Urban Reverb: Make the Match - Striking a Deal between Cities and Finance

Interviewees

 

Eelco Kruizinga: Matchmaker for the Smart Cities Marketplace and Senior principal consultant at DNV GL

Jessica Stromback: CEO of Joule Assets

Jorge Rodrigues de Almeida: Matchmaker for the Smart Cities Marketplace and Founder and Managing Director of RdA Climate Solutions

Malvine Socaci: Deputy Mayor of Vulcan, Romania

 

Transcript

Jessica Stromback: The European Commission and the European member states will never meet their targets. The Paris Accord objectives will never be met if there's a total mismatch and a continued mismatch at every level between money and the people who are developing projects.

Anthony Colclough: No climate targets, no Paris accord. A stark prospect, but one that we can avoid, at least according to Joule Assets CEO Jessica Stromback.

Jessica: [laughing] I've given it some thought.

Anthony: Vulcan City Deputy Mayor Malvine Socaci.

Malvine Socaci: I have quite a large vision about how Romania should look.

Anthony: And the Smart Cities Marketplace matchmakers Eelco and Jorge. 

Eelco Kruizinga: Jorge you go first. You're the most important man, of course. 

Jorge Rodrigues de Almeida: No, I'm not. So, First of all, the most important man is Eelco... no.

Anthony: This is Urban Reverb, the official podcast of the Smart Cities Market Place, a European initiative made possible by European funding. I'm Anthony Colclough. The issue that Jessica is putting on the table is this: Unless you advocate for power down, to stop climate change you need lots of sustainable projects. And to fuel those projects you need money.

Jessica: In Europe we notice that the biggest challenge was the mismatch between the requirements of money and what a financial fund will need, and what the local market needs. 

Anthony: That's what her company Joule Assets deals with. 

Jessica: In Europe, we look to facilitate the financing of energy efficiency and renewables projects. In the US we work with municipalities to help them create local sustainable energy solutions.

Anthony: One city that is trying to work with investors to transform itself is Vulcan. 

Malvine: The problem here is that this used to be coal mining exploitation. And now as we are reducing and reducing and reducing, we have to think what we put instead. You can't just say now we close, we shut down everything and we don't give people an opportunity to go on, survive and  for people to have a better life. So that is my main desire: to find a way to attract investors and see how wonderful the region is.

Anthony: Malvine’s dream is to go from selling cold to selling snow. 

Malvine: We would like to change the town and make it into a mountain resort because we have skiing slopes that are quite visited by many people from Romania, and not only. That's why I would like to attract investment.

Anthony: So what's the issue? We don't have enough money around for cities like Malvine's which want to go sustainable and have business ideas in place?

Jessica: The European market is flooded with money, but it's not flooded with money for the projects that actually exist. There are many financial funds which have been financing large infrastructure projects, so telephone wires, I mean bridges, roads and are used to a small investment being €50 million, whereas an energy efficiency project or even quite a decently scaled renewables project, microgrid, et cetera, you're looking at a much more dynamic, diverse set of technologies, players, et cetera and much, much smaller.

Anthony: Big money, small projects. Got it. Also, unlike Malvine, many city leaders do not think about sustainable projects as potential investments. 

Jessica: They have never needed to structure an investment before. They've never thought of their projects as investments. They've simply taken loans to cover their own costs. They don't have the necessary tools or the necessary knowledge, many of them, to succeed in attracting investment. 

Anthony: The European Commission is trying to solve this through the Smart Cities Marketplace, an initiative to bring together cities and investors for sustainable projects. Eelco Kruizinga and Jorge Rodrigues de Almeida are working in the project as matchmakers, helping cities and finance to fall in love.

Eelco: Private finance organisations find it also hard to really connect to cities and it has different reasons. It might be the cities have projects that are not mature enough, or don't have the right scale for private finance to be really interested in that. So I think it’s a mutual invisibility in a sense. That's, I think, one of the main reasons why we need a matchmaking facility: to bring people together that otherwise couldn't really find each other.

Jorge: Also, there is a gap in terms of language, so one of our roles is to make this language barrier easier; to adapt a little bit the language of the city representatives, also the investors on the other side so that they meet.

