LOCAL GOVERNMENT SUMMIT: At the base of most projects is how we pay for them. Stella Whittaker of Haskoning and Gordon Noble of UTS stepped through the global and local government scenarios for climate adaptation and local government finance at last week’s Local Government, Net Zero and Sustainable Communities summit in Sydney.
In some ways, adaptation finance is the Cinderella that never gets to the ball, according to Stella Whittaker, climate change, adaptation and resilience lead at Haskoning.
And yet it’s both critical and urgent.
Whittaker kicked off her address with a call to action for a range of stakeholders to take part in a kind of match making services she was heading in Sydney to connect finance stakeholders with roadmaps for action.
In the UK research work for her PhD she did with Imperial College London, she developed 70 actions, “and very few of them actually cost money. They were basically fixing some of those barriers and making things work so that finance could be mobilised.”
There are some interesting projects underway globally and that’s just as well with the Intergovernmental ePanel on Climate Change saying the challenge in the sector is “mobilising finance to the greatest social and economic need, rather than the greatest return”.
“We really do need it,” she said. “And all over the place as fast as we can.”
People were already being killed by extreme climate events and affected in many other ways.
Put simply our current urban systems were not coping with accelerated climate hazards making physical risk “our greatest transition risk”.
This is where local governments come in. “They have the responsibility for adaptation, but they don’t have the jurisdictional wherewithal and they don’t have access to funds and resources.”
And Australian councils were very badly placed indeed in comparison to other wealthy countries, with just 4 per cent of the tax dollar distributed to local government, while in Denmark it’s 60 per cent of total tax revenue.
Over the course of her work in Europe, Whittaker interviewed nearly 100 finance or government specialists and concluded that there is a “real financing adaptation and it comes at the bottom of the pile.”
In Australia, there are some fledgling starts. There are Tcorps, or treasury green bonds but they tend to push about 74 per cent of their funds to transport – why? Whittaker pondered.
“And then there’s some really great flood buyback schemes and experimentation using land value capture and payment for ecosystem services, along with some pilots in Queensland that have been enabled by disaster recovery mechanisms.
“But all of this is pilots and very small scale.” It doesn’t get much further, she said.
A bamboozling mess of barriers
Even overseas, one of the “top adaptation scholars globally, Robbert Biesbroek,” has described the sector as a “bamboozling mess of barriers”.
But there is some progress. Whittaker has been involved in the Climate Fit program with 20 territories across the European Union that are mobilising finance for adaptation. There’s also Netherlands 2020, a Dutch innovation fund and a Singaporean project she’s involved with.
Such projects involve heavyweight institutions such as state banks – equivalent to our Reserve Bank – exactly the scale of involvement you need to mobilise action, she said.
Now it’s time to see if some serious action can be mobilised for Australia.
“We’ve socialised this with the likes of the Net Zero Commission, with the City of Sydney, Resilient Sydney … a whole suite of people who are really, really want to see this happen, but we’re really looking for that seed funding to make it real.”
Gordon Noble on local government
Gordon Noble has also been working on the same issue over the past four years but also in his previous work with City of Knox in Melbourne, GNBK Advisory and the Australian Sustainable Finance Initiative. In 2020 he co-authored an industry sustainable finance roadmap with about 80 organisations.
In times gone by, he said, local councils raised debentures – or bonds – to pay for the facilities they needed. This overcame their lack of recognition under the Constitution which would have allowed them to borrow under their own steam, but under the umbrella of the federal government’s credit rating, currently AAA, meaning cheaper cost of finance. In fact the “cheapest finance in the world”, Noble said.
An opportunity to change the game and recognise local governments in the Constitution was lost with a referendum in 1974 under the Whitlam government.
A similar conversation was initiated in the Gillard government years but then dropped, he said.
It’s a big missed opportunity, he said.
This is not to say that councils can’t borrow, but if they do, it’s under a state government’s umbrella, which can put pressure on the state’s credit ratings, sometimes quite a lot lower than that of the Commonwealth.
By contrast councils in some other wealthy countries don’t have the same borrowing constraints. The US, for instance, has a municipal bond market with 1 million transactions.
This particularly poignant, in Noble’s view.
“We have a superannuation system (this is the work that I do). They have $4 trillion so if there were bonds issued by local governments, like a municipal bond market in the US … super funds would buy those bonds, right? How good would they see that? Risk adjusted, good, steady, backed by government.”
So we need to find some alternatives, Noble said.
And one of the solutions he’s working on is the notion of partnerships, similar to the housing bond aggregation model used by community housing providers in Australia.
The model has generated $8 billion of funds for these providers enabling projects otherwise out of reach, he said.
Why not do the same for local government?
Arranging such a model would for instance create funding for a municipal swimming pool, owned by a community trust, managed in partnership with local government.
“The community trust borrows, almost like a community housing provider.”
“If we don’t find a way to fix this, we’ll see superannuation funds, our money, basically investing offshore, buying municipal bonds in the US, which would be good. San Francisco is doing some great things, and we’ll be able to show that those super funds will be able to show that they’re doing climate resilience. It just won’t be here”
“So, can we change this? This is the question I ask. I think we can.”
Councils have to go cap in hand to State Govt for grants to build infrastructure such ans Active Transport links, and funds often limited. Would make so much sense to raise their own funds through bonds.