Co-creation with financial sector to develop Leuven climate fund

On June 11th - together with the city of Leuven and impact investment collective Impact Finance Belgium - we brought together 46 investors, financial institutions and fund managers at De Hoorn in Leuven. The aim: to reflect on a new kind of fund that inextricably links financial and social returns. Many financial parties have been working on their sustainability strategy for some time, but this was the first time that so many of them actively took up the challenge of thinking about what they need to become a part of such a fund. It is a new step in the implementation of the Leuven Climate City Contract.

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From plan to implementation: how to finance the Leuven Climate City Contract?

The Leuven Climate City Contract contains 86 breakthrough projects that bring down Leuven's CO₂ emissions and address barriers to a rapid reduction in our emissions. To actually implement all these breakthrough projects, funding is needed. That is why the Climate City Contract also contains a financial chapter. In it, with the help of financial experts, business cases were developed for 13 representative breakthrough projects. Based on a cost-benefit analysis, for each project the investment need, the potential financial return and the project risks were estimated. Furthermore, the social added value and cost of in-action were assessed.

"Those business cases and analyses taught us some important lessons about financing the Leuven transition," says Filip Coenen, Financial Architect at Leuven 2030. "We were able to develop interesting business cases for certain breakthrough projects, for example projects in the field of energy. But at the same time we noticed that certain projects are less financially interesting within the dominant financial logic, for example depaving and mobility projects. For these projects, the return only became clear when we also expressed the positive social impact in monetary value and estimated the often overlooked cost of inaction."

These insights give direction to how we continue the work on financing the Leuven Climate City Contract. For the socially just transition we seek in Leuven, it is important that we finance all breakthrough projects. Also those projects that ensure a healthy, climate-resilient environment for everyone and include the most vulnerable in our Leuven society, even if they do not yield an immediate financial return. That is why we are now working on a transition fund that couples breakthrough projects. By combining them strategically, projects that yield a profit can help cover the financial risks of projects without an (immediate) financial return. That way, an investment portfolio comes about that combines an acceptable market return with a clear impact.

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Towards a Leuven climate fund in co-creation with the financial sector

To demonstrate that such a set-up works, we are working towards an initital fund that finances a selection of breakthrough projects. The selection was made so as to be a good test for the larger, scaled-up transition fund we are aiming at. The various emission domains are represented and both breakthrough projects in the early stages as well as those much further along were selected. The maturity of the business cases, the emission impact and the social character were also taken into account. For each selected breakthrough project, we captured key financial parameters in the business cases. These cases and the vision for the Leuven transition fund were presented to an audience of 46 financial players on June 11th.

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"All investors, financial institutions and fund managers were invited during the event to think about what it would take for them to become a part of such a new kind of fund that inextricably links financial and social returns," says Filip Coenen. "The enthusiasm to together take up the challenge and the awareness of the need to look beyond the boundaries of the existing, own models is high among many parties. That enthusiasm also translated concretely into the signing of a letter of intent to continue working together on innovative investment opportunities."

"The enthusiasm to together take up the challenge and the awareness of the need to look beyond the boundaries of the existing, own models is high among many parties", says Filip Coenen, Financial Architect for the Leuven Climate City Contract.

That the bringing together of such a diverse group of financial players is new, is also confirmed by Astrid Leyssens, closely involved in organising the event and herself an impact investor and expert at We Are Impact Collective. "Many financial parties have obviously been working on their sustainability strategy for some time and want to invest in reducing negative or strengthening positive impact. That so many parties are willing to use their expertise, starting from what is needed for the climate transition, is a strong signal," according to Leyssens.

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"Evidently, the city of Leuven will be one of the main supporting partners of the investment fund, in addition to the regular investments we are already making," said Mayor Mohamed Ridouani. "Europe recognises Leuven as innovation capital, which can serve as an example for other European cities, because of the knowledge present in the city, the innovative initiatives we have already taken in terms of climate, economy, social policy... and of course our structural cooperation with knowledge institutions, companies and residents. We are now extending this approach to work out new investment models together with Leuven 2030, in which not only the financial return counts, but also the social gains."

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