Anthony: But why does all this money have to come from private investors? Can governments just supply them? 

Jessica: You can't do public grants at trillions of euros, and that's the level of investment that we need in Europe – indeed, across the globe, right. So it's imperative for all of us, in order to fight climate change, that we figure this problem out. From the investor's point of view, of course, they can't spend their money if they don't figure out how to meet the needs of the market. 

Anthony: Grants have their purpose, Eelco says, but finance has to go further.

Eelco: Grants are, of course, super instruments to start pilots and it’s a derisking element as well, to have the external finance to try a new approach or to build your first pilot. But indeed, having a regenerative, let’s call it a model or business model within your city is of course longer lasting, is literally more sustainable.

Jorge: Yeah, actually that's a key point because, as I mentioned, there are risks that private investors would not like to take or they would take it but with a high cost. And that's where, for instance, Horizon 2020 or other grants could come in and help to develop the technology, to make a test bed to test it. But then you need to scale it up to the city level, and that's where we think that private capital should jump in.

Anthony: To make this big move from a grant-based model to a finance-based model, one thing is key: education.

Jessica: A big part of our efforts are around education of, particularly, contractors. Now I think we should also mention that the investment community has really worked quite hard to educate themselves about these projects as well, and neither side is standing still. Both sides know that this is a need and both sides are working on it, and so they are getting closer, but there is still a really significant gap there. 

Anthony: That's what Malvine found useful about the Smart Cities Marketplace. 

Malvine: In this wonderful masterclass, I would like to congratulate all those who really gave me this opportunity to see their presentations, they were very, very interesting, not boring at all, because I learned a lot. And this is very, very important. If you have the vision, you find the strategy and if you have the strategy then you can establish: this is short term, middle term long term.

Anthony: She's taking her big vision for Romania and starting by bringing together all the stakeholders in her locality.

Malvine: Yes, you can solve almost anything in this world, as long as you have a productive dialogue and you are a good listener. You know, I had this experience that all people talk but nobody listens. So, we are the sort of administration who listens. And I feel confident that we can work together. We had several meetings, several workshops. I told them my ideas, what I would do if I had that money, what to invest in. What really… Of course, you can't have profit in short term. Yes, on the long run.

Anthony: What's the secret to getting all the necessary players on board? 

Malvine: The main factor is trust. If you trust an administration that they really are willing to do it, not just the tell stories and to demonstrate that you want to do it by writing projects by having a competitive team by being able to be a good team player. I believe I gained their trust that they always can come and talk and they will find a partner in a dialogue. So you know, if I'm a deputy mayor, that doesn't mean I'm somewhere up high. No. You should remain there in the middle of the crowd and see, hey, first of all we started from people.

Anthony: But why should people trust private companies to deliver on sustainability? After all, every day we see headlines about just a small number of companies being responsible for an enormous percentage of global emissions, or about the latest corporate environmental disaster. 

Eelco: Scepticism always has a ground in something, but increasingly the investment community is looking for investments that have impacts. And impact is not only just about financial return on investment, but it is also doing the right thing for the world as well. So you have the whole movement around the ESG [Environmental Social Governance] movement, so nearly every investment company or fund has their own environmental, social and governance rules looking for investment goals that do not do harm in the sense that there's no child labour involved, there’s no impact on, or let’s say limited impact on ecosystems and biodiversity. That's definitely an increasing  movement. It is not just only a bookkeeper looking at a spreadsheet, it's also looking at the true impact of the investment on the ground.

Jorge: Also, it is very interesting to see that, banks are usually big machines that they are responsive, they respond to the to the demands, so they are not very proactive usually in the market. But nowadays if you go for your local branch of your bank, you will see that they have a sign of sustainability and they want to invest in sustainability. People are now asking to see how they are using their money. 

Jessica: There is an increasing number of entities, rich individuals, et cetera, who insist to their money managers and their funds that they find green investments. So these fund managers are given the job of investing in environmentally friendly projects. So they are out looking for them.

