Our Changeprint
Our Changeprint can be measured by the projects funded (for example, the solar farm and battery storage facility in Cirencester); social benefits of community projects (the solar farm contributes its surplus towards the council's own fuel poverty charity); improvements to the council's profile and reputation with the public; and by creating a pool of residents who through their investments are more engaged and inclined to participate in other projects.
Our story
Councils that have declared a climate emergency may then struggle to fund the measures needed to cut emissions in their area. Warrington Borough Council has piloted the use of community municipal bonds, a fundraising tool for local authorities, to fund renewable energy projects. Community municipal bonds allow councils to raise money directly from residents.
Bonds are issued by a council to members of the public, who can invest as little as £5 and get regular return payments on this investment. This is done via an online crowdfunding platform. Once enough has been invested, the council can give back to communities by using these funds to deliver low carbon infrastructure and projects.
Warrington Borough Council announced their pilot bond scheme in May 2020. The bond was issued three months later, available to Warrington residents and others across the UK. It involved a collaboration with ethical investment company Abundance, who administered the bond on behalf of the council. The bond was closed in November 2020, reaching its £1m target three days before the set deadline.
More than 500 investors contributed to the bond, with an average overall investment of £1,921. The bond was structured as a 5-year investment with a 1.2% return rate, making it competitive with high street savings and investment opportunities. Return payments are made to investors every six months, with the option for these interest payments to be donated back to the council – 11% of Warrington investors did so with their first payment.
Spending possibilities for community municipal bonds include making homes more energy efficient, installing charging points for electric vehicles, or rewilding and tree-planting projects. Bonds can be used to engage and protect vulnerable communities or boost green skills and jobs – they are flexible and can be moulded to specific council objectives.
Our advice
A strong business case for council and residents:
The bonds are a win-win for councils and residents. For the council, they are an easy way to diversify funding sources and cut reliance on less stable traditional borrowing channels such as the Public Works Loan Board. The debt presented to the council is similar to the Public Works Loan Board borrowing rates. As the bonds are offered and managed online, they are efficient and logistically simple for council to run.
For residents, the bonds are a low-risk investment, because risk is tied to the strength of the council, not to the success of the project. Investors do not assume the risk if a given initiative fails or is delayed. The robustness of councils compared to high street banks makes this a relatively risk-free way for residents to mobilise their money.
Build consensus early on:
Setting up and implementing the bond ran smoothly with few hurdles. Early on, there was some doubt from opposition councillors. Warrington is a Labour-held council with a healthy Liberal Democrat and Conservative opposition. The wisdom of launching a bond when the council was focused on fighting the Covid-19 pandemic was questioned. However, once the financial details were fully explained, councillors became supportive; the Liberal Democrats in particular have been very supportive of Warrington Labour's green agenda. Warrington's example proves that a community municipal bond can be a tool for a just, fair and green recovery. Moreover, even during the hardship of the pandemic the target of £1m was comfortably reached, testifying to the importance local people give to taking on the climate emergency.
Emphasise the local benefits:
The council is considering more bonds to finance future projects. But it would like more local buy-in and to grow the number of residents contributing. Abundance handled the communications for the first bond, but more council involvement in communication and media strategy could push the local green benefits of the bond, ideally getting more people on-board at an earlier stage.
Be aware of any financial risk to the council:
Funding struggles are one reason why these bonds may appeal to stretched local authorities. But for investors, risk is tied to the continued existence and financial strength of the council. Any councils at risk of a Section 114 notice being issued due to failure to balance budgets – a legal order that restricts their spending – will be unable to implement a community municipal bond. Abundance credit checks councils to ensure that investors aren't lending to authorities at risk.
For financially sound councils there is still risk to consider. If there are serious project complications or setbacks, they will carry the risk as opposed to investors.
Replicability:
The success of the pilot in Warrington led the Green Finance Institute and Abundance to launch a national campaign in July 2021 to help local authorities set up community municipal bonds. The Institute is targeting all 404 local authorities in the UK. In September 2021 five councils signed the Local Climate Bond Pledge, committing to issuing a bond by Summer 2023.
Authorities might feel they lack the knowledge and experience to launch a similar bond, but the concept is simple and straightforward.
Expertise and Vision:
The council boasts previous experience in solar farms, with two already in operation at Hull and York. The council therefore has strong institutional expertise in and passion for innovating on green issues, making it well-placed to become a pilot case for the use of community municipal bonds. It also had experience in raising a city bond, five years prior, to fund regeneration of the town centre.
Accessibility:
With a minimum investment of £5, these bonds are very socially inclusive (although smaller investment equals smaller returns). They also offer an alternative channel to democratic public forums like climate assemblies, which some residents may feel reluctant to participate in. Such bond schemes allow a wider range of people to contribute to local climate action. Community municipal bonds are also very transparent, as residents can see the result of their investment, whether a solar farm or new electric buses.
