A climate bond is perceived as an interesting and profitable mechanism by the city to finance public projects, because it consists of a wide variety of investor profiles (few investors are interested in bonds which are only climate-related) and requires transparency. Transparency is ensured by annual reporting, where the issuer has to justify the allocation of money to projects complying with the set criteria. The process and report is reviewed by the non-financial rating agency Vigeo, thereby providing investors reassurance on the use of their funds. In addition, the transparency is an opportunity for the city to question internal practices and improve them if needed. Also, the climate bond highlights political priorities by ranking investments.
The selection of projects to be included in the bond is managed by the Finance Management Support Service (SGF) of the city in full collaboration with the Urban Ecology Agency of Paris (AEU) and overseen by Vigeo. The list of projects to choose from is defined at the start of each election term. After each election, the new Mayor presents his/her political direction to the Council of Paris for approval. This direction is financially translated in an investment programme (defining political priorities and pushes) and corresponding projects. The selection process among these projects was based on several criteria that are a combination of criteria brought forward by SGF and criteria which are usually used for Socially Responsible Investments (SRI).
1. Municipal internal criteria
The first criterion is that a project should contribute to (one of) the four goals of the Climate and Energy Action Plan. Secondly, only projects of the investment programme that have not already been initiated are financed (‘new’ projects), as they are more attractive to investors, easier for annual reporting and show the prospective approach of the City of Paris.
2. ‘Green Bond Principles’ and operational criteria
The climate bond is a kind of green bond and is subject to the ‘Green Bond Principles’. In addition, after the pre-selection according to criteria described above, the SGF and the AEU make a further selection of projects and organize meetings with project managers, representatives of the AEU and Vigeo to refine this selection. The aims of this step in the process are:
- Get precise information on each project (e.g. what will be done exactly, refined budgetary allocation, planning of the project, monitoring methods) and check that each aspect (environmental, social, governance) of the project matches with the ‘use of proceeds’ defining eligible categories of projects (according to the ‘Green Bond Principles (GBP))’ and are compatible with rules of liquidity and project management.
- Check that each selected project contains real and mainly measurable environmental benefits and that measuring procedures and instruments are or can be implemented by various departments and/or the AEU (accredited for Carbon Evaluation). For the adaptation projects the results are simply expressed in surface area of green spaces created (target: +30ha by 2020) and/or number of trees planted (target: +20,000 by 2020);
- Build the framework reflecting indicators and climate benefits to which City of Paris is committed.
Note that a project under the climate bond should not necessarily be implemented within Paris, as long as City of Paris is a direct paying agent and the prime contractor.
Two adaptation projects are currently included in the climate bond and respectively involve planting 20,000 trees and creating 30 hectares of new parks. The time limit for finalizing the adaptation projects is 2020.
The new trees will be planted in the inner city of Paris (as opposed to the already existing two woods outside of Paris), in the streets and at public facilities such as school playgrounds, gymnasiums, etc. Since the beginning of 2016 until the summer of the same year, around 2,000 trees have already been planted.
The new parks will be created both in the urban renewal zones of Paris, where there is the biggest potential for large areas of parks, as well as in some already existing neighbourhoods of Paris where local places can be transformed into little local parks for the residents. The Martin Luther King Park in the Clichy Batignolles urban renewal zone (North West of Paris, 17th arrondissement) for example, first opened in 2008, was extended in 2014 and is still under works to be extended again by 2018, bringing its total area to 10 ha. Only the extensions of 2014 (2.2 ha) and 2018 (3.5 ha) will be counted into the 30 ha target of 2020. Maintenance of the parks and trees will be covered by the City itself and not by the climate bond investments, as this is not allowed.