Future cities - KPMG

Future cities:

The long-term view kpmg.com/futurecities

Future cities: The long-term view From a wide field of knowledge and expertise, some of KPMG’s senior subject matter specialists have shared their opinions and ideas on rapid urbanisation and how we can work together to create more productive and sustainable cities. City sustainability is a multi-dimensional challenge. Decisions taken in one area will ripple across different departments. There is no silver bullet that will solve every issue and make each city sustainable. Rather, every city needs to find its own solutions related to its specific geographic location, access to resources, existing infrastructure and population. Some common themes recur: • The need for leadership – Stephen Beatty, KPMG’s Head of Global Infrastructure, explores the nature of city leadership in his article, which calls for leaders of strength and stamina. • The requirement for a clear vision – Caroline Haynes, KPMG Director and co-author of the Magnet Cities project, discusses the importance of a coherent plan for the shape of a city, and how that can inform decision making. • Financing – In a tough economic climate, other articles look at ideas about funding mechanisms for infrastructure, active travel choices, measuring systems and the importance of partnerships. • Valuing the assets in a city – Is monetary value the only one to take into consideration? Dr Stephanie Hime, examines the importance of green space within a city. Ben Wielgus and Vincent Neate look at ways of measuring value and relationships between a city and its stakeholders. Other articles look at a variety of issues such as promoting renewable energy, green economies and the effective use of resources. City sustainability is a huge subject: these articles take a select look at the latest thinking on future proofing our cities.

Stephen Beatty Head of Global Infrastructure | Americas and India; and Head of Cities Global Center of Excellence KPMG in Canada

Future cities: The long-term view

Cities must put people at the centre of their vision Caroline Haynes

There is nothing permanent about a city. Like a living organism, cities are in a constant state of flux. A city in decline needs a clear purpose and vision of its future identity, with people at its heart, to turn it around. In the past, many city leaders have focused on the businesses or industries they wish to attract. However, my experience with KPMG’s Magnet Cities project has shown me that cities quickly need to shift that focus towards the type of people they want to attract. It is they who create prosperity, start businesses and build communities.

Time is the biggest barrier to the successful realisation of any such vision. It takes terrific political tenacity to stick with a plan, particularly if it involves creating a city for people who do not yet live there. It takes 8-15 years to change the population and dynamic of a city. That does not sit easily with political cycles.

There is a stark contrast between the fastest growing urban areas, which are all in developing countries1 and the fastest shrinking – many of which are in Europe2. In the UK, London is a super-conductor of talent – drawing people in from all over the world. However, in 2014 more people aged 25-35 left London than moved to it for the first time in over 20 years3. In many cases, they are not leaving for other parts of the UK, but to foreign cities seeking the same demographic and similar opportunities – like Hong Kong, Dubai or Berlin.

In some cases the push for change has to come from beyond the political system. In Pittsburgh, it was university leaders who sought to build on the city’s heritage as a steel town to become a centre for innovation. In other cities, it may be business leaders or other representatives of the local community.

Cities that have a clear identity, which offer a good quality of life and which have the amenities demanded by their target demographic can move ahead of the competition. Pittsburgh in the US, Bilbao in Spain and Malmo in Sweden have all successfully dragged themselves from bust to boom Circumstances will be specific to each city, but once city leaders have identified who they are trying to attract – entrepreneurs, young families or creatives – they can build accordingly. There is a city in Korea that is specifically looking to attract ex-pat families, so the city authorities are designing and targeting the entire city to appeal to that cohort. Getting representatives of the target group to input into the planning process is the next step. If you want to attract 25-yearolds, you need 25-year-olds to tell you what they want. Secondguessing what might appeal to them in five or 10 years’ time when the vision is realised is unlikely to work.

Whoever creates the vision, they need to move fast to turn around declining in income or population. I strongly believe many cities must work now to identify who they need to drive their economies. Once they have a clear picture of who is in the future of their city, they can set about creating the environment to bring them there. 1. http://www.citymayors.com/statistics/urban_growth1.html 2. UN report: State of the World’s Cities 2012-2013 3. Office of National Statistics Focus on London moves - ONS

“Cities that have a clear identity, which offer a good quality of life and which have the amenities demanded by their target demographic can move ahead of the competition.”

The most successful projects come about when city representatives hand over the planning to end users. Designing their own space allows people to identify with their city and their environment. The city vision needs to be comprehensive, covering everything from public facilities to accommodation to sewage systems. If you are looking to attract families who care about the environment then you need to support that vision with everything from solar-powered apartments to a grey water harvesting systems. Caroline Haynes Director, MC – OT Business Architecture Co-author and Lead, Magnet Cities KPMG in the UK [email protected] +44 20 7311 4103 Caroline is a Director in KPMG’s Advisory Practice and leads the firm’s work on Magnet Cities. She trained and worked for many years as an economist and was an advisor to both the Labour government as well as the current UK Chancellor. She advises clients on economic growth, city reinvention and the commercialisation of city assets.

5

City leaders – keep your eyes on the horizon Stephen Beatty

City leaders need to remember why they are there – as custodians, building future success. It is easy to focus on short-term gains and lose sight of the potential to make long-term changes. A good city manager may be in post for ten years, but he or she has the ability to affect the lives of its population for the next 50 years. It is a long game. Legacy is important – everyone wants to be remembered. But vanity projects are not the answer. As with Maslow’s hierarchy of needs, city leaders must provide the basics for their populations first – access to clean water, safety and security, accommodation, transport, healthcare and so on. A successful city is one that goes further and creates a sense of belonging and purpose. A city has arrived when people identify with it irrespective of nationality or ethnicity – they become Bristolian, New Yorkers or Muscovites. There is no template for these ‘higher functions’ but I would suggest that each municipality needs to build on its strengths – a sense of place and community are essential. City leaders face different challenges, but they all need the ability to inspire, communicate and perhaps most importantly to listen – both to their colleagues and to the public. I have spent my whole career helping people build and lead big infrastructure projects – everything from transit systems to hospitals, schools or airports. In my experience, project leadership and project management are among the biggest single determinants of success or failure. An uninspired leader will create an uninspiring project. If you want people to go beyond the everyday, work harder and strive for excellence, then you need to be able to inspire them. Interestingly, I have often found that inspiring leaders are also the best listeners: people who can take information and feedback coherently to either the populous or their staff. Some of the biggest leadership challenges are around having a clear vision, and being able to communicate it effectively. The vision ideally should be a consensus, derived from listening to the public, reading the trends and responding to what they need. The current financial environment means it is more important than ever to be able to build a consensus between civic authorities, developers and the public.

a few examples that spring to mind – people like Sir Howard Bernstein in Manchester, or David O’Brien in Mississauga who have delivered solid financial management and growth over 20 years. Having said that, creating the infrastructure that is required in a successful city is so complex that it cannot be the work of one individual. Making promises to the public and then delivering on them require very different skillsets. Delegation is key. A good leader rarely breaks a sweat. Fundamentally, the leader’s job is to empower his or her people to do their jobs while keeping their overview of the entire project. If one individual holds too tightly on to every detail, it has the effect of slowing everything down, which is ultimately bad for the city. Maintaining momentum is part of the leader’s mandate – many of these projects will take years to deliver and decades to pay back on investment. Continuing to justify a project over the time it takes to come to fruition will be an ongoing challenge. I can foresee municipal leaders having to make the same justifications repeatedly – but then cities are not built in a day, a year or even a single lifetime. Leaders need to hold on to their purpose and keep their eyes on the horizon.

“Cities are not built in a day, a year or even a single lifetime. Leaders need to hold on to their purpose and keep their eyes on the horizon.”

Staying in touch with the original vision, while consistently bringing projects in on time and on budget with the expected benefits is the hallmark of a truly effective leader. There are

Stephen Beatty Head of Global Infrastructure | Americas and India; and Head of Cities Global Center of Excellence. KPMG in Canada [email protected] +1 416 777 3569 Stephen has worked for KPMG for almost 30 years, helping people build and lead big projects – everything from transit systems, to sewers, to power plants, to hospitals, to schools. Based in Toronto, he has worked with a large number of municipal clients on infrastructure projects. A KPMG Partner, he now heads the Global Infrastructure team (Americas & India). He also heads our Global cities business.


