Banking on Bristol: Innovative approaches to financing the climate transition

In The News 30 Aug 2024

Who is going to pay for this?” The estimated cost of Bristol’s decarbonisation is around £10 billion. Therefore, to Bristol City Council, it is clear that finding the money is imperative. Situated in the southwest of England, the city is taking bold steps towards answering the million-dollar (or pound) question, inevitably brought up around the topic of climate neutrality. Bristol’s Net Zero Investment Co-Innovation Lab explores how residents can invest and benefit from local climate projects, how to match institutional investors with green ventures, and how to include community voices in financial decisions. Thanks to a unique blend of public-private partnerships, community engagement, and financial innovation, Bristol is crafting a blueprint for climate finance that could inspire cities worldwide.

With support from NetZeroCities Pilot Cities Programme, led by EIT Climate-KIC, Bristol City Council is taking steps towards securing more of the funding needed for the climate transition. The Net Zero Investment Co-Innovation Lab will engage private, public, and community investors in a shared vision of climate neutrality, and secure investment in the changes that will help Bristol’s just transition to a low carbon economy.

Going Dutch

In recognising that both commercial and public sectors are finding it hard to decarbonise, and given huge demands on public spending, Bristol is stepping into a new role of bridging the gap between communities, financial actors, and climate projects, and bringing together private and public money.

“We are tackling financial barriers to investment in carbon neutral and environmentally positive projects through our Net Zero Investment Co-Innovation Lab, trying to find new sources of money. We believe that discovering new ways of financing decarbonisation is essential to help the city overcome the barriers. Working with money from outside the public sector is relatively new to us, so we needed to make sure we secured sound financial guidance. We also wanted to ensure there was a co-creation approach, which is why we sought advice from the city’s community leadership panel on climate and just transition,” explains Alex Ivory, Climate Change Team Manager at Bristol City Council.

The lab aims to deliver between three and six new investment funds and identify new investor streams and investable projects, while demonstrating the benefits flowing to the city and its citizens.

The innovative mechanisms to mobilise private and community funding will supplement public financing of climate projects, and multiple funds are being developed simultaneously.

The community investment scheme, which will launch later in 2024, uses social engagement to attract investments from private individuals to raise an amount that is loaned to the council and used for decarbonisation projects. It pays a return to investors while encouraging community buy-in and a just transition, with citizens being able to invest as little as £5. The Net Zero Impact Fund under development will match larger institutional investors with investment-ready, climate-friendly projects in Bristol and the southwest of England. A carbon multiplier fund being explored would use developer funds to finance net-zero projects (subject to government legislation), and a Net Zero Neighbourhood financing model will be explored with three communities to look at how blended finance could be used to fund locally driven climate initiatives. 

“We aren’t financiers,” says Peter Dempsey, Project Manager of the Net Zero Investment Co-Innovation Lab. “To support us with sound financial expertise and quality assurance, we set up an Investment Lab Advisory Group, – a group of expert individuals who provide their service voluntarily to help advise on the development of the solutions proposed by the lab. With their guidance, we’re trying to us ease the way for investors to move towards supporting sustainable projects.  We believe investors are ready for this and will benefit from the collaboration to facilitate their investment. It’s a small market for now, but those conversations are happening with more and more investors.”

Partnering with Abundance Investment, Bristol and Bath Regional Capital and Bristol Climate and Nature Partnership to develop and communicate alternative funding schemes, the project is providing an opportunity to build a new community of investors to participate in the net-zero transition and benefit directly from the environmental, economic and social improvement.  

“We are very pleased with the level of interest from the Investment Lab Advisory Group. This confirms there is serious interest in the banking and investment community which will support its replication in other cities,” continues Dempsey. 

As part of the Net Zero Investment Co-Innovation Lab, the city council has produced a case study on its other pioneering net zero initiative – Bristol City Leap.  This public-private partnership with Ameresco UK and Vattenfall UK is planning the investment of €1 billion in its first 6 years, with more coming over the 20-year partnership.  The case study video was launched at the Climate Neutral and Smart Cities Mission Conference in June 2024.

