Alternative financial practices and instruments

This approach tackles unsustainability and injustice in cities from a financing perspective. From this perspective the distribution of resources and the way our economic system is organized is the starting point to think of just and sustainable cities.

This page is part of an ongoing, open-ended online collaborative database, which collects relevant approaches that can be used by city-makers to tackle unsustainability and injustice in cities. It is based mainly on knowledge generated in EU-funded projects and touches on fast changing fields. As such, this page makes no claims of authoritative completeness and welcomes your suggestions.

General introduction to approach

Alternative financial practices and instruments respond to the need for and the wish to build regenerative, equitable and democratic economies. These types of initiatives took root after the financial crisis of 2007 and were in most cases a response to the disruptive consequences of the financial system such as ecological destruction and growing socioeconomic inequalities. This infographic shows the causes and consequences of the financial crisis.

Additionally, in the context of reaching the objectives of the Paris Agreement on climate change and the need to transform our cities, policy makers, corporate actors and researchers are interested in alternative financial instruments that help to bridge the ‘infrastructure investment gap’ or fund green projects that are cross-sectoral and have multiple benefits. Achieving the goal of urban transformation in terms of climate mitigation and adaptation requires not only huge financial investments, but requires also a different type of financing .

Shapes, sizes and applications

Some examples of alternative financial practices and instruments aim at strengthening public finance and the real productive economy. See for example the book “The public finance we want” (2019) . Examples are: 1) Socially responsible public procurement. 2) The public support of local cooperatives and democratic enterprises by donating land or loans for a fair price, 3) Reclaim public ownership of services such as water and energy-services, based on participatory governance models. As is the case in for example Barcelona. 4) A citizens basic income paid with a complementary social currency that can be spent in local businesses . 5) Citizens’ wealth funds and 6) New public and democratic banks which organized itself according to alternative governance arrangements (Examples are Costa Rica’s Banco Popular, Germany’s Sparkassen, ‘Belfius is ours’)

A community-based approach that is not based on money, market or state welfare arrangements is Timebanking (as described by TRANSIT). This is “a values-based mechanism for reciprocal service-exchange that focuses on the contributions everyone can make to meeting needs within a local community. The value of all services in time banking is equal. The unit of exchange and account is simply the hours spent giving or receiving service”. Read more about this approach below.

Another approach is the social divestment movement. This is a global grassroots campaign encouraging institutional and public investors to pull out of investments in fossil-based energy companies. The movement is mainly represented by 350.org and, more specifically, Fossil Free. “Divestment is the opposite of an investment – it simply means getting rid of stocks, bonds, or investment funds that are unethical or morally ambiguous ”. The movement also encourages these investors to reinvest the money. The movement upholds a set of principles that are based on the idea of ‘regenerative financing’ to guide these reinvestments. These principles are: Increase community empowerment and prosperity, shift economic control, democratize the workplace, drive social equity, promote ecological well-being and resilience, shift trends in production and consumption and strengthen the public.

Another set of approaches are the (private) financial instruments that are specifically designed to accelerate urban transformation to resilient or decarbonized cities. In general, “Private finance for sustainable innovation (...) faces two fundamental challenges: (1) payoffs are for some part public and therefore cannot easily be reaped by investors, and (2) payoffs are often long term and high risk due to their innovative character, making it less attractive for investors” Many of these examples are not new or different but are about leveraging conventional sources and unlock novel mechanisms for a sustainability goal. Examples are socially responsible investment funds and banking, climate/green bonds, solar-leasing and environmental upgrade agreements and carbon taxation.

With regards to implementing and mainstreaming nature-based solutions in urban policies and planning, the question of unlocking funds and financing is a key issue. Especially, how to secure long-term investment since most financial resources are used for traditional short-term approaches or are committed to specific tasks . Some of the EU funded projects that look into NBS are therefore looking into different ways to finance those solutions.. E.g. trough greening fiscal policies, public-private partnerships, innovative use of public budgets, grant funding and donations (including EU funding and crowdfunding), instruments generating revenue, ‘green finance’ and loans (like the Natural Capital Financing Facility), market-based instruments etc.

Relation to UrbanA themes: Cities, sustainability, and justice

The alternative financial practices and instruments do not necessarily have an urban focus. They might operate on a regional, national or global level. However, especially the community based alternatives, like local currencies and social public procurement, are organized on the level of municipalities, neighbourhoods or communities.

The examples presented above that strengthen public finance and those that are community-based do explicitly address distributive and procedural justice because they respond to the unequal distribution of wealth and resources.The approaches might address sustainability issues by challenging current consumption and production patterns and promoting local economy, or by unlocking investment for sustainable infrastructure and solutions. The narrative of the social divestment movements with its focus on climate justice shows the connection between environmental and justice issues.

In the context of the financial system one might refer to ‘financial exclusion’. Financial exclusion relates to the idea that lower-income and marginalized groups have less access to financial products, services, technologies and institutions. Additionally the retreat of the welfare state, and labour market insecurity, makes it increasingly difficult for these groups to provide in their basic needs.Often this means that they depend on expensive types of credit which might push them further into the debt spiral. This info graphic shows the relation between fictionalization and well-being.