Climate bond - Paris | Interlace Hub

The City of Paris issued the Paris Climate Bond - a market-based instrument - in 2015 as a way to demonstrate the diversity of municipal ecological commitments to the international community given their hosting of the Climate COP21. The total size of the bond is € 300 million, with a running time until May 2031. The bond targets private investors who are interested in seizing this investment opportunity while funding sustainable actions in the city of Paris. Investors will receive a profit rate of 1.75% per year. The funds raised by the bond will finance projects which contribute to greenhouse gas (GHG) emission reductions, improvement of energy efficiency, renewable energy production, and climate change adaptation. This includes projects to reduce the heat island effect and increase the resilience of the city by creating green spaces and corridors, in line with the European Energy and Climate Plan to make Paris a carbon-neutral and climate-resilient city by 2050.

Overview

Type of instrument:

Economic and fiscal instruments›Financing mechanisms /market-based instruments (e.g. taxes to generate revenue)

Challenges addressed

Ecologic connectivity
Green space management (e.g. accessibility)
Flood risk: pluvial and fluvial / soil permeability
Heat stress and heat island effect
Human health, comfort and well-being

Consideration of nature-based solutions:

A range of nature-based solutions are financed under the bonds, including the creation of green spaces and corridors, planting of trees and afforestation of urban areas. The overarching aim is to reduce the heat island effect and increase the resilience of the city, amongst other co-benefits which are foreseen.

Targeted (peri-)urban areas:

Parks and (semi)natural urban green areas

Derelict areas

Urban green space connected to grey infrastructure

Good practice characteristics:

Sustainable in the long-term

Locally appropriate

Innovative

Policy business case

Governance

Government body/bodies

Initiating body:

City Council of Paris

Instrument design:

Details about how the instrument was designed:

The Paris climate bond was initiated by the City of Paris, created by the Finance and Procurement Department and the Parks and Environment Department of Paris. The City of Paris engaged a non-financial rating agency (Vigeo) to assist the city in the preparation phase of this public offering. In this way, the Financial Management Support Service (SGF) was able to benefit from the sectoral expertise of this agency, its guidelines and its methodology. Investors such as Credit Agricole CIB, HSBC and Societé Generale CIB acted as joint lead managers for the issue. These banks were selected through a tender process to accompany and partner the City of Paris in the development of the climate bond. This allowed the City of Paris to benefit from their expertise in terms of investor expectations (e.g. in validating the use of proceeds, the framework and the selection of projects for this bond), their networks and their marketing services (media relations, support in organising the roadshow, etc.).

Involvement of non-governmental actors:

Private sector, corporate, business

Type of actor involvement:

Co-planning or co-design of instrument (e.g. boards, advisory role)

Instrument implementation:

Type of involvement:

The climate bond targets private investors who are interested to invest in sustainable climate-related projects. The selection of projects to be included in the bond are carried out by the City's Financial Management Service (SGF) in collaboration with the Paris Urban Ecology Agency and monitored by Vigeo, applying a set of criteria proposed by the SGF and applicable to socially responsible investments.

Type of non-governmental actors involved:

Providing funding and investments

Targeted actors:

Private: household, real estate developer, business , financial

Financing

Sources of funding:

Corporate investment

Bank investments

Budget:

Above 10 000 000€

Details about instrument financing:

The total size of the bond is €300 million, with a running time until May 2031. Given the strong interest of private investors in green projects and the attractiveness of the signature of the City of Paris, the final contract volume amounts to more than €450 million instead of the originally planned €300 million. More than 30 investors are involved, including mainly domestic investors (83%) and 17% international investors from the Benelux countries (9%), Switzerland (3%) and the Nordic countries (3%). Insurers and pension funds bought the lion’s share of the trade (51%), followed by asset managers (49%). Insurers and pension funds bought the largest share of the trade (51%), followed by asset managers (49%).

Monitoring, evaluation and impacts

Is a monitoring framework in place?:

Yes

The City of Paris committed to providing investors with an annual report on the projects funded by the proceeds of the transaction.

Achieved outcomes and impacts:

The climate bond was funded by a number of investors. At the beginning, there were applications of investors worth more than €450 million to fund the bond. Teams have been formed within the city administration to execute the projects under the bond, with the greenery department of the city being responsible for the realization of the adaptation measures. A number of adaptation projects have been realised. These include, for example, the planting of 20,000 trees and the creation of 30 hectares of new parks both in the urban renewal areas of Paris, where there is the greatest potential for large park areas, and in some existing neighbourhoods of Paris, where local squares can be transformed into small local parks for residents.

Success factors and lessons learned:

The City of Paris has involved various knowledgeable stakeholders (such as independent advisors, sectoral experts in green and climate bonds and bankers) to ensure the sound implementation of the bond. Moreover, the political will to push ambitious climate policies in Paris remains strong, which has helped to foster the burgeoning green bond market. Another important factor of success was the rating by Vigeo, which rated Paris as the leader of the sector in climate bonds among local authorities and made Paris attractive for investors. Finally, a transparent reporting structure has attracted investors as they can easily assess the impact of their investments.

Sources and further information

Further documents

Weblinks:

https://climate-adapt.eea.europa.eu/metadata/case-studies/climate-bond-financing…

https://climate-adapt.eea.europa.eu/metadata/publications/climate-bond-paris

https://ndcpartnership.org/case-study/accelerating-greening-finance-paris-climat…

https://www.climatebonds.net/2015/11/update-vive-paris-green-bond-mkt-builds-cop…

Photos

@Sandra.Naumann