City bonds offer new route towards infrastructure funding Vincent Neate

City bonds could provide an important new funding option for urban infrastructure development. But in an era of austerity and shrinking subsidy, nothing comes for free. Civic leaders have to make tough choices about how to best use existing assets to create investment vehicles that offer sufficiently attractive returns. An International Monetary Fund study1 found that every 1% of GDP spent on infrastructure investment boosts productivity output by 1.5%. This rise in GDP offsets the rise in debt, meaning that infrastructure investment pays for itself if done correctly.

Bond investors are interested in the security of future cash flows. Grouping a number of assets together within a defined geographical area should create a ‘hub’ of possible investments of sufficient size to interest investors, while diversifying the risk of investing in single assets.

The question facing civic leaders typically is around how to fund this investment. There have been three main mechanisms available over the last few years:

Creating city bonds will mean a council sacrificing a percentage of future revenues or even having to increase local taxes to pay bond holders. At the same time, funds released by bonds could finance a community farming initiative, revolutionise the transport network, fund local schools or build new housing. Trading off their costs and benefits will pose some difficult choices for councillors.

• Environmentally-targeted funding: governments in developed economies have provided large-scale funding for renewable energy generation, waste disposal and other environmental projects over the last 10 years. However, the subsidies are beginning to dry up and this is not always an option for smaller-scale projects. • Green bonds: The market in green bonds is growing steadily with healthy demand from environmentally-aware institutional investors. Since 2008, the World Bank have issued over $8.5 billion in green bonds to cities around the world to help fund transport and major infrastructure projects2. • Social investment: In the UK, Big Society Capital exists to encourage investment in small businesses that have a social purpose behind them. Bristol was awarded Social Enterprise City status in 2013, to promote social enterprise start-ups. These projects are typically small scale and high risk for investors, and so unlikely to provide a long-term funding solution for cities. I would suggest that there is another option that cities and their leaders can explore. Civic leaders need to recognise that they do have significant assets at their disposal. They must make the most of those to attract investment beyond subsidies and philanthropy.

Clearly, there are many barriers to making this work – council commitment and the complexity of process among them. But funding should not be a barrier to infrastructure creation. There are an increasing number of investors looking to park their money in long-term infrastructure investments. Now it is up to city leaders to create a market to attract that money. 1. http://www.imf.org/external/pubs/ft/survey/so/2014/res093014a.htm 2. http://www.worldbank.org/en/topic/climatechange/brief/green-bonds-climatefinance

“Civic leaders need to recognise that they do have significant assets at their disposal. They must make the most of those to attract investment beyond subsidies and philanthropy.”

A city with a portfolio of housing, sport facilities, transport facilities, road network and energy generation businesses could package these assets, together with associated cash flows, to create a city bond. Imagine a Bristol, Essen or Christchurch Bond – each of them related to the assets and cash flows in those areas and providing investors with a return.

Vincent Neate Partner, Audit Partners Head of UK’s Climate Change & Sustainability Practice KPMG in the UK [email protected] +44 20 7694 3256 An accountant and auditor by background, Vincent has a real interest in green and social investment, having spent 10 years in a private equity group, prior to running the Sustainability Practice in KPMG. His leadership of the Sustainability Practice combines business experience with specialist knowledge in areas such as climate change and carbon trading, non-financial data assurance, corporate responsibility and governance.

7

Fresh thinking puts infrastructure financing within reach Darryl Murphy

Infrastructure developers have blamed a lack of finance for the slow rate of municipal infrastructure creation since the 2008 financial crisis. I think that prognosis is misguided and stems from a misunderstanding of the difference between financing and funding. Rather than financing, I believe the challenge is identifying who will pay for the return to a project’s investors. It is vital our city authorities maintain – and even accelerate – the pace of development in our public infrastructure. The OECD estimates that globally we require US$40 trillion in infrastructure over the next 20 years. I believe this figure will climb higher as climate change puts greater strain on the built environment. Who currently pays for it? In 99% of cases, the taxpayer, end-users or taxes on commercial property foot the bill. In other words, you and I pay, either indirectly through taxes or directly on a charge for using the transport networks, sports facilities or other amenities. Addressing where the burden falls is a difficult and divisive issue for councils as we saw recently in the debate around Manchester’s attempts to introduce congestion charging. While it might be tempting to push the cost on to end users – raising taxes is never popular, Britain’s National Audit Office has urged caution. In 2013, it warned households could struggle to pay their bills due to the increased cost of infrastructure investments made by utility companies. There is another solution however. City authorities can attempt to offset part of the funding that might ordinarily come from citizens by instead monetising their existing assets. Resource rich countries can use their mineral wealth, for example, a gold mine in Africa might pay for the nearby infrastructure it uses, like a port or a railway line. How does that translate to a city like Bristol, without such an obvious source of income? I believe council leaders should look to generate a cash flow from existing assets, and enhance those assets over time to create a virtuous circle of revenue generation. Bristol has already shown its entrepreneurial spirit in this way, by setting up its own energy company.

London’s Crossrail development partly uses this mechanism. It will generate more business along its line – particularly in the centre of London – so a portion of business rates in the areas that benefit from its construction will go towards funding the project. We have seen similar developments through City Growth Deals designed to promote economic growth at a city level and other assets such as the new highspeed rail station in Birmingham. Does this presage a new route for funding infrastructure investment: spreading the cost of a project between all beneficiaries of infrastructure investment? Flood defences, crime prevention, health initiatives benefit individuals, businesses, insurers and others, so maybe they should all share the cost? Cities have to behave like start-ups in seeking an investment. Identifying assets that could generate a future revenue stream and presenting ‘concrete’ plans should encourage investors and take the pressure off taxpayers. Investors will buy into a vision, but they will not invest against a dream. 1. OECD estimate - Massive infrastructure investment needed to meet future demand, says OECD - OECD 2. Infrastructure investment: the impact on consumer bills - National Audit Office (NAO)

“City authorities can attempt to offset part of the funding that might ordinarily come from citizens by instead monetising their existing assets.”

For other cities, the major asset might be property and this is where real estate can provide an important source of funding. In the United States, authorities utilise tax increment financing. This means relying on the economy to grow thanks to an infrastructure investment. A related business tax then generates revenue against this future growth.

Darryl Murphy Partner, Corporate Finance Infrastructure Power & Utility Deal Advisory KPMG in the UK [email protected] +44 20 7694 3041 Darryl leads the Power & Utility Deal Advisory team in KPMG. Darryl has over 20 years’ experience of infrastructure financing. He is able to bring a unique perspective to his clients, having previously worked at a number of banks, most recently as European Head of Project Finance at HSBC. Darryl also chairs the Finance and Investment subgroup of the National Infrastructure Plan Strategic Engagement Forum.


Municipal Energy companies can build on existing consumer trust Amy Marshall Conditions are ripe for the establishment of municipal energy companies. Consumer trust in the UK’s largest1 energy providers is at an all-time low and people are seeking alternatives. Central government meanwhile, are encouraging municipal authorities to become more commercial and find alternate, sustainable sources of funding. I believe providing energy could be the answer. A few large providers still dominate the UK energy supply market, but the influence of smaller suppliers is growing fast. In the last 2 years, small and medium sized suppliers have increased their share of the market from 2% to nearly 10%2. Local authorities are moving into this space with Nottingham and Bristol actively setting up their own independent municipal energy companies, and others such as Cheshire doing so in close conjunction with smaller energy suppliers with more set to follow.

High start-up costs have been the downfall of many small energy companies. Setting up processes, establishing a team, buying energy and finding customers all require significant investment. Small municipal companies can focus on more distributed infrastructure, which can be invested in progressively, rather than requiring large investments up front. Plus, a municipal energy company, as in Bristol, has the advantage of backing from the local authority, which can help enormously with these initial cash flow requirements.

