Could global cities be the cause of, and solution to, climate change?

Homer Simpson once famously said: “here's to alcohol: the cause of, and solution to, all of life's problems”.

To paraphrase Springfield’s most famous resident, we could say a similar thing about big cities and climate change.

Big cities are often seen as part of the problem regarding climate change, responsible for high levels of greenhouse gas (GHG) emissions. More than half of the world’s population live in cities (a figure that is set to expand in the future), with global cities consuming more than two-thirds of the world’s energy. Cities are also responsible for more than 70% of global CO2 emissions.

However, we believe that global cities will be a vital part of the solution.  A number of cities around the world are coming up with interesting solutions to a number of environmental issues. As investors in global cities, we can play an important role as we seek to identify companies that will enable this transition as quickly as possible.

Following the gathering of world leaders in Glasgow for the COP26 conference, we look at how global cities are dealing with the climate crisis.

London leads the way

London recently expanded its ultra-low emission zone (ULEZ) to include the outer part of the city with the South and North Circular Roads. The scheme, which is being closely watched by other cities around the world, is based on the principle that the polluter pays, and so drivers of older petrol or diesel internal combustion engine vehicles must pay £12.50 per day to drive in the ULEZ.

The Mayor of London, Labour's Sadiq Khan, has said that the reason for the extension of the zone from central London to the suburbs is to clean up the city’s air. The ULEZ extension is part of the mayor’s transport strategy for London, which aims to achieve 80% of travel in the city by walking, cycling and on public transport by 2040.

The original smaller ULEZ had already encouraged people to switch to cleaner vehicles (from 39% in 2017 to 80% today) and it is hoped that the extension will have a similar effect in outer London.

City-led solutions to global problems

Other city-led climate initiatives include Beijing’s implementation of China’s National Strategy of Carbon Peaking and Carbon Neutrality and the creation of a local carbon market in the Chinese capital. Beijing has also championed use of a smartphone app which allows residents to arrange door-to-door recycling services. This has allowed the city to cut carbon dioxide emissions by 235 tons a year.

In Jakarta, the Climate Kampong program is supporting community-led approaches for adapting to climate change in rural communities and is active in 148 locations across the city. The Indonesian capital has also initiated a new sustainable public transport system which integrates the many different transport systems with one common payment in a bid to encourage public transport and reduce pollution.

The city of Istanbul is also seeking to develop Turkey’s first sustainable mobility plan for an integrated city-wide transport system.

Creating affordable housing as populations expand

A number of cities are also developing affordable low carbon housing. This includes Washington DC through the city’s Solar for All Programme. Nairobi is also seeking to provide low carbon housing in the city to cater for the expected population growth and higher demand.

We see a select group of countries and sub-sectors that are clear leaders in this field and, conversely, some that are falling short. Whilst there are exceptions, as a general comment, companies in Scandinavia, the Netherlands and Australia are arguably, the most advanced in their sustainability policies.

Companies in these countries are at the forefront of circular development, which is where materials from existing buildings are recycled to use in new developments. They also tend to have the most aggressive and ambitious sustainability targets.

As ever, it is dangerous to generalise, and some headlines would lead you to believe that China is not environmentally focused. This contrasts with our analysis of a city like Shenzhen,

We believe this is one of the most sustainable cities in the world and has leading sustainability policies such as phasing out polluting industries and imposing tough new environmental standards. It’s important to scratch below the surface to see the detail.