Page 29 - A U4SSC deliverable - Guidelines on tools and mechanisms to finance Smart Sustainable Cities projects

Bank, Inter-American Development Bank, Black Sea Trade and Development Bank, Council of
Europe Development Bank, European Investment Bank, European Bank for Reconstruction and
Development. Other organizations and financial institutions with working programmes in the
sphere of urban development are also influential, for example, the ITU and the United Nations
Environment Programme Finance Initiative, as well as other organizations adhering to the wider
investment ecosystem of the United Nations Principles for Responsible Investment, such as the
OECD, the World Bank, and the IFC.

IGOs have a proven capacity to influence public policymakers regarding treaties and
conventions. They can also provide financial assistance via financing and funding, activating
credit enhancement and “reducing the risk” for investors, thus promoting investment and
lowering interest rates and therefore the costs of capital. They lead PPPs, foster research into
new technologies and support platforms which engage funds to impact projects. Ultimately,
they use financial instruments to support the development of urban areas, in an effort to address
global issues such as climate change. IGOs can effectively leverage their macro perspective,
power and influence in order to facilitate, accelerate, and ensure the provision of resources such
as capital investment, management capacity and technological advances for projects; and
(c) Governments: They establish legislation with the intent to serve the health, welfare, safety
and security needs of the community they govern. Governments generate revenue from
taxation, royalties, and tariffs. While many have economic development goals and investment
programmes for stimulating jobs and attracting economic projects, these programmes and
investments are often subject to delays and insufficient resources due to the lack of proper
management skills and the short-term views taken by some interested parties.

Private finance lenders comprise international (“larger”) investors, bigger local companies,
international conglomerates, and other institutional investors, such as banks and funds. These
organizations are often involved in larger-scale urban development projects, such as infrastructure,
energy, and large housing schemes.

Private finance investors use their private capital, leveraged with either debt or equity instruments, to
fund special purpose vehicle (SPV) companies. These SPVs are specialized in urban development,
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and provide high returns while involving high risks. Private finance investors have a greater impact on
the larger infrastructure projects, since they have a proprietary approach to the projects and a more
traditional structure for controlling the risks. Equity finance is relatively new to urban development
but is proven to have a potentially crucial role. This is because private finance investors using equity
finance often invest eagerly in the innovative technology and start-ups that are shaping the “smart
cities” ecosystem, providing new solutions to old problems, such as optimizing energy use, traffic
solutions, water consumption, and waste upcycling.

Institutional and non-institutional investors

Private investors can be divided into institutional and non-institutional (retail) investors, depending
on the investment.

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