Strategic Smart City Investing Gianni CARBONARO Municipal & Regional Unit, Advisory Services Department European Investment Bank “Smart and Connected Cities” Cities of Tomorrow - Brussels, 18th February 2014 European Investment Bank

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Global urban challenges YEAR: % OF URBAN POPULATION

1950

2010

30%

2030

50%

2050

60%

70%

2,5

6,9

8,3

9,2

(0,75)

(3,45)

(4,98)

(6,44)

The global distribution of top 400 "urban areas" with at least 1,000,000 inhabitants in 2006

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The need for sustainable urban impact investing Urban management in EU will be increasingly difficult, however, conditions for sustainable development can be created in local urban poles. • The core element is to have efficient, productive, attractive and livable cities characterized by low maintenance/management costs and low “break-even point” on fixed assets •

Competitive cities in a shrinking/restructuring environment

• Can be achieved by rationalization, reprocessing, restructuring and optimization at the urban level with a focus on sustainability • Cities need clear objectives, strategic planning, a roadmap, governance, technical data and systems to tackle market distortions/ long-term risks - managed through strategic impact investors.

JESSICA Urban Development Funds as strategic impact investors • Policy-driven financial instruments • • •

Enabling to address LOCAL implications of GLOBAL problems Through a LOCAL integrated strategy for urban investment Reconciling a bottom-up approach with a global vision

• Bundesbank study of post-reunification transfers: •

Geographically neutral policies are not conducive to economic growth

• A strategy cannot be implemented without a financial instrument - but a financial instrument is meaningless without an adequate and focused strategy for value creation in cities. European Investment Bank

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JESSICA - integrated approach to urban strategies Economic crisis

Financial and Real Estate crisis > Governmental bail-outs > Impact on public sector finance > Deleveraging discipline > Viability of urban investment

Ageing

Transformation in age/migration structure > Impact upon public finance, labour and housing markets, infrastructure, healthcare and communities

Decarbonisation

Urban areas under climate change impact > Decarbonisation of EU economy > Impact upon economy, social, environmental factors > Smart grid technology

EU spatial integration

‘Single market for cities’ > 1200-2000 functional urban areas compete for location of resources and economic activity > New spatial equilibrium

Integrated urban investment strategy for highly dense urban areas focused on: EMPLOYABILITY (employment and unemployment structures, job creation in local population clusters, social enterprise, skills)

SOCIAL COHESION AND INCLUSION (migration flows, educational capabilities and re-training, disability, impact of ageing, urban poverty, etc.)

European Investment Bank

GREEN GROWTH (technological change for sustainable urban transformation, green development/ jobs and smart city concept). 444

Functional urban areas as optimal catchment area Functional urban areas as dense labour/energy/mobility systems: 

Major labour hubs – concentration of job and education opportunities imply high levels of mobility and need for urban infrastructure, efficient urban organisation and planning improves long-term resilience of local labour markets



Centres of innovation – urban density spurs the development of new ideas and provides the network and the infrastructure for new industries



Hot spots for greening and efficiency gains – EE/RE for housing/public building and efficient urban transport key components in the 20-20-20 EU energy strategy

Holistic Approach  Urban wealth growth

(Natural, Fixed, Human, Economic) 

Jobs & Economic Activity



Financial / Fiscal



Sustainability



Capital & Enterprise Transfers



Human Capital Ageing / Migration



Asset Value Creation Process European Investment Bank

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Urban funds governance for impact investing City Manager’s Office SF Managing Authority

Chief Financial Officer

Head of Spatial Planning

Chief Innovation and Sustainability Officer

Co-investors Head of Attraction + Value Creation

(IFIs, promotional banks, institutional investors)

UDF Board

UDF Manager

UDF investments into revenue-generating urban projects should not be based on “cherry-picking” lucrative projects • •

Manage the externalities, ensure qualitative sustainability of projects Positive economic returns for the city have to be “enforced” in project design and selection European Investment Bank

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Financial Instruments in 2014-2020 Financial Instruments (FI) 2014-2020 Objectives Delivering the Europe 2020 Strategy: sustainable growth, jobs and innovation. 11 thematic sectors for 2020 (all „core” for cities) Urban Development Network for capacity-building and networking between cities EE/RE investment at min. 20% (developed regions) or 6% (less developed regions) of ERDF

FI: more leverage, multi-fund programmes

Available Funding

Trends Support to Integrated Urban Development One legal framework for all ESI Funds (CPR) and bundling possible Dedicated resource allocation under ERDF: (i) min. 5% of the ERDF resources to urban development, (ii) more emphasis on territorial interventions Possible delegation of managing ESIF resources: combination of different funding sources into an ITI measure

Strengthening of revolving FI Expansion of FI: (i) all 11 thematic areas, (ii) combination of resources from different ESIF and OPs, (iii) more flexible implementation, (iv) more compatible with grants

EU 2014-2020 Cohesion Policy: ca. EUR 325 bn ERDF resources for cities: 5%, ca. EUR 18bn Energy: EUR 20-25 bn

Clear & detailed rules from the outset: COCOF, optimization, legal certainty

Contributions in kind (Art. 32 Financial Instruments)

(Financial) Incentives for Managing Authorities

Leverage on budgetary finance: by a factor of 2-4

Increased TA for MAs: combined with FIs, advisory via EU platform

Tackling Regulatory Bottlenecks

European Investment Bank

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How to structure DFI Products in the next programming period National Managing Authorities EIB JESSICA Services • Fund and structuring services (FSS) • Holding Fund (HF) • Middle Office (MO)

Strategy options for DFI utilisation:

EIB Advisory Services • Technical Assistance Platform (TAP) • Support to ex-ante assessment

i. ii. iii. iv.

