Towards a coupled return at market level

If Leuven wants to remain one of the most caring, green and prosperous cities, we need all the breakthrough projects in the Leuven Climate City Contract. Also those without an immediate financial return. A crucial question for funding therefore is: which breakthrough projects have a business case we can build upon to link others to them?

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The Leuven transition fund aims to finance áll breakthrough projects in the Leuven Climate City Contract. Both those projects with an attractive financial return as well as those that, above all, have a social added value. That is why we seek to combine the breakthrough projects strategically, so that projects that generate profit can also cover the financial risks of projects with no (or no immediate) return. This creates an investment portfolio that combines an acceptable market return with maximum impact. In this blog, you can read how we arrived at such a pooled portfolio.

A crucial question then is:

Which breakthrough projects yield the most interesting financial returns today, and what returns are we then talking about? In other words: which business cases can we build upon to link others to them?

To answer this question, we mapped key financial parameters on which investors assess breakthrough projects. These include estimated CAPEX (or capital investment, for example for installing a heat network) and OPEX (the operational cost, for example for operating that heat network) investments, payback period and other common financial indicators such as IRR and NPV.

We did this exercise for the 13 breakthrough projects for which an initial business case was developed when the Climate City Contract was submitted in October ‘23 and for others that surfaced in the meantime in discussions with commitment takers and financial players. We poured all these parameters into an interactive dashboard.

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As we are working towards an initial fund to demonstrate that our set-up works, we then selected a limited number of breakthrough projects. To be a good test for the scaled-up model, we made a selection across emission domains. We also weighed the maturity of the business cases, the emission impact and the social character. Moreover, we were careful to select both breakthrough projects that are in the early stages and those that are much further along. To this end, we plotted the various breakthrough projects on a ladder of growth common in the investment world. This plotting also gives us other interesting insights. After all, there are different risks associated with projects at different stages. Those risks help determine the size of the investment, what is considered an acceptable market return and which investors might be interested. In this way, we bring together the logic of the portfolio of breakthrough projects with the logic of the financial world.

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All those conversations and analyses resulted in the selection below. The selected breakthrough projects with the highest financial return, such as ‘Solar panels on Leuven's biggest roofs’, are accompanied by those breakthrough projects with business cases that are less attractive to investors with the current info, but which are necessary if we want to make Leuven a climate-resilient, CO₂-neutral city. Consider, for example, the depaving of the Constantin Meunierstraat.

• A Leuven heat company
• Green heating and greening of the Constantin Meunierstraat
• Hal 9 as a green engine for the surrounding residential area
• Solar panels on Leuven's biggest roofs
• The ring road as basis for sustainable mobility and green infrastructure
• Scaling up the Materials Bank
• Leuven as an Urban Resource Center

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The selection may change along the way. After all, the breakthrough projects are still in full development. However, it is on the basis of these business cases that we will enter into conversations with a host of financial parties. To this end, together with Impact Finance Belgium and the city of Leuven, we are organising an event on June 11th during which we bring together a diverse group of financiers and explicitly ask them to think about what they need to become a part of this fund. More about that soon. 

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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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