The Climate City Contract as the basis for a Leuven transition fund

The Leuven Climate City Contract is the plan of Leuven 2030, the city of Leuven and more than 30 key actors to accelerate towards a climate-neutral city. It contains 86 breakthrough projects that bring down our CO₂ emissions and address barriers to a rapid reduction in our emissions. They have been chosen to be representative. By this we mean that we will often encounter the barriers that occur in one breakthrough project in other places in Leuven. For example, if we build a heat network in one street, we will learn all kinds of things from it to realise it faster in yet other streets, neighbourhoods and districts. In this way, the solutions that the breakthrough projects lead to, lay the groundwork for scaling up, bringing the required 80% reduction in CO₂ by 2030 within reach. 

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The starting point

To actually implement all these breakthrough projects, money is needed. That is why the Leuven Climate City Contract also contains a financial chapter. In it, with the help of financial experts, we developed a business case for 13 of the breakthrough projects. Based on a cost-benefit analysis, we calculated the investment need and the potential financial return for each project. We also estimated the project risks. But we did not stop there. We further assessed the social added value - albeit indicatively -and identified the cost of in-action.

Those analyses taught us some important lessons about financing the Leuven transition:

• A lot of investments are needed. Also so-called up-front investments: money needed for a faster emission reduction, but for which it is not yet always clear whether there is a financial return or when there could be one.
• Not all of these investments are about additional capital: some of the money needed is already in planned investments or is now being spent differently.
• Interesting business cases can be developed for certain breakthrough projects, for example projects in the field of energy, but within the dominant financial logic this is less the case for others, such as depaving and mobility projects. For these projects, the return only becomes clear when we also express the positive social impact in monetary value and estimate the (often overlooked) cost of inaction. Think, for instance, of better health and well-being through increased air quality and more greenery, but also the costs saved through avoided flooding.

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From plan to implementation: how to finance the breakthrough projects?

These lessons determine how we proceed. For the he 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, you get an investment portfolio that combines an acceptable market return with a clear impact.

Such a pooled portfolio also makes it possible to tap into different sources of capital to make the necessary investments. Money from pension funds, insurance funds and (impact) investors that is currently invested elsewhere, venture capital and philantrophy, as well as funding from local and supra-local governments and savers. In this way, we make the transition not only affordable, but also financially ánd socially interesting.

We believe such a Leuven transition fund is the way forward. At the same time, it is a financing instrument that is not easy to set up. The model we are developing colours outside the lines of what is prevalent in the financial world today. It asks that investors and institutions work together in new ways. It also requires us to be aware of the various expectations of potential investors and select the breakthrough projects accordingly. That work is in full swing.

The following questions guide the steps we take:

• Which breakthrough projects have a business case with an attractive financial return or predictable cash flow?
• Which breakthrough projects are indispensable from the point of view of social return and how do you determine that?
• How do you combine them in a fund that links financial and social returns and ensures that investments always happen in the whole?
• Who then wants to invest in it and how do you make sure the necessary resources find their way to the fund?

You will gradually read more about the answers we formulate to these questions here, on our LinkedIn channel and in our newsletter. We will first work towards an initital fund that finances a selection of breakthrough projects from the Leuven Climate City Contract, to demonstrate that the set-up works.

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Want to know more about the 86 breakthrough projects and the commitments of more than 30 Leuven partners?

Interested in helping to build a fund for Leuven that links financial and social return, or investing in it?

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