The Toronto Atmospheric Fund (TAF) has thus far invested CAD 60 million (USD 45 million) in low-carbon projects, supporting 152 Mt of GHG reduction opportunities, CAD 55 million (USD 41 million) in energy savings for the City of Toronto, and the incubation of several pace-setting projects that have helped achieve significant community-wide GHG reductions. TAF also attracts additional funding for various projects from governmental agencies, foundations, and private sector corporations.
The City of Toronto aims to reduce its emissions by 30% by 2020 and by 80% by 2050, based on 1990 levels. The goal of the fund is to advance local solutions to climate change and air pollution by supporting community innovators and de-risking low-carbon strategies and opportunities. TAF focuses on renewable energy, energy efficiency, low-carbon transportation solutions and projects that improve air quality, using a variety of approaches to demonstrate and de-risk solutions including investment, technical trials, policy reform, and social engagement.
Value: TAF is currently CAD 25 million (USD 19 million), originally capitalised through a CAD 23 million (USD 17 million) sale of a surplus city-owned property.
Structure: TAF started operating as a grant-making organisation, but quickly shifted to using its own capital, leveraging additional capital from the public and private sector, as this approach provided more capacity to scale low-carbon solutions. For a quarter century, long before the term “impact investing” was coined, TAF has been making investments that generate financial and environmental return on investment while demonstrating low-carbon investment opportunities for the wider market. As a non-share capital corporation with governance accountability to the City of Toronto, TAF operates as an ‘arm’s-length agency’, with an independent Board of Directors made up of five Councillors and seven citizens appointed by City Council. TAF does not receive any funding from the City’s tax base – it is a revolving loan fund and its operating revenue originates from returns on investment of the endowment and fundraising for special projects.
TAF manages a diverse investment portfolio including bonds, equities and direct investments (loans and other instruments). In the latter category, CAD 19 million has been earmarked for financing energy efficiency retrofits. Two standing committees assist the Board of Directors: the Grants & Programs Committee recommends projects that receive investment and the Investment Committee recommends TAF’s investment policy and all investment decisions. TAF staff are responsible for fundraising to attract external resources.
TAF has three core programmes: incubating climate solutions, mobilising financial capital, and mobilising social capital.
1. Incubating climate solutions
FleetWise EV300: In 2006, when there were still many questions and uncertainties regarding the use of electric vehicles, TAF worked with public and private fleets to investigate the technical and business case for electric vehicles, developing a decision support set of tools that has helped them assess the best way to integrate electric vehicles into their fleets, identify suitable models, train drivers, and track performance.
LightSavers28: Beginning in 2006, TAF focused on de-risking the use of LED lighting in outdoor applications considering technological and financial perspectives. A pilot project collected rigorous data from advanced lighting trials in five Greater Toronto Area (GTA) municipalities, including Toronto. The results demonstrated that LED lighting combined with advanced controls such as motion sensors could cut the energy demand of lighting by 50-70%. LightSavers was licenced in 2012 to the Canadian Urban Institute (CUI) for national roll-out, and to The Climate Group for Europe and Asia.
TowerWise29: This program, in operation since 2008, focuses on accelerating energy efficiency retrofits in high-rise residential buildings. The project is building detailed case studies of retrofits in ten buildings, including seven owned by Toronto Community Housing Corporation. The cases include analysis of technical performance and business case outcomes. In partnership with the University of Toronto, this project is also investigating the impacts of the retrofit on indoor environmental quality.
Other incubated projects include: Pumping Energy Savings, Solar City and TransformTO30.
2. Mobilising financial capital
The aim of this program is to use TAF’s innovation capacity and asset to directly invest in projects that both earn TAF a return and demonstrate and de-risk low-carbon financing and investment opportunities.
PACE: TAF launched Collaboration on Home Energy Efficiency Retrofits in Ontario (CHEERIO)31 in 2012, with support from Natural Resources Canada and Clean Air Partnerships. CHEERIO enabled collaboration between various Ontario jurisdictions on considering the use of local improvement charge (LIC) financing for energy efficiency retrofits. LIC works by providing low interest rates for 10 years or more, and the loan is repayable through instalments on the borrowers’ property tax bill. In 2014, TAF funded the establishment of a City of Toronto pilot (Home Energy Loan Programme – HELP32) to test the use of LIC for financing energy efficiency, enabling 1000 homes to benefit from energy efficiency improvements.
Efficient new construction: TAF worked with Tridel (one of the biggest developers in Toronto) on overcoming the split-incentive barriers to making improvements between developers and owners. Through the Green Condo Loan33 scheme, TAF provided a loan to Tridel representing the incremental cost of making the properties greener. This loan was then transferred to the building owner, Condominium Corporation (CC). CC repaid the loan through the savings on their bills. Importantly, property prices were not increased and the project enabled savings of CAD 500,000 (USD 373,000). A major success of this scheme was that it also helped establish a local green building standard that was 25% better than the provincial building code.