WATCH THE VIDEO ABOUT THE BRISTOL CITY LEAP PARTNERSHIP

Money isn’t everything

Systemic transformation towards financial mobilisation and new institutional forms to stimulate and shape investment requires thinking beyond finance. Co-creation is at the heart of Bristol’s efforts, and great care is being taken to ensure that there is community involvement, and that fair and inclusive decisions are being made. Ultimately, it is hoped that the community will directly benefit from these investments and demonstrate the value of bringing the voices of non-financial actors into the discussion.

“I think that the co-creation part is harder to do than I’d realised at the start of the project. There are barriers, given that our institutions are set up in a certain way and don’t always include everybody. We need to do more to be able to involve more people. You have to be able to compensate some participants for their time as we do with our community panel, otherwise you’ll only get the people that have already got the time and inclination to be involved. This is a really important part of the project for us, because it’s about co-creation,” says Ivory. “We also wanted to give people the opportunity to invest in the decarbonisation of their city.”

To bring in the co-creation and community leadership, the lab benefits from the input of the Community Leadership Panel on Climate Change and Just Transition. Created by Bristol Climate and Nature Partnership, the panel ensures there is strategic community influence on planning and decision making in the city. This is an innovative model of community engagement to help ensure diverse voices from Bristol’s communities and neighbourhoods are heard and reflected in local decision making.

“Meeting the panel members to discuss the first of our experimental approaches was a significant part of our project as it helps ensure our work is co-created with people with diverse perspectives. The city also now has a Just Transition declaration. As a city administration, it is not our place to make assumptions about what constitutes quality of life for people, but it is our place to make sure everyone is included. We are pleased with the engagement we’ve achieved so far. We really benefit from the community panel, and if there is one piece of advice I’d give to other cities, it would be to set up something similar,” describes Ivory.

The lab project team is aware of managing expectations: working with Abundance Investment the city council is for the first time moving into offering community investment. While it takes time to build up trust in the council acting in a new role, their commitment to orchestrating the co-creation process demonstrates the value the city can bring to bridging community interests and investment opportunities.

Business as unusual

According to Ivory, stepping into a space in which the climate change officers had little experience was, and still is, an intimidating task. Consulting with the project partners and the Advisory Group and Community Panel eased the burden of venturing into unknown territory, but the feeling of insecurity – characteristic of working in changing complex systems – requires courage and willingness to step outside comfort zones and ‘business as usual’ ways of working.

“The process has been slightly daunting. As a climate change professional rather than a financier I had to learn a lot to be able to understand all the different possible ways of funding climate work. I’m gradually getting more comfortable in my knowledge. It also takes longer than I imagined to set up new funds. We might not be where we thought we’d be by the end of this project, but if we can unlock some new ways of financing climate action it will be transformational. I think we’re also moving in the right direction thanks to co-creation through community involvement, and if we get this right, we can benefit the community at the same time as reducing greenhouse gas emissions,” says Ivory.

Bristol is operating in what’s known as ‘the messy middle’ of systems transformation, where courage and imagination inform learning how to co-create sustainable futures. The city administration in Bristol recognises this work is needed, making sure that decarbonisation and justice guide their path.

“We need to do this work because a new system of financial instruments to enable a low carbon economy will have to be set up, and we hear that stakeholders, particularly investors, are trying to make sense of what it will all look like and where they fit into the picture,” reflects Ivory. “We need to also make sure communities see the benefits of warmer homes, lower bills, green jobs and that their views are represented in a just transition to climate neutrality.”

In the journey towards climate neutrality, Bristol is striving to challenge conventions around financing and community engagement. Through Bristol City Leap and the Net Zero Investment Co-Innovation Lab, the city is pioneering new pathways, bringing together public and private sectors alongside community investors in a shared pursuit of sustainable transformation.

As Bristol ventures into unfamiliar financial territory, guided by expert advisors and the diverse voices of its community panel, the city asserts its belief in the importance of co-creation in shaping inclusive and just transitions. And with each step, it tries to recognise its ability to act as a catalyst for change towards a more sustainable and inclusive future.

This article is part of EIT Climate-KIC’s #LiveableCities Campaign, where we explore the pathways to a climate neutral, just, and more beautiful future. By 2030, our goal is to help transform over 400 cities into thriving, climate-resilient communities. This campaign captures the stories and lessons of ambitious cities in Europe and around the world. We want to show a vision of what’s possible when cities and stakeholders come together to tackle the climate crisis.