Although some local companies will be ‘supply only,’ others can offset some of their costs by generating their own power. This also allows them to invest in renewables and green energy, which is another point of differentiation from many of the major suppliers. Energy generation can also help them compete on cost.

Owning their own energy companies, and possibly generating their own power, can allow municipal authorities to create revenue at a time when they are struggling to find ways of responding to budget cuts. It also makes the city more resilient to external pressure, especially where there is a strategy of generating energy from renewables, waste or other locally available resources. This helps protect the economy, infrastructure and quality of life from external shocks.

Having a local energy company appeals to those who seek individual, personalized services and areas with a strong identity like Bristol, known for being slightly alternative with strong community links, are well placed to build on that local feeling. A Which? survey3 of public satisfaction rated smaller more sustainable providers Ecotricity and Good Energy top for customer service. Municipal energy companies have the potential to tap into this sentiment by encouraging dissatisfied customers to switch to local energy providers. City leaders thinking of setting up their own energy company need to decide what demographic they are targeting – whether it is to their general population or to specific types of energy user. This then allows them to target their marketing to those customers who have a strong local identity and are more likely to engage with their services. The UK government and EU legislation are actively encouraging a shift to a community energy strategy to support the creation of new kinds of energy companies. This support takes the form of easing regulatory barriers, rather than subsidies, but this is still valuable in the complex UK energy market and the recent proliferation of new energy companies and energy service companies – municipal and otherwise – would suggest that it has worked.

Council leaders need to be realistic about start-up costs and the number of customers companies are likely to attract. But given the right support, I don’t see any reason why there would not be a municipal energy company in every city in the UK, and further afield. 1. British Gas, EDF Energy, E.ON UK, RWE npower, SSE and Scottish Power 2. https://www.ofgem.gov.uk/ofgem-publications/86804/ assessmentdocumentpublished.pdf 3. http://www.which.co.uk/energy/saving-money/reviews-ns/energycompanies-reviewed/best-and-worst-energy-companies/

“Given the right support, I don’t see any reason why there would not be a municipal energy company in every city in the UK, and further afield.”

Amy Marshall Business Development Director Power & Utilities, Sector – Sales KPMG in the UK [email protected] +44 20 7311 3202 Amy is a Director in KPMG’s Power & Utilities practice, specialising in Smart Meters, Smart Grid and technology enabled transformation. Amy has 15 years of experience gained in the communications technology and services, and utility consulting arenas, and has held a variety of technical and management roles including contract management, product development, service transformation and corporate strategy.

9

Cities should use self-interest to promote renewables Simon Virley

City leaders need to use hard-headed economic arguments to promote renewable energy. Renewables can help bring down energy bills and free cities from their dependence on large corporations and central government. Saving the world, vital though that may be, is lower down the priority list for the majority of the population. Renewables are no longer a fringe source of energy. In the UK, a record 25% of electricity generation came from renewable sources in the second quarter of 2015, up from only 6% in 20071. Elsewhere in Europe, levels are much higher – for example, Sweden generates around 55% of its electricity from renewable sources2 and Germany, Norway and other countries are not far behind. For too long political leaders at national and local level have focused on climate change as the main motivation for renewables, at the expense of a hard-headed economic argument in their favour. Even now, when a quarter of electricity generation in the UK is from renewables, they are often perceived as marginal, unreliable and expensive. It is time to leave this alternative image behind and emphasise its concrete financial and political benefits. The old criticisms of renewable energy no longer stack up. Renewable energy is cheaper than ever before. At a residential level, solar is comparable with retail prices paid by consumers3. As the cost of solar panels continues to fall around the world, there will come a point when it will no longer need any form of subsidy. Technological advances are also bringing down the costs for other renewable energy sources, including wind and biomass (for both electricity and heat). These cost reductions, when combined with other technological breakthroughs, including the falling costs of battery storage, the roll out of smart meters and the development of demand side response (DSR) technologies, provide the basis of a very different way of producing and consuming energy in the future. These changes will enable consumers to take control of their energy usage, exporting power back to the grid when it is economically advantageous to do so. Optimising energy usage and production in this way offers the prospect of lower energy bills for households and consumers. It also offers the prospect of greater independence – both from fluctuations in world energy prices and from large energy suppliers. City leaders wanting to promote renewables should emphasise the security and stability created by this greater local generation and energy independence. This was exactly the approach taken by Hillary Clinton in her recent statement on energy policy. She promised 1 billion solar panels across the US by 20204, with the aim of reducing bills and freeing people from dependence on large energy suppliers. It was a canny move – few would say no to paying less for their energy, greater independence and the potential to make a profit in times of surplus production.

If people own their energy generation, they are more aware of their own behaviour. It is an important benefit – often overlooked – and it should help people reduce their bills. We are all used to simply flicking a switch and paying a monthly direct debit, without any idea of where our energy comes from. Taking charge of your own power is a small step towards responsible consumer behaviour and – whisper it – reducing carbon emissions. Different locations will favour particular renewable energy uses. Bristol, like many UK cities, is already deploying solar panels on its public buildings and has set up its own municipal energy company. Nearby there is also the Swansea Bay tidal lagoon project, looking to use the power of the tide to drive a turbine beneath the waves. I would suggest that every city authority looks to their local environment to see what possibilities there are to generate renewable power. For some it will be solar on public, commercial and residential buildings. For others it might be district heating or Combined Heat and Power using household waste. Green consumers will not need convincing of the importance of renewable energy generation. For those too busy to save the world, using solid economic and political arguments is the route to success. 1. Energy Trends section 6: renewables - Publications - GOV.UK 2. Renewable energy statistics - Statistics Explained 3. New REA KPMG Report Solar Aims To Be First Renewable To Be Free Of Subsidy - News - REA 4. Taking on the global threat of climate change | Issues | Hillary for America

“For too long political leaders at national and local level have focused on climate change as the main motivation for renewables, at the expense of a hard-headed economic argument in their favour.” Simon Virley, CB Partner, Energy Deal Advisory UK Chair, Energy and Natural Resources KPMG in the UK [email protected] +44 20 7311 5037

Simon re-joined KPMG in February 2015, from The Department of Energy and Climate Change (DECC), where he had been Director General of Energy Markets and Infrastructure since 2009. During this period, he led the biggest reforms to the UK energy market since privatisation. Simon received a CB (Companion of the Bath) in 2014 for ‘Services to UK energy supply and energy security’. He advises clients on the implications of the UK’s energy policy framework, and investment in UK energy generation and infrastructure.


Benefits of decentralised energy can be enjoyed by all Hylton Millar

Technological breakthroughs around the world are changing consumers’ relationship with energy. People are moving from passive receivers of energy from distant terminals to actively controlling their energy requirements including generation on site. Cities can be at the heart of this transition providing the joined up thinking required to deliver decentralised energy at a community level. Rapid falls in the costs of solar panels and battery storage, combined with the roll out of smart meters and the continued development of demand side response (DSR) technologies provide the basis of a very different way of producing and consuming energy in the future. Promoting decentralised energy use at a municipal level, either by individuals or on behalf of the community, offers the prospect of lower energy bills for households and businesses.

I would advise councils to invest in storage capacity. Developments in lithium ion batteries mean the cost of storage is likely to fall. California, for example, has recently mandated the purchase of 1.3GW of storage which should enable economies of scale to kick in for production. The ability to store electricity and then use it when required so as to avoid the higher demand reflective tariffs will increase the value of the electricity generated locally.

Installing solar panels on the roofs of community and residential buildings for instance, provides around 40% of a building’s electricity needs1. In trials, when solar panels were combined with storage and smart water systems generating their own hot water, that figure increased to 80-100%. City authorities are well placed to co-ordinate the use of this technology across their public buildings and social housing to provide a city-wide benefit.

