Countries all around the globe must assure a speedy recovery from the COVID-19 epidemic, confront the existential concerns posed by climate change, and take bold action in the direction of sustainable and equitable growth.
Private sector investments related to sustainable finance
Cities are at the frontline of the problem and are important participants in the struggle to attain net-zero emissions objectives since they house 55% of the world’s population and 80% of its GDP (they generate more than 70 percent of global carbon emissions). The amount of public money given to local governments for infrastructure and basic services is insufficient.
The pandemic crisis has highlighted the crucial part that infrastructure plays in ensuring urban sustainability and resilience. But many cities today confront the very real possibility of being unable to develop and maintain crucial infrastructure and services. ICMA says although income is expected to be 15 to 25 percent lower in 2021 than in prior years, local authorities’ expenses are still rising. As a result of the epidemic, central governments are heavily indebted, thus cities cannot always depend on increased money from them. In 2020, it was predicted that government debt would represent 97% of global GDP.
Clearly, new funding sources are required. Thankfully, current examples from water, sanitation, and waste management initiatives show how to improve assistance from private investors.
Support from the private sector may be used to develop workable waste management systems.
The public sector is largely responsible for waste management. Public organizations supply more than half of the world’s trash collection, treatment, and disposal services. Waste management is expensive, both in terms of the initial investment and ongoing expenses; in low-income nations, it may account for up to 20% of municipal budgets. It is also a problem for the environment. A third or more of the 2 billion tons of municipal solid garbage that are generated annually, according to the World Bank, are not handled in an ecologically responsible way.
Waste management solutions may be financed and operated via public-private partnerships (PPPs), however these PPPs are usually hampered by low levels of cost recovery, scale limitations, insufficient technical and planning ability at the local level, and a lack of suitable incentive structures. However, during the last several years there has been an increase in private investment in waste management, particularly in the funding of waste-to-energy facilities (Figure 1).
IFC study of data from IJ Global as a source
The biggest uncontrolled dump site in Europe is located in Serbia at Vina. Ninety percent of Belgrade’s garbage collection is handled by the landfill. The landfill is at capacity despite occupying around 180 soccer fields worth of territory. Additionally, it often starts fires and releases liquid contaminants into the neighboring rivers.
Authorities in Belgrade and the French-Japanese collaboration SUEZ-ITOCHU started building a new sanitary landfill, incinerator, and waste-to-energy plant in 2019, with assistance from IFC and MIGA. The group also started to close and renovate the current Vina landfill. In Serbia and the Balkans, this initiative is the first significant PPP in solid waste management. The PPP advising team at IFC supported the development of local competence, encouraged the revision of important laws, and created a bankable PPP framework. Users will now be charged for waste treatment in addition to paying for power and heat.
The innovative method used at Vina, where the rehabilitation of an active landfill was funded by combining remediation activities with revenue-generating waste management services, is highlighted by Stephane Heddesheimer, CEO of Recycling and Recovery at SUEZ in Asia. This was crucial for making the project financially viable for the private sector, and it was made possible through a procurement strategy that made use of private sector experience.
“For this project, competitive conversation was the most effective procurement strategy… A balanced, bankable, and biddable contract may be obtained via this approach. – Stephane Heddesheimer, CEO of SUEZ Asia’s Recycling and Recovery Asia
The recovery decisions made by communities now will determine urban priorities for years to come.
Cities may use green finance tools like sustainability-linked loans to put in place a green path to recovery. Borrowers are financially motivated to achieve goals connected to the Sustainable Development Goals of the UN via sustainability-linked loans.
According to Roberto Barbuti, CEO of the water utility of the State of Rio Grande do Sul in Brazil, Companhia Riograndense de Saneamento, although it can be difficult for cities to tap into sustainable financing instruments, essential urban infrastructure services are well tailored to leverage sustainable financing as they provide numerous positive environmental and social benefits (Corsan).
IFC has provided Corsan with a loan of 300 million Brazilian reais (about $56 million) with sustainability-related terms. By 2024, Corsan will be able to cut water losses from 44 percent to 35 percent thanks to the financing. The interest rate on the loan will go down if the goal is met. In a nation where 50% of the population lacks access to sewage and 16% of the population lacks access to drinkable water, the loan establishes a significant precedent.
The IFC financing to Corsan is the first credit with a sustainability component in the Brazilian water industry. However, Brazil has developed the biggest green bond market in Latin America since the country’s first green bond was issued there in 2015. The Brazilian market for sustainable finance is changing from green bonds to sustainability-linked products, which currently account for more than $10 billion, according to Gustavo Pimentel, Managing Director of SITAWI.
As they consider their investment requirements, cities and utilities looking to use sustainable financing instruments may seek assistance from the IFC and other international financial organizations.
Final words
Cities may draw in new private sector investors by using finance solutions that are resilient, sustainable, and climate-adaptive. Cities may use these items to fulfill their environmental goals more affordably. Future generations will be able to profit from a green rebuild if carbon-reduction objectives, resilience-building, and COVID-19 recovery activities are combined.
