Page 102 - Enhancing innovation and participation in smart sustainable cities

United for Smart Sustainable Cities
Enhancing Innovation and Participation

1 Introduction

1.1 Background

7
6
London is a densely populated city with over 8.2 million residents and 16 500 businesses . Over the last decade,
the city has experienced a rapid economic and population growth; according to projections by the Office for
National Statistics and Greater London Authority (GLA) this trend will continue for the next two decades.
Population boom, urban sprawl and increased electricity consumption are some of the challenges that put the city
under environmental pressure and highlight the need for a transition to a low-carbon economy.
To tackle these challenges and position London as a world leading low-carbon capital, the Mayor’s London Plan
and Economic Development Strategy were designed with a strong environmental focus. A goal of reducing carbon
emissions to 60% below 1990 by 2025 was set. Moreover, a budget of EUR 182 million to promote sustainable,
environmentally efficient growth as part of the London 2007-2013 Programme was established; supporting
economic growth through investment in green infrastructure was identified as the programme’s priority, with an
allocated budget of EUR 85.5 million.

The European Commission, in cooperation with the European Investment Bank (EIB) and the Council of Europe
Development Bank (CEB) set up the Joint European Support for Sustainable Investment in City Areas initiative
(JESSICA). This initiative supports sustainable urban development and regeneration through financial engineering
mechanisms. As part of this initiative, countries can choose to invest part of their EU structural fund allocations in
revolving funds, to recycle financial resources and accelerate investment in urban areas. Another source of
financial support for cities to develop green infrastructure was EIB’s European Local Energy Assistance (ELENA).
Through its programmes RE:FIT and RE:NEW, ELENA would provide a commercial model for public bodies and
households to implement energy efficiency measures.

1.2 Challenge and response

Despite authorities’ will to promote investment in green infrastructure projects, market imperfections would
continue to make this sector too risky for private investors. A funding gap for those projects that were incapable
of securing conventional commercial financing was taking place and limiting their contribution to London’s carbon
reduction goals.
The London Green Fund (LGF) is a holding fund that aims to de-risk the environmental sector and promote the
investment in schemes that would reduce London’s carbon emissions. Launched in 2009 by the Mayor of London
and the European Commissioner for Regional Policy, the LGF was the first JESSICA holding fund in the UK. A mix of
EU and other public and private sources were used to set up the fund, attract investment and scale up green
infrastructure projects across the city. The LGF is integrated by three commercially managed urban development
funds (UDF) that canalize investment to energy efficiency, waste and greener social housing projects.
The LGF applies to the U4SSC smart economy area by encouraging cooperation between private and public
stakeholders to engage the private sector and boost low-carbon development in London. The provision of financial
incentives was used to encourage investment in green infrastructure.

2 The smart project(s)

2.1 Vision and content

The LGF was envisioned as a financial instrument that would support the development of green infrastructure to
contribute to London’s carbon reduction targets. The LGF aimed to address identified market failures, de-risk the
environmental sector in London and attract private investment in schemes that would cut carbon emissions. In
particular, the LGF focused on providing equity or loan capital to attract other investors for those projects that did
not result as commercially viable under conventional financing schemes.

6 London Councils.
7 The City of London Corporation (2016).

100 U4SSC series