The final piece of the jigsaw is ensuring that the local low voltage grid network remains fit for purpose as distribution network operators (DNOs) evolve from being the custodians of relatively dumb assets to managing complex systems with thousands of connections and electricity flowing in every direction. The use of smart grids and grid level storage should help with this transition.

A number of large multi-national industrial and commercial consumers have already taken steps to reduce their reliance on a centralised system by taking their energy-generation in house. As a result, they are able to enjoy lower and more stable energy prices whilst ensuring security of supply. With increased municipal generation and supply cities can enjoy the same benefits. City leaders also need to ensure that their buildings are as fuel-efficient as possible. Insulating homes helps avoid locking in fuel poverty for the next generation. Nationally, the government has cut funding for energy efficient home improvements whilst at the same time relaxing building regulations – risking a legacy of inefficient buildings across Britain with implications for fuel poverty. But locally, councilled initiatives such as Warm Up Bristol are moving in the other direction to ensure this does not occur. Installing smart meters is another step towards using energy in the most efficient way. All households are due to have smart meters by 2020, based on government policy and this will allow for the creation of more nuanced tariffs that reflect demand at different times of day.

The UK market is progressing towards decentralisation with the advancement in technology and increasing consumer awareness and involvement. City leaders can harness this shift towards a more consumer and community-driven market to deliver lower costs for energy users whilst achieving decarbonisation targets and ensuring security of supply. 1. https://www.gov.uk/government/uploads/system/uploads/attachment_data/ file/404641/energy_usage_in_households_with_solar_pv.pdf

“A number of large multi-national industrial and commercial consumers have already taken steps to reduce their reliance on a centralised system by taking their energy generation in house.”

Hylton Millar Associate Director, Infrastructure Advisory Group Infrastructure Corporate Finance KPMG in the UK [email protected] +44 20 7694 8998 An economist by background, Hylton has been with KPMG for three years focussing on energy advisory, including energy infrastructure and decentralised energy, in the UK and Europe. Previously he worked in the regulation and financing of infrastructure for over a decade advising sponsors, investors and public sector bodies, in areas as diverse as Kosovo, Botswana, Nigeria and South Africa.

11

Active cities pay for themselves Ben Wielgus

Active cities are healthier, happier and more competitive than their couch potato peers. Designing physical activity into the infrastructure of a city means people move around more and reap the physical and psychological rewards. I believe that this will translate into higher wellbeing, lower crime rates, less pollution and savings on health care. Inactive populations are expensive by contrast. Physical inactivity will kill 9% of the population in the UK – as many as smoking1 – as well as vastly increasing the chance of developing heart disease, breast cancer and colon cancer. Physical activity and access to nature has also been shown to alleviate depression, reduce stress and improve general wellbeing2. It can also help promote creativity and provide space for families and communities to build relationships. So city leaders need to create an environment that encourages activity as part of a daily routine. Increasing cycle lanes, creating streets and pathways that are pleasant to walk along, improving river walkways and reducing pollution and litter are physical ways to do this. At the same time, making active travel the more relaxing and enjoyable option can help overcome the mental barriers to active travel. Cities need to think big. Copenhagen, a former European Green Capital, has a stated intention to become the best city in the world for cycling and has a city-wide strategy to promote it. Others like Boston have relocated some of their roadways underground in a project called the Big Dig, leaving safe space for pedestrians and cyclists on the surface. Bristol too, is already one of the most active cities but is looking to do far more. Public transport is an important part of the mix. Passengers walking or cycling to and from bus stops and stations all adds to the active city vibe, especially if the public realm supports it. This often comes alongside gradually dissuading drivers via congestion zones and parking charges and supporting the shift through active travel initiatives in schools and workplaces to help make it easier. Connected infrastructure will encourage behavioural change. Office buildings that provide cycle racks and showers need to link up with safe, segregated cycle paths and walkways. Every time a road is re-laid, city authorities can look at putting in extra trees, cycle lanes and more paths. Of course, making the city environment fit for its fitter citizens has a price tag. Planners must keep in mind the return on investment through the lower health costs of a fitter population.

But the benefits go much further. More foot traffic boosts local employment and tourism, less traffic means less productivity lost to congestion – estimated to reach £21billion in the UK by 20303 – not to mention the benefits of community involvement, lower crime rates and more customers for businesses because of greater footfall on the streets. Active travel investments create value for employers, healthcare and insurance, businesses and the individuals. An innovative way to raise capital would be through the creation of an “Active City Bond” that would seek upfront investment that is then repaid by capturing the value from the groups and individuals who would ultimately benefit (such as the health service, businesses and individuals). These kinds of value capture mechanisms will become more common in the future. With a trend towards greater devolution over budgets, cities have more scope to invest in these life-improving measures that should eventually pay for themselves. Diverting money scarce funds from the police and health services would be controversial. But when city leaders take into account the real benefits of active travel and the reduced pressure on these services, the decision to invest should be straightforward. 1. Lee, I., Shiroma, E., Lobelo, P., Puska, P., Blair, S., & Katzmarzyk, P., For the Lancet Physical Activity Series Working Group. (July 2012.) Effect of physical inactivity on major non-communicable diseases worldwide: an analysis of burden of disease and life expectancy. - PubMed - NCBI 2. http://www.nrpa.org/uploadedFiles/nrpa.org/Publications_and_Research/ Research/Papers/Synopsis-of-Research-Papers.pdf 3. Traffic Congestion to Cost the UK Economy More Than £300 Billion Over the Next 16 Years - INRIX

“An innovative way to raise capital would be through the creation of an “Active City Bond” that would seek upfront investment that is then repaid by capturing the value from the groups and individuals who would ultimately benefit.”

Ben Wielgus Associate Director, Sustainability Services KPMG in the UK [email protected] +44 20 7694 8573 Ben has spent the last 13 years at KPMG, where he has experience across a breadth of service lines including audit, transaction services, strategic commercial intelligence, business modelling and integration advisory. He has used this variety of experience to develop a specialism in sustainability strategy – guiding clients through the big changes in the world and what it means for them. For the last two years, he has worked with the city of Bristol thanks to KPMG’s sponsorship of Bristol as the European Green Capital of 2015.


Harness data to cut carbon footprint Karen Wordsworth

Reducing a city’s carbon footprint is rising up the city planners’ agendas. Driven by a need to reduce fuel poverty and limit greenhouse gas emissions, legislation is forcing city leaders to face the challenge of outdated, unsustainable building stock. Fortunately, improvements in data collection and analysis offer an important tool in planners’ efforts to de-carbonise our cities. The scale of the challenge may seem overwhelming at first. Around 20% of Britain’s housing stock is over 100 years old and requires upgrading to be more energy efficient1. The Department of Energy and Climate Change (DECC) estimate that 85% of buildings in the UK need to be retrofitted to reduce their carbon footprint. Similar challenges exist in many other European countries. Some cities are beginning to tackle the issue. Both Glasgow and Bristol have used the platform of their respective roles as hosts to the Commonwealth Games and as the European Green Capital as a catalyst and have tackled carbon in their building stock as a result. Time is running out for those authorities yet to deal with the issue. EU-wide energy saving measures for large buildings come into force in the next two years, imposing controls on commercial and residential rented property, although, many residential properties remain outside these controls. For cities that do want to reduce their carbon footprint but do not know where to start, better data could provide the starting point.

