How cities can speed up the pace of change
In our view, four areas can help city leaders roll out technology-based infrastructure projects faster.
1. Recycling capital
In many cases, cities can adapt existing mechanisms to accommodate smart investments. Agueda in Portugal has used a revolving fund to build a new system for controlling the lights in its stadium. It’s also installed smart meter systems alongside solar panels at municipal buildings. As a revolving fund constantly replenishes itself, the city will plough the expected energy savings (around 20%) back into the fund.
2. Combining sources of capital and expertise
Technology-led investments are complex, so effective investment models need the structure, scale, breadth and financial capacity to succeed. In practice, this means blending several financing options and bringing in specialist expertise.
The European Investment Bank (EIB) has championed this approach by combining EIB products (investment loans and framework loans) with EU grants. It also gives technical advice on issuing equity and finding other sources of capital. On top of this, cities should bring in partners with expertise in technology, procurement, project delivery, finance and managing complex arrangements.
3. Measuring and reporting project-level performance metrics
Investors will always need clear evidence of financial returns to understand the opportunity. But other metrics are becoming increasingly valuable.
Corporate social responsibility (CSR) and environmental, social and governance (ESG) continue to move up the corporate agenda, for example. In a recent EY investor survey, 97% of respondents said that they evaluate a target company’s non-financial disclosures. Smart city projects can contribute to these areas in a meaningful way. But the companies that invest in them need quantifiable metrics to report on.
On the public side, citizens are increasingly interested in knowing how the city spends its capital and the impact it’s having. Reporting project data and results will help to generate goodwill. Effective programs also allow mayors and city leaders to hear back from citizens, helping them to better identify and prioritise new projects.
Finally, measuring and reporting performance metrics will help cities to attract future investment. The World Bank recently announced it will invest US$200 billion between 2021 and 2025 to help countries act against climate change. Recipients will be expected to use a new rating system the bank has developed to track and incentivize progress.
4. Creating legislation that promotes long-term investment
Cities need a regulatory environment that encourages investment, and resilient bodies to oversee it. This will bring consistency and make sure investments survive a change in administration.
For example, in the US State of Pennsylvania, many jurisdictions have their own set of rules around installing the small cell nodes needed for the rollout of 5G. Recognizing how challenging it is to arrange permissions in all jurisdictions, the state is working to implement uniform standards that will streamline the process.
Building a bridge to the future
As cities continue to grow, leaders have a responsibility to make them vibrant, healthy and stimulating places to live and work.
Adopting smart technology will be critical to making this shift. But to do it, mayors and city leaders need to find ways to bridge the gap between what they need and what the providers of capital demand. At the moment, they can wave at each other from across the river, but they don’t have a way of reaching the opposite bank.
There’s no great secret to bridging this gap. Mayors and city leaders need to work with the private sector to create an environment in which mutually beneficial relationships can emerge. Only then will they be able to build cities fit for the future.