Investment of £16 million injected into the local climate bond market in the UK for private backing
In a significant development for the UK's fight against climate change, private investors have recently poured funds into the Local Climate Bond market. This move comes as local authorities seek alternative financing options due to concerns about the adequacy of central government support to meet net-zero targets.
One of the key players in this shift is Unity Trust Bank, which has committed £15m to the UK's Local Climate Bond market, making it the first institutional backer of this market. The funds will be co-invested alongside resident contributions to finance projects such as school energy retrofits, flood resilience schemes, and green infrastructure.
The Esmeé Fairbairn Foundation has also joined the fray, committing £1m to the Local Climate Bond market. This investment will be used as match-funding to encourage citizen investment, and the first £165,000 of the Foundation's funding has already been deployed to support green projects in Bristol, Hackney, and Hammersmith & Fulham.
This model enables councils to borrow directly from citizens and institutions to fund local climate action, a strategy that has already been adopted by 14 councils in the UK, who have collectively raised £11.5m from more than 2,750 citizen investors.
The benefits of this approach are manifold. For local authorities, it provides increased access to funding, enabling them to fund larger or more numerous climate projects. The demonstrated ability to attract private investors through Local Climate Bonds can create a replicable model, encouraging other councils to follow suit and scale up their net-zero actions.
With secured funding, local authorities can implement renewable energy installations, energy efficiency upgrades, and other decarbonization projects more rapidly and at scale. Aligning Local Climate Bonds with recognised green bond standards ensures the environmental integrity of the funded projects, thereby bolstering the market’s credibility and long-term viability.
The UK government estimates that 82% of all greenhouse gas emissions fall within the scope of local authorities, making their role crucial in the nation's quest for net-zero. However, local governments are facing mounting cost pressures due to more than a decade of budget cuts. The influx of private capital could provide a much-needed boost to their efforts.
Councillors from participating boroughs have welcomed the news, emphasizing the benefits of combining grassroots and institutional investment. GFI and Abundance Investment have worked in partnership to establish the local municipal investment model, and the new institutional backing is seen as a key milestone in scaling the UK's Local Climate Bond market.
This development supports the UK’s broader climate goals by leveraging capital markets to bridge the financing gap for clean energy and resilience projects at the community level. GFI views this as a "pivotal moment" for the asset class, signifying a promising future for local-government-led transitions to net-zero.
Science and environmental-science have played significant roles in the development of the Local Climate Bond market, as these investments are aimed at financing projects that address climate change, such as school energy retrofits and green infrastructure. Finance and investing are essential aspects, with private institutions like Unity Trust Bank and Esmeé Fairbairn Foundation committing funds to this market, seeking returns while contributing to the fight against climate change.
