Session 9 Toshiro Nishizawa

"LOCAL GREEN FINANCE AS SOCIAL COMMON CAPITAL"

By Toshiro Nishizawa, Project Professor Graduate School of Public Policy The University of Tokyo

3rd OECD Green Investment Financing Forum In association with the ADB Institute October 13-14, 2016 in Tokyo DAY 2—LOCAL GREEN FINANCE

Green investment could contribute to sustainable development at the local level if properly designed and implemented.

Financing is one of the challenges localities face.

A community-based financing mechanism could be effective as a framework for local green finance for high quality green investment and thus for sustainable development imperatives.

Community-based financing mechanism

October 14, 2016 Toshiro Nishizawa | GraSPP, The University of Tokyo

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Green investment could contribute to sustainable development at the local level if properly designed and implemented.

Financing is one of the challenges localities face.

A community-based financing mechanism could be effective as a framework for local green finance for high quality green investment and thus for sustainable development imperatives.

Social Common Capital (SCC)

Local green finance could be seen as a good representation of "social common capital" (a concept developed by the late Professor Hirofumi Uzawa).

Social Common Capital (SCC) provides members of society with services and institutional arrangements crucial in maintaining human and cultural life.

October 14, 2016 Toshiro Nishizawa | GraSPP, The University of Tokyo

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Source: Uzawa, Hirofumi. 2005. Economic Analysis of Social Common Capital.

Natural Capital

Institutional Capital

Social Infrastructure

Advantages of a community-based financing mechanism

Financial intermediation to connect local fund providers and local investment needs has advantages over the conventional financing mechanisms¶.

correcting information asymmetry through the closeness and enhanced visibility between stakeholders

local fund providers' preference for value to local community beyond or instead of financial returns

potentially reduce the financial burden on the central or local government budget

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Toshiro Nishizawa | GraSPP, The University of Tokyo October 14, 2016

¶ Yoshino, Naoyuki, and Sahoko Kaji, ed. 2013. Home Town Investment Trust Funds—A Stable Way to Supply Risk Capital.

Kundalahalli Lake Rejuvenation Project

Kundalahalli Lake in the city of Bangalore, India, has an excellent potential as an urban wildlife refuge with lots of birds and fish catch.

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Information on Kundalahalli Lake Rejuvenation Project is kindly provided by Mr. Arvind Keerthi, Center for Smart Cities, Bangalore, India. [[email protected]; http://c-smart.in/]

Kundalahalli Lake Rejuvenation Project (continued)

Garbage dumps seen around the lake, untreated sewage flowing into the lake, ...

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Step 1: Conference with local companies and BBMP¶ to create a financing plan (June 2015)

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¶ Bruhat Bengaluru Mahanagara Palike (BBMP) is the administrative body responsible for the civic and infrastructural assets of the Greater Bangalore metropolitan area.


Step 2: Local stakeholders' buy-in

Local support—outreach efforts; push local land-holders to cooperate with government efforts to fix boundaries

University support—a veteran lake-rejuvenator guided on pollution norms, water quality, etc.

Government support

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Step 3: Financial plan agreed upon (December 2015) Major sponsors Qualcomm (₨12 million = $180 thousand) General Electric (₨10 million = $150 thousand) Government match (₨30 million = $450 thousand)

Public-Private Partnerships on work division Private money for two sewage treatment plants Public money for boundary-making, feedstock pipes, desludging, etc.

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Step 4: Contractors and architects appointed (January 2016)

Private portion—appointed based on bidding, interviews and other assessments

Public Portion—appointed based on conventional bidding procedures

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Step 5: Project launch (February 2016)

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Concluding thoughts

Community-based financing has a good potential in advancing green investment for its advantages over the conventional financing mechanisms.

The key to sustainably successful services provision still rests on business basics.

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Concluding thoughts (continued)

In sum, risk/return profile of projects (or expected patterns of future cash flows) needs to be attractive enough for financiers after taking into account community members' preferred contribution compatible with their own satisfaction and with even broader public value.

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Concluding thoughts (continued)

How to secure cash flows to cover the costs, both capital and operational,

and to satisfy private investors and financiers, perhaps including value to local community beyond or instead of financial returns

How to minimize costs of public intervention, both direct and contingent, and avoiding moral hazard

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Consumers / Users cash

Project

cash

Operational costs

(Finance costs)

‖ cash contribution equivalent to value

to local community Community stakeholders

‖ cash

Current and future tax payers

cash

Public sector

cash

Capital costs

Cost savings

Concluding thoughts (continued) 15


sustainably successful services provision

QUESTIONS FOR DISCUSSION 16


What are recent developments on innovative local financing practices?

How can local governments further facilitate investments in green projects in the context of the SDGs?

What lessons can be drawn from Asian experiences?

Environment

Session 9 Toshiro Nishizawa