©2020 by BwB UK Limited

City Finance Framework

As population growth and the trend towards urbanization continues, cities are an increasing source of emissions harming our environment. The European Union expects that 80% of its population will live in urban areas by 2020 with negative environmental, social and economic impacts for Europe's cities and countryside. These potential impacts include increasing energy demand, human health problems and declining stocks of natural resources. 

 

Not only are cities therefore, under enormous pressure to expand their services (such as infrastructure, housing, and public spaces) due to unprecedented population growth, but they are also racing against time, to do so in an environmentally sustainable manner. Accounting for 80% of global GHG emissions and consuming 75% of the world’s natural resources, cities are in urgent need of transformational investment to upgrade obsolete infrastructure, and to accommodate newcomers and prepare for the future. At the same time, national governments struggle with a new age of information technology, interdependence and a fracturing of the global economic order. Cities have become a focal area of opportunity for innovation and speed, unmatched in other geographies. 

 

As there remains a growing gap for financing including infrastructure but also for innovation, private funding is slow and difficult to harness. The reasons for this include: difficult access to information; high costs for project preparation; and a lack of knowledge for city officials to attract private sector's interest. Further, this technical capacity gap is one that few are willing to pay for. 

Moreover, at any given time, there are several projects seeking support from city officials. However, with time and capital available to city officials being limited, it is imperative to have a structure in place that enables users to prioritize opportunities that a) are ready to be operational; b) deliver the maximum impact for the development goals they are trying to address, and c) deploy capital in an optimum manner.

 

At this point, there is lack of a formal approach towards project preparation and evaluation which can help city officials evaluate projects in a structured and standardized manner as well as identify areas which projects need to work on, to improve bankability. The City Finance Framework was developed by BwB to help address this information gap and support the transition to climate resilient infrastructure funded through private funding.

The City Finance Framework is an excel based tool which requires users to provide project specific information around the following parameters:

 

  • Technology Readiness Level – Does the project look to implement already available technology or is it currently in R&D/pilot scale. Investors may require a higher return of early stage projects.

  • Immediate Impact – Near-term (0-12 months) that the project is able to demonstrate.

  • Enduring Impact – Longer-term, structural impact over 2-5 years from the time of project commissioning. 

  • Sustainable Development Potential – Additional impact on overall sustainable development of the region where the project is implemented (over and above its stated goals).

  • Ability to Address Need-Gap – Intensity of need-gap the project seeks to address.

  • Ease of Monitoring – Ability to monitor and trace project outcomes. 

  • City/Country Readiness – Readiness of the city or country where the project is being planned, to support implementation. 

  • Financial Efficiency – Overall project returns and its ability to utilize capital efficiently.

 

Based on the inputs provided, a Project Readiness Level (“PRL”) score is calculated to ascertain the “investability” and “maturity” of each project. PRL scores range from 1-10 with lower scores primarily reflecting early stage concepts and higher scores reflecting operation ready projects.  

 

The PRL scores are then used as follows: 

 

  • Less mature projects are mapped against the level of support (such as operational, financial or technical) that they are likely to require to become more viable. This will provide city officials a clear understanding of the main gaps that need to be addressed to make promising projects, both market and investor ready. 

  • Mature, investment grade projects are selected for a deep dive to prepare an investible business case that can be presented to the broader financial community. 

 

The City Finance Framework also allows to calculate PRL scores for a group of Climate KIC projects, allowing users to assess maturity at a portfolio level.