The EIB is helping to address the challenge of urban pollution in Vietnam through its support for the expansion of the city’s metro system. In January, it announced a €143m facility for construction of the 12.5km line 3 of the Hanoi network, which will reduce travel costs and cut emissions by encouraging commuters to swap their mopeds for the metro.
The Hanoi loan is one of a number of urban metro projects supported by the EIB. These buttress sustainable development by simultaneously helping to reduce emissions and enhance economic efficiencies through saving time and money for the residents of some of the developing world’s biggest cities. The €450m loan for the Lucknow metro in 2016, for example, was the largest transport facility made by the EIB outside the EU for more than a decade. By providing finance for the 23km metro line, it is forecast that this will help increase the use of public transport from 10% to 27% in India’s 11th largest city, which has a population of 3 million.
Convenient for Commuters; Protective for the Planet
Elsewhere in India, a more recent transaction announced by the EIB was a €500m facility for the Namma Metro system in Bangalore, which is the country’s third largest city and home to one of India’s most vibrant and innovative urban economies. This was a landmark facility and a case study for sustainable development for at least five reasons.
First, it was the largest loan ever made by the EIB to India, and the largest facility for a sustainable development transport project granted outside the EU, underscoring the bank’s commitment to clean urban transportation.
Second, by reducing the average travel time on some journeys from two hours to 15 minutes, it makes a giant contribution to increased productivity among the 400,000 or so people who use the metro daily.
Third, compelling evidence is already emerging to demonstrate the environmental benefits generated by the metro: according to a recent study of air quality along two of the system’s lines by the Karnataka State Pollution Control Board, air pollutants fell by 8.9% and 13.3% between June and November 2017.
Fourth, there is also evidence to suggest that the Bangalore metro is making a notable contribution to gender equality. As well as empowering women by creating jobs for female drivers, it is promoting their security by reserving areas for women travellers.
Fifth, Angela Marcarino, Head of Asia Pacific Lending explains, “the Bangalore initiative represents an important landmark for co-operation among the world’s development banks, as it was the first project of its kind to be co-financed by the EIB and the Asian Infrastructure Investment Bank (AIIB). As we step up our investments in Asia, I expect more of this kind of partnership particularly in the urban transport and clean energy sectors.”
Increased Support for Sustainable Urban Development
There is nothing new about the EIB’s commitment to financing cities. “In Europe we have been working closely with cities ever since our foundation in 1958,” says Vazil Hudak, Vice-President of the EIB, whose areas of responsibility include oversight of the Bank’s Smart Cities initiative. (download a detailed, printable document to learn more about EIB smart city investments)
There has, however, been a conspicuous increase in this support in recent years. Hudak says that between 2011 and 2017 the EIB’s lending directed towards climate action in cities reached about €35bn. This increase mirrors the bank’s broader pledge of investing $100bn in climate action by 2020, which will be the largest climate finance contribution of any single multilateral institution.
Hudak says that it is easy to explain why the financing of sustainable urban development has become an important priority for the EIB. “Cities already generate about 75% of the world’s CO2 emissions,” he says. “And if urbanisation continues at current rates, cities will account for 85% of the global population by 2100. These numbers alone are enough to demonstrate how important cities are, both in terms of global climate change and economic development.”
Monica Scatasta, Head of Environment, Climate and Social Policy at the EIB, adds that there is another clear reason the bank is redoubling its commitment to supporting sustainable urban development. “Aside from being the main sources of emissions, most cities are themselves also extremely exposed and vulnerable to climate-related risks,” she says.
Gerry Muscat, Head of Urban Development at the EIB, says that there are a number of notable differences between financing sustainable development in cities and supporting sovereign borrowers. “Lending at a sub-national level means you are generally much closer to the projects themselves, which in turn means you are more involved in the technical structuring of the project,” he says. “At the same time, you have to pay more attention to the fiscal and repayment capacity of borrowers at the municipal level.”
Rising to the Global Climate City Challenge
It has been the identification of the specific requirements of municipal borrowers across the world that has driven a series of new initiatives by the EIB aimed at building a much closer dialogue between the bank and the chief representatives of the cities themselves.
