Imagine the blackout across northern India in 2012, the roads jammed with traffic and the train stations swamped when the power shut off for two days in the biggest blackout in history. It had been a sweaty hot summer and as the fans and air conditioners whirred, the power use soared, and then the grid collapsed. This is just one part of the $40 Trillion needed to upgrade water, power and transportation globally over the next 20 years. The World Bank estimate 85% of that will need to be financed by the private sector, and that is why attracting private capital is so important. A blackout in India, or a four-year water crisis in California, or a 5-year-old city for refugees with no infrastructure; they all require funding.
It is in this climate that the investment market is talking about London real estate overheating due to a lack of other outlets. There is no shortage of money and interested parties, including sovereign wealth funds, looking for safe long-term investments – like infrastructure. They are faced with the enormous challenge of finding worthwhile investments because, predictably, they are interested in profitability. Now financial institutions are turning urban sustainability frameworks to help guide their investments. For instance, the Asian Development Bank has developed the index for Environmentally Liveable Cities in China, in order to focus and monitor the impact of investments. It’s clear that urban sustainability is important to the financial community, but do we know why? Let’s peer a little inside the black box to see what science can tell us about the value of sustainability.
What can science tell us about what financial institutions already know to be true, the link between urban sustainability and financial results?
Researchers have investigated the link between sustainability and corporate results. This is our closest parallel to sustainability and urban institutions, since we don’t have direct research to turn to. The Green Business Case Model examines six arguments for the link between sustainability performance and financial performance. This helps lay out our assumption in a neat hypothesis. I’ve adjusted it slightly for cities, not corporations so that it reads:
Hypothesis: the city that (i) introduces greener places and sustainable services, backed up by recognised standards and labels, will (ii) reap the reward of greater reputation, which again will (iii) enable the city to achieve better financial outcomes.
The first part of this puzzle is to see whether sustainably motivated actions improve reputation. An academic paper investigating exactly that found there is a link between the two.
“The study suggests that while environmental processes are substantially important to a firm, such processes are not a significant predictor for corporate reputation. The study demonstrates that environmentally motivated actions on stakeholder sensitivity and environmental marketing are significant predictors of corporate reputation.”
That could be summarised by the following diagram, showing the opportunities related to marketing sustainability, and the risks of ‘discovery’ of poor performance. If you are going to market your urban sustainability, it had better be based on something with substance.
How do urban sustainability frameworks help with the reputation of a city?
Since we know there are two dimensions to good reputation – being well known and have good sustainability performance – selecting a sustainability framework depends on what it is you want to achieve. Let’s take a little time to rate the raters to see which frameworks do what, because among 40+ international urban sustainability frameworks there is plenty of variation.
Three broad categories of tools found by the University of Westminster are ‘Performance Assessment’ frameworks, ‘Certification’ Frameworks, ‘Planning Toolkit’ frameworks.
‘Performance assessment’ describes the measurement of the sustainability of particular places and developments using particular criteria, so as to compare them with other cases, or to track progress over time. This is particularly useful if you want to track the effectiveness of your impact per unit invested. E.g. The Sustainable Cities Index
‘Certification’ frameworks describe a formal accreditation process that may assist both in securing third-party investment and in marketing the development with sustainability ‘kitemark’. They are best suited to external communication of urban sustainability. E.g. Green Star Communities
‘Planning toolkit’ frameworks describe process-oriented sustainability planning within ‘design communities’ of different types. This makes them the preferred approach for improving systems and developing strategies to enhance urban sustainability. E.g. The Community Capital Tool
So which tool you select depends on whether you want to focus on improving recognition or improving performance, because both are necessary to increase reputation.
Case Study: Singapore
In the 1960’s the Singapore River had a rotting stench of garbage, human and industrial waste, the water completely black. Yet, when the founding Prime Minister Lee Kuan Yew past away earlier in 2015, he left behind an amazing legacy and an overwhelming respect for his vision. That is because Singapore has been working diligently for five decades on improving infrastructure. Now it can boast environmental ranking above average for things as diverse as energy and CO2 and transportation and well above average for water quality according to Siemens Green City Index.
The city has been jumping through the rankings across the board. Singapore ranked 4th out of 178 countries in the 2014 Environmental Performance Index, a significant jump from its 52nd place in the 2012 report (EPI report). Singapore is also among the major improvers in the aggregate report of all the leading indices for 2015. Environmental achievements aside, it has overtaken Paris and Tokyo, to be third after London and New York on several indices, and is the world’s number one for business friendliness. (The Business of Cities 2015)
Now a very visible and iconic green project called Gardens by the Bay has been created, which is a 250-acre green oasis overlooking Marina Bay. It is said to have attracted over 15 million visitors since opening less than three years ago. This aligns very nicely with what we see in the reputation scores for the last year; That Singapore’s reputation has improved by almost 10% and is in the top ten cities for tourism for 2015 according to a leading reputation index. Singapore has focused first on sustainability performance and now they are able to increase communicate and market their credentials, and their reputation is increasing with it.
The 6 reasons that city branding and reputation are important
Finance institutions are looking for indications that their investment will be secure, so they are increasingly using indexes to help them achieve this. Reputation relies on a combination of factors, including how well known it is and how well it performs, making it relatively complex assessment of a natural human sentiment. RepTrack make a business of quantifying reputation using surveys and specially selected attributes. Their City model is based on attributes relating to appealing environment, effective government and advanced economy. Unfortunately they don’t incorporate environmental or sustainability performance into their questions. However they do consider beautiful cities and adequate infrastructure as important attributes.
They contend that reputation leads to financial impacts over six categories: intention to visit, invest, live, work, buy, attend/organize events. As the reputation scores increase, the intention to do each of these six activities also increases (with a correlation of over 0.7). Plus the intention score matches very well with measurable results. For example, the intention to visit matches very well with the number of tourism trips.
An aside, that I was completely unaware of until now, was how much money is already spent on city branding. This was an eye opener for me. For instance, London spent a cheeky £74 million between 2003 and 2012 (excluding branding for the London Olympics) on a brand campaign called totally London.
And the winner is…
So next time you wonder why there is strong investment in some places… Like maybe London… Take a second to ponder how much reputation is effecting those decisions.
Armed with the right toolbox, even the poorest cities might well become more sustainable; using infrastructure upgrades to improve their environment and quality of life, while enjoying better and better reputations.
Now you try it
Which city do you live in and what urban sustainability framework does it use? Consider whether it is a Performance, Certification, or Planning framework. You can look for any measurable improvements or categories your city is above average in. Consider whether it is better instead to focus on improvement for the time being or if you can use this to improve your cities reputation. Let me know what you find out.