3rd Annual OECD Green Investment Financing Forum

1. "LOCAL GREEN FINANCE
AS SOCIAL COMMON CAPITAL"
By Toshiro Nishizawa, Project Professor
Graduate School of Public Policy
The University of Tokyo
3rd OECD Green Investment Financing Forum
In association with the ADB Institute
October 13-14, 2016 in Tokyo
DAY 2—LOCAL GREEN FINANCE

2.  Green investment could contribute to sustainable development
at the local level if properly designed and implemented.
 Financing is one of the challenges localities face.
 A community-based financing mechanism could be effective as
a framework for local green finance for high quality green
investment and thus for sustainable development imperatives.
Community-based financing mechanism
October 14, 2016Toshiro Nishizawa | GraSPP, The University of Tokyo
2
 Green investment could contribute to sustainable development
at the local level if properly designed and implemented.
 Financing is one of the challenges localities face.
 A community-based financing mechanism could be effective as
a framework for local green finance for high quality green
investment and thus for sustainable development imperatives.

3. Social Common Capital (SCC)
 Local green finance could be seen as a good
representation of "social common capital" (a
concept developed by the late Professor
Hirofumi Uzawa).
 Social Common Capital (SCC) provides
members of society with services and
institutional arrangements crucial in
maintaining human and cultural life.
October 14, 2016Toshiro Nishizawa | GraSPP, The University of Tokyo
3
Source: Uzawa, Hirofumi. 2005. Economic Analysis of Social Common Capital.
Natural
Capital
Institutional
Capital
Social
Infrastructure

4. Advantages of a community-based financing
mechanism
 Financial intermediation to connect local fund providers and local
investment needs has advantages over the conventional financing
mechanisms¶.
 correcting information asymmetry through the closeness and
enhanced visibility between stakeholders
 local fund providers' preference for value to local community
beyond or instead of financial returns
 potentially reduce the financial burden on the central or local
government budget
4
Toshiro Nishizawa | GraSPP, The University of Tokyo October 14, 2016
¶ Yoshino, Naoyuki, and Sahoko Kaji, ed. 2013. Home Town Investment Trust Funds—A Stable Way to Supply Risk Capital.

5. Kundalahalli Lake Rejuvenation Project
 Kundalahalli Lake in
the city of Bangalore,
India, has an excellent
potential as an urban
wildlife refuge with lots
of birds and fish catch.
5
Toshiro Nishizawa | GraSPP, The University of Tokyo October 14, 2016
Information on Kundalahalli Lake Rejuvenation Project is kindly provided
by Mr. Arvind Keerthi, Center for Smart Cities, Bangalore, India.
[arvind.keerthi@gmail.com; http://c-smart.in/]

6. Kundalahalli Lake Rejuvenation Project (continued)
Garbage dumps seen around the lake, untreated sewage
flowing into the lake, ...
6
Toshiro Nishizawa | GraSPP, The University of Tokyo October 14, 2016

7. Kundalahalli Lake Rejuvenation Project (continued)
 Step 1: Conference with local
companies and BBMP¶ to
create a financing plan (June
2015)
7
Toshiro Nishizawa | GraSPP, The University of Tokyo October 14, 2016
¶ Bruhat Bengaluru Mahanagara Palike (BBMP) is
the administrative body responsible for the civic and
infrastructural assets of the Greater
Bangalore metropolitan area.

8. Kundalahalli Lake Rejuvenation Project (continued)
 Step 2: Local stakeholders' buy-in
 Local support—outreach efforts; push local land-holders to
cooperate with government efforts to fix boundaries
 University support—a veteran lake-rejuvenator guided on
pollution norms, water quality, etc.
 Government support
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Toshiro Nishizawa | GraSPP, The University of Tokyo October 14, 2016

9. Kundalahalli Lake Rejuvenation Project (continued)
 Step 3: Financial plan agreed upon (December 2015)
Major sponsors
Qualcomm (₨12 million = $180 thousand)
General Electric (₨10 million = $150 thousand)
Government match (₨30 million = $450 thousand)
Public-Private Partnerships on work division
Private money for two sewage treatment plants
Public money for boundary-making, feedstock pipes, desludging, etc.
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Toshiro Nishizawa | GraSPP, The University of Tokyo October 14, 2016

10. Kundalahalli Lake Rejuvenation Project (continued)
 Step 4: Contractors and architects appointed (January 2016)
 Private portion—appointed based on bidding, interviews and other
assessments
 Public Portion—appointed based on conventional bidding
procedures
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Toshiro Nishizawa | GraSPP, The University of Tokyo October 14, 2016

11. Kundalahalli Lake Rejuvenation Project (continued)
 Step 5: Project launch (February 2016)
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Toshiro Nishizawa | GraSPP, The University of Tokyo October 14, 2016

12. Concluding thoughts
 Community-based financing has a good potential in advancing
green investment for its advantages over the conventional
financing mechanisms.
 The key to sustainably successful services provision still rests on
business basics.
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Toshiro Nishizawa | GraSPP, The University of Tokyo October 14, 2016

13. Concluding thoughts (continued)
 In sum, risk/return profile of projects (or expected patterns of
future cash flows) needs to be attractive enough for financiers
after taking into account community members' preferred
contribution compatible with their own satisfaction and with even
broader public value.
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Toshiro Nishizawa | GraSPP, The University of Tokyo October 14, 2016

14. Concluding thoughts (continued)
 How to secure cash flows to cover the costs, both capital and
operational,
and to satisfy private investors and financiers, perhaps including
value to local community beyond or instead of financial returns
 How to minimize costs of public intervention, both direct and
contingent, and avoiding moral hazard
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Toshiro Nishizawa | GraSPP, The University of Tokyo October 14, 2016

15. Consumers /
Users cash 
Project
cash

Operational costs
(Finance costs)
‖
cash 
contribution equivalent to value
to local community 
Community
stakeholders
‖ cash

Current and
future tax
payers
cash
 Public
sector
cash
 Capital costs
Cost
savings
Concluding thoughts (continued) 15
Toshiro Nishizawa | GraSPP, The University of Tokyo October 14, 2016
sustainably successful
services provision 

16. QUESTIONS FOR DISCUSSION 16
Toshiro Nishizawa | GraSPP, The University of Tokyo October 14, 2016
 What are recent developments on innovative local financing
practices?
 How can local governments further facilitate investments in
green projects in the context of the SDGs?
 What lessons can be drawn from Asian experiences?