Funding climate change resilience

On 24 May, Future of London brought together senior representatives from local authorities, housing associations, developers and other organisations to discuss mechanisms to pay for schemes that address short-term environmental stresses and long-term resilience in London – and to explore how equity can be built into these programmes.

This was the third roundtable in our major research programme, Managing London’s Exposure to Climate Change (previous roundtables took place in November 2015 and April 2016), delivered with partner Arup. The event was kindly hosted by TLT Solicitors.

The discussion reviewed existing and potential local authority options for financing climate change adaptation and mitigation. It then looked at how local authorities and other levels of government can create conditions that encourage equitable investment and financial innovation in this area.

Here is an anonymised summary of key points raised in the Chatham House session:

Raising revenue as a local authority

  • Some boroughs (e.g. Islington) have tied parking permit charges to vehicle emissions. However, boroughs could struggle to ring-fence this revenue for adaptation/mitigation programmes and administration costs could absorb much of the income, making this sort of scheme better for raising awareness of residents’ environmental impact than for raising money.
  • Section 106 and the Community Infrastructure Levy could be useful tools for building environmental features into development projects, but they are not always maximised, due to a shortage of skills or capacity in the planning authority. Having a robust negotiation process, led by a chief negotiator who understands cost modelling and the pressures developers face, is integral to extracting an agreement that contributes to resilience while satisfying demands for viability. On top of this, boroughs need someone to oversee allocation of these funds to ensure that agreements are implemented.
  • Value capture — an umbrella term for mechanisms where the public sector can harness increases in property value — can provide indirect private-sector funding. Some boroughs are using value capture mechanisms to finance community and infrastructure improvements and to set up funds for environmental schemes in new communities.
  • Local authorities shouldn’t be afraid to try new charging models or act more commercially. However, boroughs are traditionally risk-averse organisations, often lacking the required skills or knowledge to pioneer new systems.

Assets v. place

  • When acting as client on development schemes, local authorities should develop a vision that clearly outlines the aspirations for a particular place to the developer partner. Having a vision also gives a borough a strong position for bargaining with developers and other partners to finance adaptation/mitigation schemes through S106, CIL etc.
  • This idea of creating a vision is less about looking at the resilience of individual assets and more about a holistic masterplan for a place. Reducing environmental stresses and building in environmental resilience both support the longevity and success of the place, which is advantageous to both public-sector client and developer/contractor.
  • Traditionally, developers aim to deliver as many homes as possible and make a profit, without necessarily being concerned with legacy. This method appears to be changing as many bigger developers seek to build their brands: they don’t want their name attached to a long-term regeneration scheme whose buildings overheat or whose landscaping floods in heavy rain; and increasingly, they want to create ‘places’ that encourage the local community to have interest and a sense of ownership. Reputational risk and traditional market forces can drive investment in adaptation/mitigation if they are important to investors and shareholders.
  • Developers are less likely to incorporate adaptation/mitigation measures in smaller projects, as these rarely have a long-term holistic vision and focus more on delivering assets rather than places. Similarly, smaller operations will have less capacity to pursue adaptation/mitigation innovations. However, these measures can be cost-effective for developers if incorporated into schemes as early as possible. Again, the role of the borough as client and influencer is key.
  • The general public is not particularly interested in climate change mitigation, nor is it a priority high on the political agenda. Therefore, resilience needs to support wider strategic goals and priorities to achieve buy-in and generate interest — from top to bottom.

Incentivising communities to finance environmental resilience

  • Boroughs can create conditions wherein different organisations pay appropriate amounts to increase resilience. A first step is to understand all the stakeholders of an asset or place — owner, manager, leaseholder, user or other involvement. From here, it’s possible to establish a representative working group and/or determine how much investment each body could/should contribute.
  • Places with a wide range of functions may be best able to generate partnerships and funding — they have a large pool of stakeholders compared to single-function spaces. This is a reason to create or redevelop multi-functionality in assets and places.
  • Business Improvement Districts (BIDs) are motivated by increasing the competitive advantage of an area through place-shaping. Many fund initiatives such as green infrastructure and air quality monitoring. These projects aim to create healthier, more attractive places to work and visit, linking environmental improvements with economic performance. With over 50 BIDs throughout London, this model is replicable on a wide scale, and some projects are already spreading across the Capital.
  • Energy regulator Ofgem offers funding and competitions to gas and electricity suppliers to develop innovative projects intended to create ‘smarter’ energy networks, deliver environmental benefits and provide value for money to customers. There may be opportunities for other regulators, membership bodies and trade associations to organise similar initiatives.
  • It was felt that the insurance industry has been slow to take an interest in financing adaptation and mitigation, particularly considering the huge opportunities for investment in this area and industry awareness of the potential financial cost of inaction.

Roundtable participants were:

Ben Coombes, Affinity Sutton
Harriet O’Brien, Arup
Louise Clarke, Berkeley Group
Amanda Robinson, Future of London
Jo Wilson, Future of London
Anita Konrad, Groundwork
Jo Mortensen, LB Ealing
John Baker, LB Enfield
Kristen Guida, London Climate Change Partnership
Jessica Lewis, London Councils
Fola Ogunyoye, Royal HaskoningDHV
Isobel Bruun-Kiaer, TCPA

The final event in this research series will be on 13 July, hosted by Arup. The final report will be available in October. For more information, contact Amanda Robinson.