Finance and Procurement

For NBS to reach their full potential in providing the environmental and social benefits, the continuity as well as a more mainstreamed implementation of NBS needs to be ensured. This in turn calls for sustainable and long-term financing models. Because NBS interventions often concern public land and/or buildings, the majority of the funding schemes for NBS tend to follow a top-down approach and rely primarily on public budgets. However, cooperation with the private sector should not be overlooked for ensuring long-term financing solutions. Private sector stakeholders could bring more efficiency and additional resources for NBS implementation and mainstreaming. Depending on the local context, engaging with private sector stakeholders could be crucial for the success of NBS projects (e.g., if the land envisaged for NBS interventions is owned by private stakeholders).

Nevertheless, private investors face numerous challenges when considering investments in NBS. Often investors find it difficult to internalise the NBS benefits, as they are for some part public. Also, the payoffs from such investments tend to be long-term, whereas the investment costs are immediate. These factors might discourage private capital investors from NBS and shift their preference towards lower-risk, well-established technologies. In this context, the city administration plays an important role in applying policy tools (e.g. introduce guidelines and/or requirements for incorporating NBS in new developments) and financial instruments (e.g. issuing green bonds) to encourage private sector participation.

Another aspect that influences the success of the NBS uptake is public procurement. Public procurement can serve as a powerful demand-side policy tool and promote the development of innovative solutions to address the key city challenges. However, NBS implementation often calls for new procurement strategies that would enable the procurement officers to account for the full range of NBS benefits and costs and move away from the common “lowest cost” award criterion. The procurement strategy should be carefully designed to encourage the bidders to incorporate NBS and thus provide the best value for money and serve the diverse needs of communities.

General principles cities could follow when considering finance and procurement strategies for NBS implementation:

Certain NBS (e.g. green roofs) tend to have higher potential to be implemented by private actors, whereas others (e.g. public green space) are typically publicly driven. Based on the nature of NBS, municipalities might need to apply different tools to promote the NBS implementation (e.g. offering incentive schemes to private actors or focusing on increasing internal revenue base).

Considering the key players for investment decisions for different types of NBS

Considering polluter-pays principle when designing new ecological fiscal instruments:

The principle implies that whoever bears the responsibility for the negative (environmental) effects should incur costs associated with the damaging activity (Pitrone, 2013). If polluters are taxed on their harmful activities, society is compensated. This way, not the whole society but only the polluting entities compensate for the negative externalities associated with their operations. Adopting this principle could have the two-fold effect of potentially discouraging harmful activities as well as providing additional revenues to the cities that could be spent to fund interventions like NBS.

Targeting of the users of the municipal services:

By introducing targeted fees and charges the cities have the opportunity to relieve some of the burden from the general public and collect additional funds for NBS implementation. For instance, cities might choose to introduce fees in relation to the new real estate developments that require additional public infrastructure investments.

Promoting the cooperation with private sector:

This can be done through public-private partnerships (PPPs) that would enable cities to gain access to additional capital and decrease the risks of implementing NBS.

Incorporating the cost saving potential of NBS:

NBS interventions do not often yield direct cash flow streams for investors. However, NBS can have high potential to result in cost savings through mitigating key risks in cities (e.g. flood mitigation capacity). This cost saving potential needs to be properly accounted for and incorporated in the NBS business models that could be used to leverage private and/or public funds.

Consider bundling NBS interventions to create scale:

bundled NBS have higher potential to fulfil their desired function at scale and thus become fundamental assets constituting the green infrastructure in cities. To ensure the effective management of such infrastructure, cities could initiate the NBS-related asset management plans that would enable them to systematically evaluate the state of NBS, the levels of service NBS provide and the potential financing strategies. The bundling might also make the NBS projects more attractive to be financed though green bonds.

Consider alternative ways of requesting works, services and supplies:

Often public procurement officers and the wider public might not be aware of the existence of the alternative solutions to the common grey infrastructure approaches. Due to the strict rules of the public procurement process, the potential suppliers have limited opportunity to propose the alternative solutions. Public procurement officers could introduce new ways of formulating the requests that would give the bidders enough flexibility to propose new solutions. The cities might also consider introducing a design competition stage in the public procurement process of NBS.