green investment
- Adapt your investment criteria and consider your Treasury Management Strategy and whether it should align with the broader ambitions
- Are green bonds a possible instrument to be explored?
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