Co-creating local climate bonds for net zero delivery

Summary

Local authorities are on the frontline of delivering the green infrastructure projects needed to meet national decarbonisation targets but, with increasing pressure on council finances, finding money to fund local net zero remains a real challenge.

Research in the School led by Professor Mark Davis, in collaboration with business and industry stakeholders as well as local and national government, co-created a new public financing solution. Community Municipal Investments (CMIs) use an innovative approach to investment-based crowdfunding to provide a new income stream for councils to deliver local net zero projects.

Working with Abundance Investment, Local Partnerships and latterly the Green Finance Institute, CMIs were brought to market in late 2020 as ‘Local Climate Bonds’, allowing the public to invest as little as £5 into green projects in their area. The model uses debt or equity structures to make sure that the public get a financial return.

The Local Climate Bond was piloted by both West Berkshire and Warrington councils, with each raising £1 million for local climate projects, such as rooftop and ground-mounted solar PV. Since 2020, the CMI model has been used to invest in retrofitting social housing, installing EV charging points on public highways, providing clean transport solutions for council fleets, and installing LED lighting on public highways to reduce cost and carbon.

The success of this project highlights the importance of local, place-based and people-centred approaches to sustainable living solutions.

Impact

The research has influenced national and local policy direction on public sector financing models, changed market regulation and Financial Conduct Authority (FCA) rules to give greater protection to new crowdfunding investors, and led to the launch of more Local Climate Bonds across the UK to fund specific local infrastructure projects and to the direct benefit of local public bodies and communities.

The CMI model was cited as a landmark green finance innovation in major national policy frameworks, such as UK Government’s 2021 Net Zero Strategy: Build Back Greener and Green Party Wales’s 2021 Green Transformation Senedd election manifesto. The research has also created new business opportunities for crowdfunding platforms and professional services firms offering technical, legal and financial advice to councils.

As of summer 2024, the CMI model had raised over £8 million for local net zero projects with a further six UK councils planning to launch a Local Climate Bond in 2025. This pathway to impact process is supported by the Green Finance Institute who continue to campaign for all UK councils to pledge to launch a Local Climate Bond to help fund local net zero projects.

Publications and Outputs

Davis, M. and Braunholtz-Speight, T. (2016) Financial Innovation Today: Towards Economic Resilience. Friends Provident Foundation.

Davis, M. and Cartwright, L. (2019) Financing for Society: Assessing the Suitability of Crowdfunding for the Public Sector. GIEU/University of Leeds.

Davis, M., Braunholtz-Speight, T. and Wardrop, R. (2020) ‘Crowdfunding as democratic finance? Understanding how and why UK investors trust these markets’, Revista Internacional De Sociología, 78(4): e173.

PCAN (2020) Turning Words into Action: How Community Municipal Investments can create a new sphere of civic engagement that will galvanise local action in the fight against the climate emergency. PCAN/LSE Grantham Institute.

Davis, M. (2021) Community Municipal Investments: Accelerating the Potential of Local Net Zero Strategies. Innovate UK/University of Leeds. Available here.

Davis, M and Davis, B (2021) Crowdfunding and the Democratization of Finance. Bristol: Bristol University Press.

Sugar, K, Moya Mose, T, Nolden, C, Davis, M, Eyre, N, Sanchez-Graells, A and Van der Horst, D. (2022) ‘Local decarbonisation opportunities and barriers: UK public procurement legislation’, Buildings and Cities, 3, 1: 895–911.

Websites

https://baumaninstitute.leeds.ac.uk/research/cmis-local-climate-bonds/

https://issuers.abundanceinvestment.com/council-climate-bonds