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Sustainable Cities

Esme van Herwijnen
By Esme van Herwijnen SRI Analyst January 2018
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Sustainable Cities

Amity Insight: Sustainable Cities

Cities as places where people congregate to live, work and play have been pivotal in human development for millennia. In 2008, for the first time in history, the urban population exceeded the rural. This means that cities have now become the places where the majority of people have migrated for economic and social reasons. 

Cities are home to many of us as the places we commute to for work or spend our leisure time in. Their prosperity is often key to overall economic resilience and growth – but in a fast changing world are they still fit for purpose? In this Insight, we look at the nature of the challenge, the problems cities face, and the investment required to ensure cities remain sustainable for the long term. We examine how old cities may need to adapt in order to function and remain attractive, as well as opportunities for newer cities to do things differently. We will take a close look at how utilities, transport, housing and connectivity are enablers towards a more sustainable ‘polis'. Finally, we also explore what the issues are for responsible investors and outline the investment value chain of opportunities that support the concept of ‘sustainable cities’.

What do we need to make a city sustainable?

What do we need to make a city sustainable? Sustainable cities require efficient utilities, including water, waste and energy management. Cities and their inhabitants consume a lot of energy: although cities only represent 54% of global population, they account for two thirds of global energy supply. A more sustainable energy system for cities would require improved supply through low carbon technologies, address demand through reduced energy consumption, while also improving efficiency and distribution infrastructure. Equally, the amount of waste generated by cities is not sustainable. Urban residents worldwide generate 1.3 billion tonnes of municipal waste per year. By 2025, cities are expected to nearly double that amount, producing 2.2 billion tonnes annually. Finally, cities can’t survive without water, but often there is too little, too much or it is too polluted. A sustainable water system however should be resilient, efficient and provide water of potable quality. This means water should be available in sufficient quantity, availability should be continuous and leakages limited.

As the number of people living in cities has increased, access to good quality housing has become a problem. According to Habitat for Humanity, approximately 900 million people live in slums around the world, which represents 30% of the urban population that lives in developing countries. Another indicator for overcrowding is population density. Again, this has significantly increased during the last decade, especially in emerging markets. This puts a lot of pressure on housing markets, leading to an unaffordable housing situation.

One quarter of greenhouse gas emissions are generated by the transport sector, contributing to 3.5 million people dying prematurely due to outdoor pollution. In addition more than 1.25 million people are killed annually in road traffic accidents. Finally, road congestion is a burden on the economy and estimated to restrain GDP by as much as 10% in some cities including Beijing and Lima. This is only the beginning as the number of vehicles on the road is expected to continue to rise. The UN defines sustainable transport as “the provision of infrastructure for mobility in a manner that is safe, affordable, accessible and efficient while minimising carbon and other emissions”. Clearly much needs to change to ensure transport can provide cities with access to trade, jobs, markets, education, health care and other services in a sustainable manner. Safer and smarter are important, but transport also needs to become cleaner, especially public transport. New low-emission technologies are coming through but not at scale. 

Many of the previously discussed solutions require technology to make it happen. Big data is increasingly being used in cities to enhance life, to make cities safer and greener or to improve efficiency. However, for technology to be a catalyst for change cities need to become better at collecting data and making it useful to inform decision making. Smart cities can become a reality only with a novel 5G network. This will facilitate data collection, communication and crunching and enable increased use of the Internet of Things. Machine-to-machine (M2M) communications, broadband connectivity, cloud services, and mobile constitute some of the key driving forces behind 5G which will expand the broadband capability of mobile networks. The Internet of Things (IoT) – the connectivity of devices, machines and operating systems – is rapidly developing with an increasing number of connected devices being used by people at home. Whilst not all connected devices are equally useful there is much potential for cities to embrace connectivity.

ESG Issues

ESG Issues

While cities cover just 2.6% of the world’s surface area, they account for over half of global population. Cities are responsible for 70% of all CO2 emissions, thereby contributing significantly to climate change. However cities are also suffering the consequences of global warming. Three quarters of cities are coastal and will feel the impact most severely. When considering the risks of rising sea levels for cities, we often think of cities such as New York and Amsterdam. However, once again, emerging markets dominate the statistics. Rising sea levels will affect the largest number of people in Shanghai where based on a 2 degree scenario, already over 11 million people will be at risk. Air pollution is also a major environmental health risk. In 2014, 9 out of 10 people who lived in cities were breathing air that did not comply with the safety standards set by WHO. This is not a small problem: about half of the urban population being monitored is exposed to air pollution that is at least 2.5 times higher than levels the WHO recommends, putting millions of people at risk of serious, long-term health problems including premature death. 

One of the materials that has transformed cities over the last century is concrete. Concrete has changed architecture and has enabled the race to build the tallest buildings all over the world. As a result, concrete is now the most used manmade material in the world, with twice as much concrete used in construction than wood, steel, plastic and aluminium combined. All these apartment blocks, skyscrapers, office towers, shopping malls and the roads needed to connect them require very large amounts of sand. Whilst sand is everywhere, and modern life would not be possible without it, not all sand is equal. With the increasing use of concrete – which is a mix of sand and gravel – the world is now on the edge of running out of construction sand. Access to construction sand therefore has become a source of conflict (just as access to drinking water has) with the practice of sand mining responsible for serious environmental damage. Certain regions now suffer from severe soil erosion or landslides and face disturbance to ecosystems. Where intensive sand dredging has occurred in riverbeds, bridges have collapsed, and in lakes, fishing communities have lost their livelihoods as a consequence of biodiversity loss. Several regions have implemented legislation to ban sand mining, including Kenya and the US, however as demand shows no sign of slowing down, we expect more pressure on ecosystems.

Investment Opportunities

Investment Opportunities

To make cities more sustainable, a mix of supportive public policy, changing behaviour as well as investments are needed. Investment opportunities are plentiful as demand for infrastructure continues to increase. To keep pace with projected growth, the world needs to invest $3.3 trillion in economic infrastructure annually through 2030 in a variety of sectors: electricity, roads and telecoms being the areas with the highest needs.

In this Insight we have explored various solutions to make cities more resilient and sustainable; including housing, transport, utilities and connectivity. Infrastructure funds are another way to direct capital to this area. Infrastructure funds are a diversified asset class with attractive yields, often guaranteed by Government. They usually focus on economic, social or evolving topics and are a strong contributor to integrated, sustainable living across the value chain and we are well positioned across the Amity Funds, through investments including JLEN, Greencoat UK Wind and HICL.

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