All this information is important, but unless people understand and act on it, it is worthless. City authorities need to educate their citizens about energy efficiency. There are opportunities to install more energy efficient systems during straightforward renovations, such as installing a new bathroom or kitchen – but how many people consider this? It is important to make energy efficiency straightforward for consumers. City leaders need to create a critical mass of demand for energy efficiency from consumers to reduce their consumption, and consequently their carbon footprint. Retrofitting a city’s buildings with smart, efficient operating systems is a major undertaking, even more so in a difficult financial environment. Gathering clear and comprehensive information on energy use and misuse allows city leaders to demonstrate how to tackle the carbon footprint to their populations. It is only with collective effort that cities will make real progress. 1. https://www.gov.uk/government/uploads/system/uploads/attachment_data/ file/6703/1750754.pdf

Smarter measurement of energy consumption, heat loss from buildings or usage patterns allows for informed decisionmaking on appropriate energy conservation measures. The same data is helpful in providing evidence to funders of the potential savings created by any investment. Some cities are now using thermal mapping to help target their interventions. With the appropriate data to back it up, councils can show how straightforward interventions like installing better lighting and power systems and improving insulation can have a dramatic effect on carbon reduction. Smart metering is a first step to understanding how people use energy and where potentially wasteful patters of energy exist. The Internet of Things – where household devices communicate with a data hub to streamline and optimise power use – will take that further. Eventually we will buy energy on demand rather than through a tariff.

“Smart metering is a first step to understanding how people use energy and where potentially wasteful patters of energy exist.” Karen Wordsworth Director, Audit Sector Infrastructure Director of Climate Change & Sustainability KPMG in the UK [email protected] +44 20 7694 5404

Karen has been a director of Climate Change & Sustainability for the last four years at KPMG, following three years at a policy advisory group and an engineering company. She specialises in energy and resource efficiency, looking at creating the financial environment to all investment in carbon reduction measures, the influence of public policy, and addressing sustainability needs with new technology. She is also a member of the Advisory Board at Cambridge Centre for Climate Change Mitigation Research.

13

Relationships are the fuel that keeps a city alive Vincent Neate

Cities are huge ecosystems of interdependent relationships, between city authorities, businesses and residents. None of them can exist without the others. The quality of these relationships has a direct impact on that city’s approach to sustainability and prosperity. These relationships need to be nurtured to ensure effective collaboration between the different parts of the city. If you divorce someone’s head from their heart, they cannot function effectively – the same goes for a city. Each group has an important role to play in city life, and initiatives and developments will only come to fruition when all these groups work together to provide comprehensive solutions.

To foster true collaboration, direction needs to come from city leaders to challenge entrenched thinking and set the right tone. It needs to consider whether city authorities collectively demonstrate the importance of relationships in the way that they operate. The Mayor cannot hope to build an effective infrastructure plan by instructing the planning department to take care of matters and then walking away.

Effective relationships are based on parity of power. Each group should recognise the importance of the others, and treat them as partners. A mayor is elected by the people, supported by businesses and in turn supports the third sector. To function, each of these relationships are dependent on effective communication and mutual respect.

A first practical step for an organisation to improve its relationships is for it to objectively measure the quality of those relationships. The key here is to identify the closeness of the two parties – their Relational ProximityTM 1. That can be quantified around facets of the relationship like power, their common history or the way they communicate.

At its core, collaboration is a human activity. People will only pool knowledge or share solutions with each other if they have an effective relationship. It doesn’t matter if city government correctly recognises a business’s role in its social care provision, if the people in their respective teams don’t get on, then no amount of money will solve any outstanding issues.

The next step is for city leaders to take steps to improve their relationships with different stakeholders. Even small changes can have very powerful results. Direct, clear communication with residents or business underlines a city’s commitment to involving them in initiatives.

This is a critical risk to the sustainability of any city. The most common underlying cause of dysfunction in these relationships is that they are incredibly transactional in nature. All too often, we view relationships between stakeholder groups in terms of what we can get out of them in the immediate future, rather than building long-term partnerships. Hierarchies within city authorities, and between authorities, businesses and residents, reinforce this transactional model. Take a city that wants to ensure it is getting the right level of waste recycling from residents. They demand the residents meet certain conditions or suffer certain consequences. On the other side of the relationship, the resident has no alternative provider of waste collection, so they have no choice but to comply. Thus, the relationship takes on a master-servant dynamic. A more effective relationship is one based on a parity of power; one in which both residents and city authorities embrace an issue as partners. Working effectively together to address the issue, through education and collaboration will lead to a more sustainable outcome than the imposition of strictures from above.

Aiming to strengthen the relationships between all the groups in the city, recognising and valuing the contribution of each will lead to greater mutual respect and understanding. It is not rocket science, but replicating this model with businesses and with residents, will lead to greater success in building a sustainable future for the city. 1. KPMG LLP (UK). [Relational Proximity® and Relational Proximity FrameworkTM are trade and service marks of Relational Research Limited and can only be used under license from Relational Analytics Limited.]

“All too often, we view relationships between stakeholder groups in terms of what we can get out of them in the immediate future, rather than building long-term partnerships.”

Vincent Neate Partner, Audit Partners Head of UK’s Climate Change & Sustainability Practice KPMG in the UK [email protected] +44 20 7694 3256 An accountant and auditor by background, Vincent has a real interest in green and social investment, having spent 10 years in a private equity group, prior to running the Sustainability Practice in KPMG. His leadership of the Sustainability Practice combines business experience with specialist knowledge in areas such as climate change and carbon trading, non-financial data assurance, corporate responsibility and governance.


German energy market experiment leads the way Mathias Oberndörfer

The energy market in Germany shows how sustainability, the environment and the economy are mutually beneficial systems. The percentage of power generated from fossil fuel and nuclear is at an all-time low1, as public and private energy suppliers move towards greater use of renewables. This is uncharted territory yet the economy remains strong, with a surplus of energy produced. The German government published the Energiewende document in 2010 laying out targets to reduce carbon emissions and transition to more sustainable energy by 2050. This transition involves a shift away from major energy companies, with an increased emphasis on local production, which benefits municipalities by creating local value and keeping that within cities. Germans have some of the highest electricity bills in Europe but overwhelmingly support the programme of transition to renewables. A 2014 survey showed 92% of respondents were in favour of increased renewable energy generation with two thirds happy to have renewable power plants close to their homes2. Part of the reason for this widespread acceptance is that the German population see sustainable policies as entirely mainstream. The Green party came to prominence in the early 1980s thanks to the federal political system and sustainability issues have been part of the political landscape for over 30 years. This is one of the reasons why a series of subsidies for renewable energy was set up very early on – a system that is still in place today. I think that sustainable behaviour is more about attitudes than law-making. Clearly, it is helpful to have laws that operate at a commercial level against pollution for example, but at an individual level education is more productive. Any law requires administration to apply it, which creates a cost to force behaviour change. Far better to lead by example and convince people to behave differently. Cities can actively promote the agenda by including sustainable principles into daily transactions. For example, in Nuremberg and other cities in order to get a building permit you often have to plant some trees and contribute to a sustainable environment for every building constructed. Cities like Stuttgart and Essen, which is set to take over the title of European Green City after Bristol, have also pioneered active travel choices, renovating building stock and as well as promoting their own municipal energy initiatives.

Other cities have followed their example. Having control over their own finances, allows city leaders to choose which issues they will prioritise and there is an element of competitive civic pride between them – to be the most sustainable. It would be naive to claim that there are no problems with the German energy transformation programme. There is plenty of criticism around the level of subsidies required, as well as the impact on existing energy suppliers. However, the fact remains that Germany is shifting to sustainable energy sources at a faster pace than any other developed nation and is well on target to meet its carbon reduction rates. I hope that other cities around the world can see that sustainable behaviour can help businesses achieve their outcomes, rather than being an unwelcome add on. Making a cleaner, more sustainable future the centre of any project will promote a healthy economy and a cleaner environment. The German energy transformation project shows it can be done. 1. Power from fossil fuel drops to 35-year low in Germany – German Energy Transition 2. Acceptance of renewable energy

“Germans have some of the highest electricity bills in Europe but overwhelmingly support the programme of transition to renewables.”

Mathias Oberndörfer Managing Partner, Public Sector KPMG in Germany [email protected] +49 911 8009 299-32 Mathias is the head of KPMG’s public sector practice in Germany. A Nuremberg and Berlin-based lawyer, he advises municipalities and public entities on legal questions, and oversees all business needs that affect the public sector. He has particular expertise in contract law, procurement law, EU state aid regulations, public financing and Municipal Economy Law.

