15 February 2017

Graham Smith and Rongrong Huo are part of the new Sustainable Finance Unit in Global Banking and Markets, HSBC, and are looking at smart and sustainable cities. They work with the public sector on how to plan and finance measures to make cities more environmentally sustainable, as well as working with key private sector suppliers of clean technology. Here, they answer questions on why and how cities need to be part of the fight against climate change.

Why are cities relevant to climate change?

Graham Smith (GS): Hundreds of millions of people worldwide will move from the countryside to urban areas over the next few decades. About 54 per cent of the global population live in cities today: by 2050, 66 per cent will.

So if you want to create a low-carbon future, cities must be part of the solution. Good urban design and the application of green technology can help people to live more sustainably and curb carbon emissions for years to come.

Rongrong Huo, Sustainable Finance Unit, HSBC

What can be done to make cities greener?

Rongrong Huo (RH): Because cities are dense concentrations of businesses and households consuming energy and goods, they tend to have a big environmental footprint. There are many different things that can be done to make cities greener – but they need to be tailored to local circumstances.

Cities in developed countries are often well-established, with infrastructure that has been in place for years. Parts of London’s underground train system are more than 150 years old, for example. The challenge is finding ways to upgrade and improve existing systems to make them more efficient.

In emerging economies, by contrast, there are cities that haven’t even been built yet which will be home to millions of people by 2050. Planners are literally starting with a blank slate. This is an opportunity to plan strategically and include high environmental standards from the beginning.

When people think about ‘sustainable and smart cities’, they sometimes focus only on digital solutions. But we think cities need to make the most of both physical infrastructure and soft infrastructure, and this is especially relevant for emerging market countries.

What might a sustainable city look like in 20 years’ time?

GS: On a typical urban street there are water pipes and power cables under the pavement, vehicles on the road, streetlights along the sides of it. Every one of those things can be made to operate more efficiently today than it could five years ago. Individual technologies will continue to improve and to be adopted more widely. In developed markets, for example, I would imagine that it is only a matter of time before local delivery vehicles carrying groceries and parcels to people’s houses and goods to shops and supermarkets use electric drives as standard, possibly leapfrogging the adoption of electric vehicles by private users.

RH: Bringing different technologies together is often what makes the biggest difference. A number of cities now run bus systems which integrate several elements of advanced hardware and software. A modern bus can have hybrid engines that can run on diesel fuel or be battery-powered. A GPS-linked programme automatically ensures that the engine switches exclusively to electric in sensitive areas, such as outside schools and hospitals. The same bus will have an automatic payment system with travellers using radio-chip smartcards to speed payment and so speed up the service.

Or think about street lighting. Today, when a city swaps out sodium street lamps with energy-efficient LEDs, it can also take the opportunity to install a series of wireless sensors linked to a central traffic management and information system. The information from the sensors ultimately helps to reduce traffic jams and pollution. I expect we will see greater integration of technologies in the future, helping to create “smart” cities which respond in real time to what is happening on the streets.

Graham Smith, Sustainable Finance Unit, HSBC

GS: These are sophisticated solutions, but it’s important to remember that gradual improvements can sometimes make a valuable difference. If a city in an emerging market doesn’t have the money to install hybrid engines in its buses, it can still reduce harmful emissions and improve the local environment by investing in better exhaust filters. Or it can help operators invest in better engine management software which allows different fuels to be blended together to make them burn more cleanly. Realistically, in some places, building green cities will be a staged process.

Who can make the changes that need to happen, happen?

GS: National governments give a lead and set a framework. But because all cities are different, with their own circumstances and challenges, city-level leadership is crucial. Policymakers in many countries recognise this and are starting to devolve powers and budgets to mayors or city councils. There is a great deal of international cooperation between cities, who share their experience and expertise. And private business has a role to play supporting them.

What is the role of banks such as HSBC in building sustainable cities?

RH: Infrastructure and technology often require significant amounts of capital. Banks can help public authorities plan and evaluate the various risks and different ways of raising funds, such as debt issuance or a public-private partnership agreement. With public-private agreements, it is vital that the risks and responsibilities are well balanced so as to attract investors at the same time as delivering the results that the city needs.

International banks have a further potential role to play. Broadly speaking, the biggest opportunities to make cities greener are in emerging markets, while innovative firms creating new devices and software are often based in developed markets. Bringing them together can deliver significant benefits for both.