The organisations hope their joint £16m commitment will accelerate net-zero projects in local authorities in the UK.
Unity Trust Bank and the Esmée Fairbairn Foundation have invested £16m (€13.6m) into local climate bonds developed by Green Finance Institute (GFI) and Abundance Investments.
Unity Trust Bank has become the first institutional investor in the UK to back this approach to local green investment, after committing £15m.
The Esmée Fairbairn Foundation committed to £1m in match-funding over the next two years, meaning it will add 50p to every £1 invested by a local resident into local authority green investments.
Local residents can invest as little as £5, with the proceeds going to local projects such as renewable energy schemes, building retrofits, green infrastructure initiatives and nature adaptation schemes like rewilding and tree planting.
Municipal investing has huge potential to produce both strong returns and tangible local impact, according to Miles Ashton, associate director, local green investment at the Green Finance Institute.
“Over the past two years, councils have required over £9bn in borrowing annually. Although local climate bonds are still in the early stages, they have the potential to scale and help meet the £58bn local authorities need to reach net zero by 2035. Meanwhile, UK savers hold around £1.5trn in savings; if even a small share were redirected into local climate bonds, it could significantly boost citizen-led, place-based climate action,” Ashton told Impact Investor.
Councils on the brink
To date, GFI has mobilised £11.5m in private capital has from over 2,750 investors in 14 local authorities for local environmental and social impact projects.
The commitment by Unity and Esmée Fairbairn comes at a challenging time for local authorities, with almost half of councils in England currently at risk of going bankrupt due to mounting pressure on public services, a National Audit Office report warned earlier this year.
Since 2019, three-quarters of all local authorities have declared a climate emergency and have committed to delivering net zero. But more than two-thirds say they aren’t getting enough funding to achieve their net-zero targets, according to the Local Government Association.
Local climate bonds may be able to alleviate some of the financial pressures local councils are under at the moment, according to Ashton.
“As the local climate bond market grows and gains wider adoption, local authorities will benefit from a lower cost of borrowing due to the availability of local climate bonds as an alternative source of financing,” Ashton said.
‘Ideal platform’
Unity Trust Bank sees green municipal investing as a strategic opportunity to support scalable, local solutions to the climate crisis, according to its chief impact officer Joshua Meek.
“We believe investing this way in councils provides the ideal platform for communities and organisations like Unity to work together and support local solutions to climate change, and we would encourage other impact-driven investors to consider how they too can support the vital work of grassroots authorities,” Meek said.
The Esmée Fairbairn Foundation said it has already deployed the first tranche of £165,000 to three open local authority investments in the city of Bristol and the London boroughs of Hackney and Hammersmith & Fulham. The money will be used to fund green projects including greening measures for community buildings, expansion of green infrastructure such as rain gardens and natural flood management, and energy efficiency upgrades for a school.
“The match funding of investment by local residents will support communities to have a greater stake in local regeneration and build citizen agency around local climate action. When it comes to the places we live in, we are proud to back people and organisations who are making their local communities more vibrant, confident and economically resilient,” said Gillian Dickson, social investment manager at the Esmée Fairbairn Foundation.
“In everything we do, the foundation is committed to addressing the causes and impacts of climate change. We have a £70m allocation to social and impact investing, with a thematic-led strategy aligning investments to the foundation’s three aims: to improve our natural world; secure a fairer future; and nurture creative, confident communities,” Dickson told Impact Investor.
“In terms of the foundation’s £1.3bn endowment, we are committed to ensuring our investment portfolio will be net zero in terms of carbon emissions by 2040 at the latest,” Dickson said.
Better than gilts?
While most of the £11.5m in private capital raised for the local climate bond market has come from indivuduals, a small portion came from endowments, according to Ashton.
“Local climate bonds are attractive to institutional investors because it offers a premium to the gilt rate for a similar risk profile, coupled with tangible, traceable and high levels of green and social impact,” Ashton said.
He went on to say the GFI is currently in talks with a number of institutional investors who may be able to help further scale the municipal green market in the coming months.
Karl Harder, co-founder and joint managing director of green investment platform Abundance Investment, called the £16m commitment “a pivotal moment” in the growth of municipal investments.
“This isn’t just a cost-effective borrowing source for councils. It is a way to build a community that is really engaged in their climate action plans,” Harder said.