15

What is my city worth? Ben Wielgus

What is your local park, library, bridge or swimming pool worth? We can easily put a figure on the value of the land or the buildings but that number in pounds and pence can never truly reflect the long-term return that asset provides to a city. Cities need to factor in a much wider set of measures to make an informed judgement as they make difficult decisions about where to allocate their increasingly scarce resources. It is an especially live issue as cities continue to cope with the budgetary blow dealt by the financial crisis. Disbursements from central government are generally lower, as is the tax taken from hard-pressed business. Simultaneously demands on welfare services have grown. From Sydney to Shanghai via Swansea, cities have to do more with less.

Measuring value in this way lays bare how services that look like costs could in fact generate long-term value elsewhere. It also gives us a way of thinking that helps us recognise that we can often create value by optimising the trade-offs between capitals instead of focussing on one or two without thinking of the others.

Under this pressure, it would be easy to put more value on infrastructure that generates economic growth. That could be a mistake. New factories could create economic growth. However, if those factories polluted the water supply, their effect on the population’s health and wellbeing, and the pollution of natural resources would cause economic harm.

For example, a library, many of which have recently faced closure, creates intellectual capital through access to learning materials and information. It improves local people’s job prospects and increases a city’s social capital by providing a venue where isolated older people can enjoy human contact, children attend playgroups or people feel a boost simply by meeting friends for a coffee.

I contributed to KPMG’s New Vision of Value report in 2014, which highlighted the need for a broader measurement system for business and this thinking is even more relevant to cities since they operate within a defined geographical area. Whilst working in Bristol during its year of European Green Capital, KPMG has taken the six capitals of the International Integrated Reporting Council and our True Value approach to consider how cities can more consistently measure the value of city services and assets. I think considering these six capitals can help cities consider the far broader contribution of their assets to the long-term viability and wellbeing of a city. The six areas of capital are: 1. Economic capital: the earnings of business and individuals across the city. 2. Manufactured capital: the value of the constructed physical assets of the city including roads, buildings, vehicles, dams etc.

Closing that library would generate a short-term cost saving but could have an extremely detrimental effect on the longerterm cohesion of the community and the skills of the local workforce. The majority of the existing measurements focus too heavily on output indicators, like the number of buses, libraries or schoolbooks you get for your money. It is considerably harder to measure the impact of that investment, as that could take years to filter through the system. However, if we truly want our decisions to be long term then I believe we really must start to factor this in much more. By measuring the true value of each aspect of a city’s capital, we can have an evidenced-based discussion about which areas really create value for that city and its people. Linking the beneficiaries of the True Value of a service or asset with its funding can create a fairer system of funding city infrastructure.

3. Human capital: the health and wellbeing of citizens. 4. Intellectual capital: the cumulative know-how and collective skills of the city. 5. Social capital: the strength and effectiveness of the relationships within the city including families, communities, business and the perception of the city by others (e.g. tourists). 6. Environmental capital: the natural resources that benefit the city, or negatively the costs imposed by carbon emissions and other pollution.

“By measuring the true value of each aspect of a city’s capital, we can have an evidenced-based discussion about which areas really create value for that city and its people.”

Ben Wielgus Associate Director, Sustainability Services KPMG in the UK [email protected] +44 20 7694 8573

Ben has spent the last 13 years at KPMG, where he has experience across a breadth of service lines including audit, transaction services, strategic commercial intelligence, business modelling and integration advisory. He has used this variety of experience to develop a specialism in sustainability strategy – guiding clients through the big changes in the world and what it means for them. For the last two years, he has worked with the city of Bristol thanks to KPMG’s sponsorship of Bristol as the European Green Capital of 2015.


Public private partnerships drive innovation Andy Garbutt

A lack of investment in infrastructure creates a huge drag on a city’s economy. The most innovative construction techniques and materials might appear to cost more upfront, but their quality can bring greater value over the whole life of an asset thanks to lower maintenance costs and less disruption to users. Public private partnerships are the best route to drive this innovation. Most cities around the world have a lot of crumbling infrastructure, while those experiencing population growth require new public assets. This all translates to huge costs to economies from congestion, pollution and loss of productivity. The US is facing a £3.1trillion loss to GDP due to underinvestment in transport and energy networks1 and is dropping down global competitiveness tables as a result2. Despite a steady global recovery, public money is still in short supply when it comes to funding major projects. City leaders need to fund the investment and get the taxpayers to start paying the economic price for infrastructure – which is a challenge in itself. Public private partnerships mean that it is at least possible to solve the first part of the equation. I strongly believe that bringing the best partners in to deliver infrastructure will also create energy efficiency and lower costs over the whole lifetime of an asset. The traditional procurement model invites decision-making based on upfront costs. Shifting to a model that calculates the entire costs and then spreads them over the lifetime of an asset is a great way to drive sustainability, because it allows for much more innovation in the delivery of infrastructure projects. However, there can be resistance to collaborating with private companies to design, build, finance, maintain and in some cases operate new assets because of the fear of a loss of control. There is no right or wrong answer about whether a city needs to own its assets. However, a sense of ‘selling off the family silver’ can stall progress if the terms of the partnership require handing over the development and management of what have been municipal assets. I think the answer to worries about control is education and transparency about the reasons for the partnership. The public need to know why politicians are looking to sell or monetise their municipal assets – is it to help plug a pension deficit or generate money to invest in new infrastructure? Australia leads the world in the recycling of assets, where existing infrastructure generates income and the proceeds are recycled into the creation of new or repair of existing infrastructure.

Additionally, if it is clear that a partnership will bring innovation and technological advantage, as well as long-term value for money, then it should be more palatable to the public taxpayers of a city. All the evidence shows that public private partnerships are more effective than traditional models at delivering infrastructure assets on time and on budget, because any penalties for failure transfer to the private company. Recent examples in the US are the LBJ and NTE toll roads in Texas where the private partner completed these two complex projects, months ahead of schedule and on budget. Similarly, Infrastructure Ontario’s 2015 Track Record Report that found 44 out of the 45 public private partnership projects reviewed between 2013 and 2015 were completed within budget – powerful evidence of a model that is working and delivering real benefits of infrastructure investment3. Certainly, city leaders need to be careful before entering a public private partnership arrangement for the first time. They need to be clear about what they are looking to achieve in upgrading their infrastructure, and in which sectors. Additionally, they need to look carefully at the strength and track record of the private sector partner that will be alongside them, potentially for many years. Cities should take inspiration from the many success stories, both in the US and globally. With the financial investing community, particularly pension funds, increasingly open to investing over the long-term in infrastructure assets, the opportunities are there to build for the future. 1. Failure to Act Economic Studies | ASCE 2. Global Competitiveness Report 2014-2015 - Reports - World Economic Forum 3. Ontario Track Record Report 2015

“I strongly believe that bringing the best partners in to deliver infrastructure will also create energy efficiency and lower costs over the whole lifetime of an asset.”

Andrew Garbutt Principal, Advisory, Infrastructure KPMG in the US [email protected] +1 512 501 5329 Andy joined KPMG in 2000, and seconded to the US firm in 2006, where he now heads the US Infrastructure Advisory team. Previously he worked within the Royal Bank of Scotland’s specialist PPP team in the UK where he advised and financed consortia in order to successfully conclude PPP projects in a variety of sectors. He specialises in international project and structured finance, helping state and municipal agencies deliver infrastructure assets in the US.

