Climate bond financing adaptation actions in Paris

Location: Paris, France

Population: 10,516,110 (Urban area)

Climate: Oceanic

Duration: 2015-2031 [source].

Sector: Cross-cutting

Funding sources: Climate bond financing targeting private investors.

City networks:  C40

Savings: 10,323 tons of CO2 saved per year since 2015

Solutions: Paris launched in 2015 a €300 million green bond to fund renewable, low-carbon transportation, energy efficiency, and climate adaption projects [source].

Multiple benefits: CO2 savings and a flourishing green bond market.

In 2015, the city of Paris issued the Paris Climate Bond (PCB) to finance and re-finance climate mitigation and adaptation initiatives when worldwide climate efforts were centered at the COP21 conference in Paris [source].

Objective – PCB’s mission is to fund energy-climate initiatives that address the four primary goals of the Paris Climate & Energy Action Plan: greenhouse gases (GHG) emissions reduction, energy efficiency improvement, renewable and/or recovered energy production, and climate change adaptation.

Solutions – The city sees a climate bond favourably to finance public projects because it attracts a diverse range of investors and requires transparency. Transparency is ensured through annual reporting, in which the issuer must justify the money allocated to initiatives that meet specific requirements. The methodology and report are assessed by non-financial rating organisation Vigeo, which provides investors with peace of mind regarding the utilisation of their assets. Additionally, transparency provides an opportunity for the city to examine internal procedures and, if necessary, modify them. Further, the climate bond emphasises political objectives through investment ranking. The city’s Finance Management Support Service (SGF) manages the bond selection process in close coordination with the Paris Urban Ecology Agency (AEU) and is overseen by Vigeo.

Proceeds of the green bond can finance projects that fall into the following categories [source]:

• Renewable energy: geothermal, solar, energy recovery, heating network;
• Reducing Energy Consumption: Proceeds from the bond issued in this category will be used to fund energy renovation projects and reduce the electricity consumption of (public) buildings. The goals include concrete performance goals, such as a 30 % reduction in energy consumption of the social housing stock by 2020 [source];
• Low-carbon transport;
• Climate adaptation: reducing heat island effect by creating green surfaces and urban re-forestation.

Funding – The total size of the bond is € 300 million, with a running time until May 2031. The bond aims at private investors who consider it a secondary advantage to invest in the sustainability of the city of Paris. They will receive a profit rate of 1.75% per year.

Out of the total size of the bond, €115 million are dedicated to energy efficiency.

Innovation – The PCB is a cutting-edge instrument for achieving the ambitious goals of Paris’ Climate Action Plan, which aims to make the city carbon-neutral and climate-resilient by 2050. It operates following the ‘Green Bond Principles’, which are voluntary procedural standards that encourage transparency and disclosure while also promoting integrity in the green bond market’s development [source].

Success factors [source]:

• An attractive market for investors: The city’s attractiveness to investors was strengthened by Vigeo’s good rating as a sectoral leader in climate bonds (1st among local governments). Investor demand for green bonds has also increased as a result of the favourable market conditions;
• Strong collaboration between government actors to build the reporting structure. Building a reporting structure took effort and substantial cooperation amongst city departments. While making the reporting structure, technical and measurement experts had to familiarise themselves with each other’s work as well as learn from external experts, significantly increasing mutual understanding and synergies as well as the departments’ capacity to grasp how to issue a climate bond fully;
• Transparency: The PCB was created in complete transparency. The city of Paris commissioned the independent rating agency Vigeo to assess the bond’s sustainability. Using the Environmental, Social, and Governance (ESG) evaluation process, Vigeo also assisted Paris in verifying the environmental and social goals of the selected projects. The ‘Second Party Opinion’ by Vigeo allowed the City of Paris to verify the procedure to their investors. Using such a transparent method assures investors of the environmental integrity of the PCB-funded projects;
• Stakeholder participation. The PCB was successfully implemented thanks to diverse stakeholder participation, including the private sector, an independent rating agency, and the continuous teamwork within the city administration;
• Political buy-in. Paris is a global leader advocating for innovative solutions to climate change challenges. Paris has also pledged to become a carbon-neutral city by 2050 through innovative solutions in its current Climate Action Plan, and the PCB is one of the financial tools for this purpose.

Significant outcomes [source]:

• 10,323 tons of CO2 saved per year since 2015 from the renovation of social housing units financed by the PCB;
• The bond market is booming. Since the first issuances, the market has created new options and, as a result, has allowed for investor and instrument diversity. The PCB made a substantial contribution to the market’s growth and expansion.

Synergies with local policies:

• Local Energy Plan (LEP) is an initiative led by the Paris Urbanism Agency on Paris and the Grand Paris Metropolis. It intends to provide major territorial participants with a “toolbox” that combines data and analytical aspects through a cartographic system, allowing them to build their territorial energy strategy. It will be an essential part of the future Metropolitan Climate Air Energy Plan;
• Paris Climate Action Plan is a strategy to reduce the city’s carbon footprint according to the Paris Agreement’s aspirational aim of limiting global warming to 1.5 degrees Celsius. This plan paves the way for Paris to further up its efforts to reduce emissions, intending to become carbon-neutral by 2050 [source].

Political alignment:

• France’s Integrated Energy and Climate Plan is a ten-year plan that covers all five aspects of the EU Energy Union: decarbonisation, energy efficiency, energy security, internal energy markets, research, innovation, and competitiveness [source].
• Law on Energy Transition for Green Growth (LTECV) aims to encourage green growth by increasing France’s energy autonomy, reducing GHG emissions, and providing effective instruments to all stakeholders [source]. By 2050, one of its goals is for the entire building stock to meet “low consumption building” standards.

Marketability [source]:

• Seize the right moment to issue a green climate bond. The PCB has been issued at a time when the salience of climate change among the population was high;
• Put in place a well-working reporting structure to increase transparency. While establishing an appropriate monitoring and reporting framework for the use of green bond proceeds can be time-consuming, it is necessary to ensure that the bond is implemented transparently. Improved openness will eventually attract investors since they will track how their investment is being used.