A Sustainable Investment in Journalism

A sustainable business requires diverse revenue streams. ESG Investor now operates a subscription service as of Tuesday 14th May. To find out more please get in touch with our subscription team on subscriptions@esginvestor.net


Changing Cities; Changing the World

Dr Kasper Hanus, Senior Sustainability Manager, Sustainability & Europe Fixed Income, Franklin Templeton, highlights the impact opportunities in the sustainable bond market of cities and regions.

Urban green, social and sustainability (GSS) bonds allow impact-oriented investors direct financing of projects that address the most pressing challenges of our times and develop strategic local or regional resilience. These use-of-proceeds instruments assure an investor is directly supporting sustainable economic activities. Sustainability linked bonds (SLBs) are another possibility for environmentally and socially conscious investors and can be considered an indirect financing.

Critical space for environmental and social change

Today, urban areas cover only around 3%[1] of the Earth’s land surface, but they emit more than 60% of greenhouse gas emissions (GHG) emissions and consume 78% of the world’s energy.[2] By 2050, the world’s urban population is forecast to rise from 55% to 70%.[3] The overall growth of the population could add another 2.5 billion people to urban areas, with close to 90% of this increase taking place in Asia and Africa.

In 2020, the world generated 2.24 billion tons of solid waste, equal to a footprint of 0.79 kilograms per person per day. By 2050, annual waste generation is expected to increase 73% from 2020 levels (up to 3.88 billion tons).[4] Over half of that is and will be created in urban areas.[5]

Cities are therefore a part of the problem, as they heavily contribute to climate and biodiversity crises, but are also a critical part of the solution. Urban areas are ideal places to achieve a swift and large-scale change, due to their human, social, economic, technological and political capital. Seasoned ESG investors are aware of this opportunity and use their capital and expertise to expedite progress in this realm.

Cities and regions on GSS bonds market overview

We have analysed the data on urban bonds, defined as bonds that the local authorities issue in accordance with Bloomberg’s BCLASS Classification Scheme. Therefore, we define urban bonds as those ‘Local Authorities (Class 2)’ issue, which entails debt that local authorities issue directly as well as entities that are 50% or more owned by one or more local authorities. In the US market, taxable municipal bonds, including Build America Bonds (BABs), fall into this category. Entities less than 50% owned by a local authority are classified within the appropriate corporate bucket.[6]

Due to their unique nature, US municipal bonds are excluded from further analysis within this article, although it is important to point out that there are more than 17,200 of GSS bonds in the US municipal market alone, which greatly supersedes the number of issuances on all other markets combined.[7]

Since 2013, 287 unique local authorities issuers have issued 1155 green, social and sustainability bonds.[8] Recent years saw a steep rise in urban GSS debt (Exhibit 1). Increasing pressure from public and civic sectors to reduce carbon emissions and the Covid-19 pandemic have caused this increase. In the context of the Russia-Ukraine war, which has led to devastating social and economic consequences, we expect this trend to continue. The need to accelerate energy transition toward dispersed, renewable sources stabilised by the energy storage infrastructure is broadly discussed. Further, this transition is projected to lead to a new wave of sustainable development – beneficial for both the environment and societies.

Gradual Development of Urban GSS Market

Exhibit 1: Urban GSS Securities (2013–2022)

The past nine years of data show that local authorities in Germany so far have issued the most urban GSS bonds. Second in line are Chinese local authorities, slightly ahead of Sweden. Meanwhile, Spain leads in issuances of sustainability bonds, from which the use of proceeds goes toward the mix of environmental and social projects.

Entities issuing GSS bonds are mostly regional and local governments, with strong representation of industrial entities (that are 50% or more owned by one or more local authorities). Entities in the ‘industrial other’ category are companies that have cross-sector economic activity, combining specialisations across different industrial segments (for example, ‘transportation & logistics’ with ‘railroad’)

Over 75% of Issuances Took Place in Germany, China, Sweden and Japan

Exhibit 2: Urban GSS Securities Broken Down by Domicile (2013–2022)

Europe is Leading the Way in Urban GSS Market

Exhibit 3: Urban GSS Securities Broken Down by Continent (2013–2022)

Issuing Entities Represent Various Sectors Reflecting the Complexity of Urban Management

Exhibit 4: Issuers of Urban GSS Securities Broken Down by BICS Industry (2013–2022)

Urban GSS bonds in practice: Gothenburg Case Study

To better understand what kind of impact on sustainability those investment opportunities have, we will showcase it with a green bond case study.

The Swedish city of Gothenburg published the last iteration of its Green Bond Framework back in 2019.[9] The city positions itself as a global sustainability hub and was recognised by numerous international organizations, including the World Wide Fund For Nature (WWF), the United Nations, and the Swedish Environmental Protection Agency. To deliver ambitious environmental goals, Gothenburg uses green bonds to raise necessary funds. The city commits to spend the proceeds on projects encompassing:

  • renewable energy
  • green buildings
  • energy efficiency
  • clean transportation
  • waste management
  • water and wastewater management
  • sustainable land-use
  • environmental management
  • climate-change adaptations

Potential projects, among many others, include renovating public buildings and social housing to increase their energy efficiency, public transportation with no direct emissions (e.g., electric or hydrogen buses) and protection of freshwater sources. Gothenburg’s government acknowledges the negative impact of climate change, such as rising sea levels (material for coastal cities as Gothenburg), warmer temperatures and increasing precipitation. Understanding those risks, the city leverages its green bonds to finance needed interventions. Given that the city has been issuing green bonds since 2013, post-issuance impact reporting allows investors to review projects that were financed thanks to the green bonds.[10] So far, the green projects include municipal utility company Göteborg Energi’s 5.5 GWh solar power plant Nya Solevi, and the energy-efficient Selma town hall, which serves the community as a library, and leisure and culture centre.


Changing cities means changing the world and alleviating its most pressing problems. Exposure to GSS bonds at country level typically allows for financing of large-scale strategic infrastructure. Investing in urban GSS bonds allows proactive implementation of local or regional mitigation and adaptation measures, which often have a more tangible impact on people’s everyday lives. Local leaders and officials representing municipalities have a very good sense of what kind of projects should be prioritised and can be delivered within the given context. In the broader sense, GSS investments impact urban resilience by increasing the capacity of social, economic, environmental, and infrastructural capital.

We believe investors with an appetite for sustainable impact should focus their attention on the market of urban GSS bonds. Urbanisation and its products – urban areas – are the fundaments of the economy, environmental challenges, and societal life. In our view, investors dedicated to a positive contribution toward the world’s progress should pay close attention to what is happening on the ground.

[1] Source: Columbia Climate School, The Earth Institute, July 2005.

[2] Source: United Nations, Climate Action, Cities Pollution.

[3] Source: United Nations, Department of Economic and Social Affairs, May 2018. There is no assurance any estimate, forecast and projection will be realized.

[4] Source: The World Bank, Solid Waste Management, February 11, 2022.

[5] Source: Ellen Macarthur Foundation.

[6] Source: Bloomberg Barclays Methodology, April 2020.

[7] Source: Bloomberg Terminal. As of December 20, 2022.

[8] Ibid.

[9] Source: Göteborgs Stad, City of Gothenburg Green Bond Framework, September 2019.

[10] Source: Göteborgs Stad, City of Gothenburg Green Bond Impact Report, 2018.

  1. Source Toronto Social Bond Framework, March 18, 2020
The practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

Copyright © 2024 ESG Investor Ltd. Company No. 12893343. ESG Investor Ltd, Fox Court, 14 Grays Inn Road, London, WC1X 8HN

To Top
Share via
Copy link
Powered by Social Snap