Jorge: That's where the European Commission comes in because they are setting the ground with this EU taxonomy, with a lot of regulations around the sustainable finance. So they're setting the ground for the majority of the investments to become green investments. That's what we will see over the next years, that this policy of investments will shift. Of course, this is not a thing that you do from one day to another. It will take time.  But this is something that we are seeing every day and increasingly seeing it.

Malvine: It would be hypocritical to say that businessmen don't want to make money. That would be something that no businessman would ever say is true. And so we thought about ways to offer them some opportunities in order to develop the region on one hand and on the other hand, for their business to thrive. Because first of all, the most difficult thing, Anthony, is to change these peoples’ mentality. There are now lots of years since the revolution. You should know that it took a great deal and great courage and a lot of effort to make them understand that businessmen are not some sharks, yes, who just want profit. Businessmen are really interested in, of course, in making money, because I told you if you don't have profit then you can shut down your business, but not to be too greedy, so to offer something back.

Anthony: I was really glad to hear that social expectations and other market constraints were creating this great pressure for more sustainable investment and about the EU initiatives to hurry that along. But having heard about the barriers between local government and private investment, and given the extreme urgency of tackling climate change, I had one question: Is the future bright here? Will we make the connexion before it's too late?

Jorge: I write articles for magazines for many years and my articles a few years ago, they complain about the lack of capital for the sustainability. But nowadays my articles are more on the lack of bold or bankable projects for the investment that is available. So there is a huge change in the market. I do see a greener future for all of us.

Jessica: All the numbers are up. And one thing that's really encouraging, and energy efficiency is a bit of an exception here – energy efficiency is harder than other environmentally friendly solutions, so it's a bit slower, for sure – but if you look at just the graphs of renewables, the graphs of regenerative farming, smart land management, carbon sequestration in soil, water management, et cetera, et cetera, et cetera… You have enough places burned down like California or what happened in Texas. Or, in Europe, all those continuous, never ending floods. The need for creative solutions that exist today, but implementation, and implementation has to happen at the local level, it becomes an easier an easier sell. And their comfort level with people that otherwise might be cautious, maybe for good reasons, et cetera, but the comfort level around trying something, enabling something that will help mitigate really clear measurable threats at the local level is more and more compelling as we move forward. And so I really only see growth. Now, will the growth be fast enough is the question. That none of us actually know.

Malvine: I know that I had to fight with this defensive attitude and I said, ‘No. You have to think positively because this region will change.’ But it depends on us. We have to develop our town too. That's very important and I was quite glad that one of the businessman, Mr Fulga, who is the president of that committee I mentioned before, he is willing to invest and have a private public partnership with the town so that, for instance, we could have parking places where you have the possibility to charge your car. I would say the approach we should have had 20 years ago, but it's never too late to start now.

Jessica: I started out with smart metering, this is in 2007, and I'd have one engineer after another tell me that none of these things were going to happen, that there just wasn't the industry interest. And then ten years later it was Christmas, and we have a little house out in a fishing village in the middle of Finland, right? Like it's snowy, it's icy, it's isolated, and our village priest came over for a cup of coffee after Christmas. And he's this big guy and we have a couch by the fireplace and he comes and sits himself down in the couch and asks for his cup of coffee and starts to talk about what he's been doing at Christmas.

And what he had done is installed a smart metre and he was so excited because he travels a lot and this way he can also know a little bit about what's going on in his house and he can check his thermostat, and ‘isn't that exciting.’ And it was all his conversation for that evening is how exciting this was, how he was thinking to maybe do solar. And the click that that made for me of, ‘wait a second.’ We've all been working on this for ever, and here I am, really in the middle of nowhere, and my village priest, this is the most exciting thing that happened at Christmas. And it really brought home for me the power of ideas and the power of collective effort to gradually create real change. And I think for all of us that work day-in day-out with these  projects, it's really important to remember that. 

Anthony: So there you have it. The challenges are real, but change is possible and it's coming. We've heard it from cities, from investors from the European Commission's experts, and even from the village priest. If you're ready to be part of that change, check out http://smart-hyphen-cities-marketplace.ec.europa.eu. Thanks for listening.