17

Circular Economies can minimise waste Karen Wordsworth

City leaders should remember that old mantra ‘one man’s waste is another man’s treasure’. If they could create a circular economy that exploited sources of waste as a supply chain for other businesses this would also increase recycling and reduce landfill. By 2030, the world will have an extra 3 billion middle-class consumers, all wanting fridges, cars, and mobile phones1. We simply do not have the raw materials to continue producing these goods. With city authorities already under pressure to increase recycling rates, circular economies could be the answer. Clearly, it is more efficient to extricate any mineral wealth prior to putting resources in landfill. This calls for an integrated plan of how best to deal with waste, with city leaders needing a clear vision of a common goal. If they are attempting to reduce plastic waste, then they need to make that clear across the organisation and have the wherewithal to follow that through. Promoting recycling initiatives and penalising waste is a good start but there is more that city authorities can do. While behaviours are changing and consumers are getting better at recycling, it is no good stockpiling plastic bottles if you do not know what to do with them. If the markets do not provide incentives, then city or national governments need to. The EU is pressing for a small charge on every bottle of water sold which goes back to funding the end of life processing of that bottle. This has already worked well in Beijing, which allows you to pay for train tickets with plastic bottles, Istanbul, which exchanges them for dog food and Sydney, which exchanges them for bus tickets. KPMG helped develop a similar “producer pays” model in South Africa, which I have presented for use elsewhere. Under the REDISA initiative, each tyre imported into the country pays 2.30 rand per kilo. This gives a clear line of sight and certainty on the raw material (the old tyres) which has led to the development of a whole industry around how to use them. City leaders could use this sort of initiative to tackle food waste. Introducing a charge on retailers, restaurants and other businesses within a geographic area would provide an income stream to support recycling initiatives and reduce waste itself.

7,500 tons of silver are used annually to make PCs, tablets, mobile phones and other electronic goods2. The waste from defunct devices in landfill is worth more than the ore remaining in mines around the world. This leads to the concept of urban mining. One of the biggest centres is in Guiyu, China, which processes 1.5 million tons of waste a year, generating $75 million from electronic waste annually3. Cities with old industrial and domestic landfills may soon find they are sitting on a far more valuable asset than simply one to burn for energy generation. The conversion of waste back into raw material is the ultimate goal, but using it to generate energy is a good interim step. As technology develops, the opportunities increase. Several companies exist that take some of this plastic waste and convert it back into an oil or gas that can be used for energy, replacing fossil fuels. Right now the oil price is so low, it is cheaper to manufacture virgin plastics than recycle. So councils also need to think about financial incentives to encourage sustainable behaviour. Preferential business rates, tax breaks and support for companies tackling conversion of waste streams are all helpful, as well as providing forums for individuals to connect and share experiences. Waste is a resource, not a problem. If cities do not see that, the eyesore of growing landfill mountains should provide a timely reminder. 1. OECD - An emerging middle class - OECD Observer 2. Urban Mining Worth Billions 3. Urban Mining Worth Billions

“Promoting recycling initiatives and penalising waste is a good start but there is more that city authorities can do.”

Another potentially valuable revenue stream is the extraction of minerals from waste products. Globally 320 tons of gold and

Karen Wordsworth Director, Audit Sector Infrastructure Director of Climate Change & Sustainability KPMG in the UK [email protected] +44 20 7694 5404 Karen has been a director of Climate Change & Sustainability for the last four years at KPMG, following three years at a policy advisory group and an engineering company. She specialises in energy and resource efficiency, looking at creating the financial environment to all investment in carbon reduction measures, the influence of public policy, and addressing sustainability needs with new technology. She is also a member of the Advisory Board at Cambridge Centre for Climate Change Mitigation Research.


The true value of green space Dr Stephanie Hime

Urban green space is consistently undervalued. Many councils see parks and green spaces as a cost, without fully understanding their contribution to city life. The true value of green space can only be realised when councils integrate green planning across city planning departments. As cities grow, the pressure on green spaces intensifies. By 2050, 66%1 of the world’s population is due to live in urban areas – an extra 2.5 billion people will need accommodating. Rather than giving over green space to expansion, I would argue that it is increasingly important to protect it. Many studies have associated green space with improved mental and physical health for city residents. Recognising this value should allow us to develop more green space because it contributes to wider city objectives. Similarly, well-managed urban parkland has a positive economic effect on the surrounding areas. The development of New York’s High Line helped regenerate its neighbourhood, and now attracts visitors and income from tourism as well as boosting property values in the area. This regeneration value is relatively easy to measure, but much of the value of natural capital resists simple definition. Different services provided by green spaces matter to different groups – whether that be improving people’s physical and mental health, providing plants that purify the air and offset carbon dioxide or providing habitats for other flora and fauna. Natural resources underpin the existence of every city. Businesses all need clean water, fresh air and food for their people, if not their processes. The current market does not typically ascribe a monetary value to the natural origins of these resources, yet without them, nothing would function. Urban green space helps connect us to this natural capital, reminding us of the ecosystem we all need to survive. Connected thinking about a variety of city-wide issues needs to take green spaces into account. For example, studies2 have shown that wide-canopied trees in parks can offset some of the heat island effect that arises from large clusters of buildings. If strategic planting can cool temperatures between 2 ºC and 8 ºC, then this could reduce energy and heat loss.

show eliminate pollution, along major roads rather than a single park that benefits a smaller area. With integrated planning and conscious decision-making about the plants, livestock and people that space supports, a city’s green space can deliver a whole series of benefits. A cycle path or walkway can double as a wildlife corridor or ecosystem for particular birds or insects. A planting area can educate schoolchildren about the sources of food, ecosystems and plant life cycles. Recognising the different contributions green space can make to city life can help raise its status and put it on a par with other areas of urban design. Historically, green planning has been an afterthought, considered separately and this lack of integration means that there has been no clear plan or purpose for a city’s green areas. Green space has a value that far exceeds the obvious provision of a breathing space for city dwellers or its land value. Recognising this potential must prompt senior decision makers to integrate green planning with other departments. It is only when green spaces are properly designed that they can deliver the full range of benefits to their city and its people. 1. http://www.un.org/en/development/desa/news/population/worldurbanization-prospects-2014.html 2. http://www.forestry.gov.uk/pdf/FCRN012.pdf/$FILE/FCRN012.pdf 3. http://pubs.acs.org/doi/abs/10.1021/es404363m?journalCode=esthag

“Green space has a value that far exceeds the obvious provision of a breathing space for city dwellers or its land value.”

Planners need to determine what they want from their green areas – review what they have, and if it does not work, change it. If the aim is to improve air quality, it might be more valuable to have rows of silver birch trees3, which studies

Dr Stephanie Hime Manager, Lead Specialist True Value Part-time Technical Director at Natural Capital Coalition KPMG in the UK [email protected] +44 20 7311 3826 Stephanie has a PhD in environmental economics and biology. She has worked for KPMG for five years, looking at the impact of business on natural capital and how this affects biodiversity and ecosystems might have on clients and their decision-making processes. She is now the lead specialist on KPMG’s True Value methodology and works with clients to understand the impact of business on society. She is also seconded as the part-time technical director to the Natural Capital Coalition.

19

Lateral thinking can help beat budgetary squeeze David Smale

Transport planners across Europe face unprecedented pressure on budgets and greater demands to achieve value for money. The threat to socially-necessary but unprofitable transport lines appears greater than ever. However, I believe that local authorities can help plug the gap with some creative use of their existing assets. In the UK, central government has reduced funding to local authorities at the same time as cutting fuel subsidies to transport operators. In 2015, the transport budget reduced by £545million, a near 2% cut. Against this there is increasing need for high quality public transport to compete with private car ownership. A common theme amongst transport planners and local authorities therefore is needing “to do more with less”.To help achieve this I think it is important to think laterally about funding sources. I would urge all local authorities to create a mobility strategy for residents, businesses and visitors that is integrated across all operators and departments. For example aligning public transport priorities across education, healthcare and other departments will cut costs, boost revenues and protect vulnerable services by avoiding policy conflicts. Broad thinking is needed to create effective partnerships across participants. For example, it is no good trying to promote public transport use while reducing parking charges in the city centre – the two programmes should work towards the same objective. Once city authorities and public transport operators have a joint vision, councils need to make the most of the assets that they have to support their transport networks. Sponsorship is one option – instead of simply placing advertising on buses or trains, having a long-term brand connection can provide a more stable income stream. The Emirates cable car in London is a good example. City managers also need to look at using their transport properties to generate income. Space can be rented for phone masts, advertising, solar panels or for creating new business premises. Unused space can be turned into concert venues, theatres, bars or festival space – a car park in Peckham has done all of these. In Bristol, the redevelopment of Bristol Temple Meads station should significantly improve passenger facilities while increased business use will generate more revenue to pay for the investment. It is up to each city government to decide their own fundraising methods. A congestion charge could provide an income stream, but if it risks destroying trade in the city centre, then they should think again. Alternatively, if the council provides and promotes good public transport links, people might prefer to come to a traffic-free centre. Without effective transport, cities do not function. Transport supports education, social mobility and commerce all of which are wider social policy objectives of most authorities.