National dedicated Priority Axis (mono-/multi-thematic) Regional dedicated Priority Axis (mono-/multi-thematic) Integrated Territorial Investment Strategy (urban/local-based) Priority Axis for Financial Engineering Instruments (national/regional)

S t a n d a r d

11 Thematic objectives

Priority area targets

F u n d / P r o d u c t

T y p o l o g y

Competitive/Smart City

Energy Efficient City

Resilient/Social communities

Rural investment product

1. 2. 3. 4. 5.

6. 7. 8.

9.

9.

ICT RDI Public Administration Education and training Sustainable transport

Climate Change Environmental protection Low-carbon economy

+ Optional thematic objectives

+ Optional thematic objectives

High growth/innovation metropolitan poles

Eastern and Northern European countries

Competitiveness of SMEs &… 10. Employment 11. Social inclusion

+ Optional thematic objectives Problematic/high unemployment urban areas

European Investment Bank

… agricultural sector

+ Optional thematic objectives Rural areas

888

EIB – Lending, Blending, Advising Lending within the EU: • • • • • •

Cohesion and convergence (‘regional development’) SME financing Environmental sustainability Knowledge economy Trans-European Networks Sustainable, competitive and secure energy

Blending: • Combining grants and loans to leverage EU funds

Advising: • Sharing EIB know-how through technical and financial advice

European Investment Bank

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Smart city investments Smart Transport and Mobility •Bike schemes •Real time travel information •Electric vehicle car pools •Congestion charging •Traffic control systems •Electric Vehicle Charging Point •Apps

Renewable energy & energy efficiency •Energy efficiency •Renewables •Combined Heat and Power •Efficient Street lighting •Smart grids

Digital infrastructure •ICT infrastructure •high speed broadband •Sensors to monitor traffic, pollution, emissions •Fibre optic cables •Wireless technologies •Networked information systems

Smart and Sustainable Buildings •Smart meters •Energy efficiency measures: Insulation, low energy lighting, efficient boilers •Building Integrated Renewables •EV charging points •Motion detectors •Automatic weather forecasting

European Investment Bank

Urban Development •E-government developments •Brownfield redevelopment •Eco-quartier development •Innovative administrative buildings •Smart cultural heritage investments •Energy-efficient social and affordable housing

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Lending: EIB Financing Instruments Instrument

•Examples of potential Smart City financing

Investment Loans

•Loan to a City to finance an urban renewal project with smart features •Loan to co-finance an Integrated Territorial Investment with structural funds •Loan to a private partner to implement a Smart City programme under contract •R&D loan to develop innovative Smart technology

Direct loan for a specific investment project or programme, usually > EUR 25m

Loan for a programme of investments meeting defined criteria but not finally prepared at time of signing

•Framework loan to a city or region to finance a programme of small or medium Smart investments •Framework loan to co-finance sustainable urban investments under a structural fund operational programme •Framework loan to a bank to finance smart city investments

Global Loans

•Multi-purpose credit line including smart city projects

Framework Loans

Credit lines to banks

Funds Investment in a fund

•Investment into an urban development fund, brownfield fund, fund specialised in Smart City investment 11 European Investment Bank

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EIB Advisory Support Stakeholder interviews

Desktop study

Manchester

Case study selection

Amsterdam

Emerging typology of citywide investment opportunities

Barcelona

Implications

“A smart and sustainable city invests in human and social capital, manages resources wisely, has citizens which participate in city governance, and has traditional and modern infrastructure which supports economic growth to create high quality of life for its inhabitants.”

Malmö

Research questions How do smart and sustainable city initiatives start?

City Strategies and Leadership

Who are the key players? How are projects organised? How are projects financed? What are the key challenges for smart city development?

Research and Technical Development

Innovation

Smart City Pilot Projects

Public-Private Partnerships

What role can be taken by financial instruments such as JESSICA UDFs to deliver smart city development and, in doing so, EU2020 objectives?

Source: Study - JESSICA for Smart & Sustainable Cities

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Contact

Municipal and Regional Unit / JESSICA and Investment Funds European Investment Bank 98-100 Boulevard Konrad Adenauer, L-2950 Luxembourg www.eib.org/jessica

Eugenio LEANZA

Gianni CARBONARO

Head, JESSICA and Investment Funds

Head, Municipal and Regional Unit

email: [email protected]

email: [email protected]

European Investment Bank

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