Rooftop solar: TAF invested in Pure Energies34, a solar panel and sustainable energy start up with no track record or security. To address risk concerns, it developed an innovative structure, creating a mini-revolving fund to finance the installation of the first five solar systems. The feed in tariffs were provided as security. The process was then repeated with the next five systems. Pure Energies expanded quickly across Canada leading to the company’s recent acquisition by NRG.
Non-debt retrofit financing: TAF developed the Energy Saving Purchase Agreements35 (ESPA), a new non-debt structure to finance up to 100% of the costs of energy retrofits in the high-rise sector. TAF maintained ownership of necessary equipment until the loan was repaid. To address risk concerns, they also developed specialised insurance, sought third party validation, worked closely with engineers, building owners, investors, insurers, and performed monitoring and verification. The scheme has been used by 20 buildings so far and TAF is in the process of incubating a new company to scale up the ESPA programme.
3. Mobilising social capital
ClimateSpark: The ClimateSpark Business Challenge (2011) and the ClimateSpark Social Venture Challenge (2012) engaged ‘the crowd’ in identifying and supporting for-profit and social ventures, respectively, whose products and services could result in significant GHG emissions reductions if scaled up36.
Move the GTHA37: This collaboration, incubated by TAF and community partner Evergreen Cityworks in 2012, established a 12-party multi-stakeholder group that called for increased Provincial investment in regional transit. The Province subsequently committed CAD 16 billion (USD 12 billion).
Since inception, TAF has invested CAD 60 million (USD 45 million) in low-carbon projects, which has supported at least 152 Mt of GHG reduction opportunities city-wide and CAD 55 million (USD 41 million) in direct energy savings for the City of Toronto.
Reasons for success
- Having a certain level of independence from the City of Toronto allows TAF to accept greater risk, to move more quickly to seize opportunities, and to innovate. This allows TAF to ‘de-risk’ strategies before broader adoption – TAF can ‘fail small’ to allow the City to ultimately ‘succeed big’.
- Maintaining an endowment and independent decision-making over its use gives TAF the ability and confidence to develop and drive projects over the extended time periods needed to develop and refine promising new approaches.
- TAF’s Investment Committee, comprised of financial experts and fiduciaries who provide guidance and oversight on a voluntary basis, has been key to ensure that the fund makes prudent investments, including the development of innovative structures and transactions that will both demonstrate new low-carbon investment approaches and opportunities and yield TAF the return needed for its operations.
- TAF can invest both money and other resources, including its capacity for policy reform and convening, to advance low-carbon solutions.
- Because TAF’s own asset is small, TAF has realised that its role is to mobilise others’ capital. This realisation allowed TAF to focus its attention on enabling larger and bolder schemes and how to bring them to scale, integrating partners and lessons on scale-up strategies into the very early planning stages of all new projects and programs.
- Social innovation complements financial innovation, because concepts like design thinking and skills that support work across multiple sectors are essential to securing the partners needed to create, refine and promote new financing approaches.
- TAF has embraced the importance of communicating a range of benefits associated with deep carbon reduction approaches – including profitability, social improvements (for example related to housing renewal), and public health benefits, which helps to broaden public support for low-carbon actions.
- Having a flexible array of tools at our disposal including grants to build community capacity and support policy reform, internally-managed projects to incubate under-supported actions, and financing to demonstrate and de-risk impact investment opportunities allows TAF to customise its approach to respond effectively to each unique opportunity.
When/Why a city might apply an approach like this
Creating a small, independent unit such as TAF allows the space for innovation and risk-taking that is often difficult to support within standard city departments and divisions. Partnering with external funders or setting aside a portion of a windfall asset – as was done in the TAF case – helps allow the necessary ‘arms-length’ status.
Creating an independent agency can be challenging and alternative options could include:
- Seeking an external partner to set up an innovation agency that serves as a hub for design thinking and pilot testing to explore financing challenges prescribed by the city.
- Leveraging local professional financial talent through the development of a finance innovation advisory group to support the design of new municipal incentives or granting programs. For example, extending resources by using lending tools or partnering with the community to leverage existing funds.
- Participating in multi-stakeholder collaborations to examine what role the city could play in creating space for more creative local financing to take place.
C40 Good Practice Guides
C40's Good Practice Guides offer mayors and urban policymakers roadmaps for tackling climate change, reducing climate risk and encouraging sustainable urban development. With 100 case studies taken from cities of every size, geography and stage of development around the world, the Good Practice Guides provide tangible examples of climate solutions that other cities can learn from.
All references can be found in the full guide.