In New York they recognise this and raise finance from business taxes accordingly, including a 0.25% sales tax and a corporate tax surcharge. The tax revenue goes into investment funds to support its transport network, allowing for a stable income. In the UK, some businesses have come together to create Business Improvement Districts (BIDs) where they collectively fund local street scene and infrastructure improvements. Bristol has a number of the most successful BIDs in both the city centre and neighbourhood retail areas. Some combined authorities in the UK, such as those around Manchester, are seeking greater devolved powers over their cities, including the ability to deliver transport schemes. These authorities have the responsibility to invest and fund their transport solutions. So they will need stable sources of income to be able to continue to provide services. Greater certainties over funding sources will allow authorities to invest in new technologies like driverless vehicles. This could be particularly valuable around non-core networks, delivering a more efficient service. By focusing on alternative sources of funding, local authorities secure the future provision of their services. There is no magic bullet, and council leaders must analyse where their strongest revenue streams are likely to be, whether that be leasing or sponsoring assets or taxing road or business users in a geographical area. It is no longer possible to rely on government subsidy and passenger revenue alone. 1. https://www.gov.uk/government/publications/summer-budget-2015/summerbudget-2015 2. State Operating Assistance (STOA)

“I would urge all local authorities to create a mobility strategy for residents, businesses and visitors that is integrated across all operators and departments.”

David Smale Senior Manager, RC – Forensic Disputes & AAS Transport Advisory KPMG in the UK [email protected] +44 113 231 3419 David has spent the last nine years advising in the transport space, the last five of which have been at KPMG. With an accountancy background, David has supported clients putting together the financial stream of rail franchise bids. More recently, he has been working on a Department of Transport’s review of the future of the bus market.


Cities must support green economies Michael Hiller Green economies will not grow organically. City authorities must take the lead in promoting sustainable choices to encourage long-term economic and environmental viability. Shifting perspectives to a longerterm view on returns will reap dividends for the city and its community. Focusing on the longer term

Ensuring environmental concerns are part of the debate

It is easy to go for quick wins on economic development and focus on the short term. City leaders need to consider the longer-term horizons when making decisions. Planning, procurement and other initiatives will provide different returns in three to five years than they will in 60, 70 or 80 years. It is not about making a quick return, but instead establishing an economy that will benefit and support our children and our children’s children.

I agree with Paul Gilding, the Australian environmentalist, who argues for environmental concerns to become a central part of economic debate. Actively measuring the impact of human behaviour on carbon emissions or the use of natural resources means it becomes tangible. Charges can then be made for the use of those resources – something that makes the argument more real for many people.

Encouraging innovation Cities need a mixture of effective leadership at government level, combined with incentives to develop capability and promote innovative thinking from start-ups and small enterprises. Community-based organisations, charities and not-for-profits often require support when tendering for work against more established corporations. They can play a very effective role in driving an innovative approach, helping to offer real alternatives and developing the green economy – but they need help to get up and running. While small green enterprises possess a lot of energy and enthusiasm, they frequently lack the financial resources and technical sophistication of big business. Without help, they will struggle to grow into a viable alternative to other parts of the market. Guidance and mentoring, financial advice, consulting support and educational awareness programmes can help make them more competitive. Such organisations provide a rich diversity and encourage innovation. The role of planning Planning departments within local governments play a key role in establishing sustainable building standards. As the strategic thinkers in local government, they have the opportunity and responsibility to set the standards in promoting green economies. The cost of retrofitting infrastructure to make it sustainable is so much higher than getting it right in the first place. City leaders can promote requirements to source materials locally, provide increased green space and minimise waste to any project – all of which will benefit the movement towards a greener economy.

City authorities can make this a reality, by introducing environmental taxes, charging for excess waste production, carbon emissions, vehicles, non-compliance with building standards and so on. Kanpur, India, charges a tax on vehicles over 15 years old in an attempt to promote the use of more modern less-polluting models, for example. The importance of communication in engaging citizens and stakeholders At the same time as introducing measures to promote a green economy, city leaders need to explain their choices to their citizens. There has been scaremongering on both sides of the environmental debate. People need to see that there are long-term economic benefits of being more thoughtful about our use of resources. Social media provides more communication outlets than ever to engage people and help them understand the benefits of a more sustainable approach to city living. Taking a long-term perspective, it should become clear that there does not need to be a conflict between ecology and economy, but rather one links to the other. It must be possible to create economic growth and development without degrading the environment around us – we owe it to the future generations.

“Cities need a mixture of effective leadership at government level, combined with incentives to develop capability and promote innovative thinking from startups and small enterprises.”

Michael Hiller Partner, National Leader of Infrastructure, Government and Healthcare KPMG in Australia [email protected] +61 7 3233 3299 Michael has been a partner in KPMG Australia since 1998, where he now heads the Infrastructure, Government and Healthcare team. Michael is both a registered psychologist and a chartered accountant. He combines these disciplines to help organisations improve their performance by focussing on their people, processes, technology and organisation structures. He has extensive experience in working across all levels of government in Australia.

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Devolution helps cities set their own agenda Kru Desai The devolution of power to authorities across the UK is great news for cities. Having greater control over their spending decisions will allow city authorities to develop the services that best meet the needs of their residents. A joined-up approach to tackling the issues facing individual communities, will be more sustainable, more effective and better value for money. The UK is the most centralised form of government in the Western hemisphere. Increased devolution of powers to city authorities means they can make decisions on budgets and spending, based on their specific knowledge of that community, local infrastructure and its needs. Bristol will not have the same requirements as Bradford, Bangor or Belfast. Letting city leaders make the decisions that directly affect their city has to be good news. The relative freedoms and financial flexibility provided by the new City Deals also gives city authorities the opportunity to take an integrated approach to tackling issues facing their communities. Combining the projected income stream from central government into a single pot, allows an integrated approach to spending that should ultimately reduce overall costs. Of course, the benefits will not be seen overnight. It takes at least 10 to 15 years to see positive outcomes from these programmes, but then City Deals are measured over 20 to 30 years. As long as city authorities can show progress according to agreed milestones, and they stick to their programmes they should reap the rewards in the areas that most affect them. This bold new approach requires an equally clear vision of what each city wishes to achieve, combined with strong leadership and a single point of accountability. It also requires some juggling of the priorities of different sections of the community. Cities must create an environment that fulfils the needs of all their stakeholders, from business to the public sector to individuals.

This approach can promote sustainability as long as it is a mainstream part of the agenda. That is not to say that it is not possible to promote green initiatives under the existing system – after all, some cities will not receive devolved authority. They will still be free to promote sustainable policies. Making sustainability mainstream with a coherent approach across the entire city authority will be more effective, rather than paying lip service a series of piecemeal initiatives. Devolved cities have a once in a generation opportunity to set the agenda for their locality, and work towards the environment that they want to create for their future citizens.

“The relative freedoms and financial flexibility provided by the new City Deals also gives city authorities the opportunity to take an integrated approach to tackling issues facing their communities.”

Kru Desai Partner, UK Head of Government & Infrastructure KPMG in the UK [email protected] +44 20 7311 5705 Kru leads the Government and Infrastructure practice for KPMG in the UK and her 20 year career has included advising UK and International, Governments, Health Authorities and private sector providers in improving the performance of public services to Citizens, including technology enabled transformation programmes. Kru is also a member of the Mayor London’s Smart London Board.


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