A recent example of the EIB’s commitment to transposing the bank’s European expertise to the global level is the Global Climate City Challenge. Launched at the Global Climate Action Summit (GCAS) in San Francisco in September, this is part of the Global URBIS initiative, it gives cities access to a one-stop-shop for technical assistance and financial support (you can find here more information about this initiative).
The Climate City Challenge is an ambitious partnership between the EIB, and the Global Covenant of Mayors for Climate and Energy, who represent more than 9,000 cities from six continents. The initiative, which is unprecedented in its scope and global reach, aims to address key technical and financing barriers to strengthen investment in green projects with the potential to play a decisive role in building cities’ resilience to the ever-worsening impacts of climate change. Launched in San Francisco by Mauricio Rodas, Mayor of Quito, and the EIB’s Jonathan Taylor, the Global Climate City Challenge will begin by selecting projects in six cities, the progress of which will be monitored closely by municipal authorities throughout the world. As Taylor, EIB vice-president in charge of climate and environment, said at the launch of the pilot initiative, “I invited all cities to see how this exciting new initiative can transform the impact of existing and future urban investment plans.”
Scatasta says that she has been encouraged by the highly constructive response of mayors to the City Challenge. She is also impressed by their contribution to the dialogue on sustainable urban regeneration supported both by the EIB initiative and to others such as the 100 Resilient Cities (100RC) project pioneered by the Rockefeller Foundation and the C40 megacities network. “Although there have been some setbacks since Paris in 2015, it is clear that sustainable urban development is gaining political traction,” she says. “I was inspired by what I heard from the mayors at San Francisco.”
For these mayors, she adds, there is no one-size-fits-all approach to sustainable urban investment. “Because our experience straddles the developing as well as the developed world, we are well positioned to build a dialogue with each mayor on an individual basis, often applying the lessons learned in a city in the north to one in the south, or vice versa,” she explains.
While flagship urban transport initiatives such as the Bangalore metro inevitably account for a large and highly visible share of the EIB’s lending for sustainable development in cities, the bank’s support for urban regeneration is by no means confined to large transport projects. Areas such as energy efficiency, waste management, social housing, health, education and sports and recreational facilities are all other examples of projects regarded as essential for sustainable development and – in many emerging regions – poverty alleviation.
Some of these projects, says Muscat, are potentially beneficiaries of the EIB’s Natural Capital Financing Facility (NCFF). This combines the bank’s lending with its technical assistance as a way of supporting climate adaptation initiatives such as greening paved areas to improve soil absorption capacity and thereby reducing flooding risk. “We have used this facility in our discussions with cities such as Bologna, Athens and Newcastle, and we could use a similar initiative in cities in developing countries,” says Muscat.
Muscat explains that many of these smaller projects are often the beneficiaries of EIB Framework Loans. While large projects such as the construction of metro systems are generally supported by single purpose investment loans, framework loans cover tens or even hundreds of smaller schemes calling for funding of between €1m and €50m over three to five years. These projects are then clustered together within broader investment programmes of at least €100m, with the EIB typically covering no more than 50% of the total programme. An example would be the financing of the upgrading of over 200 informal settlements in small and medium municipalities in Tunisia.
Scatasta adds that as they address entire investment plans, Framework Loans are an especially useful way of helping mayors and municipal authorities to think about integrated development. “We think of climate action not as an add-on, but as something that is intrinsic to overall urban planning,” she explains.
Since 2016, the EIB’s Framework Loans have become an increasingly important source of funding for cities under the Investment Plan for Europe, the Bank’s investment guarantee initiative designed to mobilize €500bn by 2020. In October 2016, Lisbon became the first municipal authority in the EU to use this scheme, securing a €250m Framework Loan to contribute to the urban regeneration of the Portuguese capital. Part of this funding is being channelled towards the upgrading of the drainage system, contributing to the strengthening of Lisbon’s resilience to climate change and helping it to protect the city from the impact of severe weather events, such as floods and storms. Part of the facility is also being deployed to reduce social exclusion by promoting social housing.