Over AUD 16.9 million (USD 12.5 million)3 has been invested directly in building upgrades, renewable energy systems, residential neighbourhood innovations, lighting solutions and software technology. This resulted in over 245,000 tonnes of GHG reductions. Through reinvesting returns and facilitating co-financing from banks, the fund has supported renewable energy and energy efficiency projects worth over AUD 26 million (USD 19.2 million). The fund’s Environmental Upgrade Agreements (EUA) scheme has been taken up by other jurisdictions and laid the foundation for the national EUA marketplace. 

The City of Melbourne aims to become carbon neutral by 2020, as expressed in its Zero Net Emissions by 2020 strategy. To achieve this goal, the city initiated a range of programmes supporting emissions reductions from the building sector (1200 Buildings4, Smart Blocks5, CitySwitch Green Office6 and Solar Energy for Business Programme). The Sustainable Melbourne Fund7 (SMF) – the first of its kind in Australia – was established in 2002, predating all of these programs; SMF’s role, to bolster these programs as through the availability of finance to support these programs. Through its mandate, SMF aims to advance and extend the sustainability goals of the Council by adopting the triple bottom line approach to generate environmental, social and financial returns from its activities. As such, SMF’s 2016-2019 Business Plan closely aligns with the Council’s objectives. 

Value: The SMF is currently valued at AUD 15.6 million (USD 11.5 million) with an initial investment of AUD 5 million (USD 3.7 million) in equity and more recently the commitment of a AUD 10 million (USD 7.4 million) debt facility. 

Structure: A commercially oriented, wholly owned, independent trust, which over the years has evolved into operating as a revolving fund where money is continually reinvested. 

The SMF Chief Executive Officer and staff are employed by the Corporate Trustee of the Sustainable Melbourne Fund (SMF Investment Management Pty Ltd), which is responsible for overseeing the fund’s performance in line with its mandate. One of the key activities of the SMF is the EUAs programme. SMF also provides additional investments, as explained below. 

Environmental Upgrade Agreements (EUAs) 

SMF designed and implemented the EUAs programme for the City of Melbourne. EUAs can fund any building upgrades that improve energy, water and waste performance. For example, they can fund renewable energy installations with no upfront costs and on commercially attractive terms. EUAs are available to owners, tenants, service providers and property managers. EUAs work similarly to traditional finance, where a financier provides a loan and the owner makes repayments. 

To be considered for an EUA, Melbourne-based building owners need to sign up to the City of Melbourne’s 1200 Buildings programme. The EUA is secured against the building, while the local council collects repayments utilising its property taxing authority (locally referred to as Council property rates and Charges) and then redistributes them back to the lender. This reduces the risk for financiers and lenders who are able to provide better terms. 

Additionally, this structure enables a building owner to collect tenant contributions towards the loan repayments through the existing provisions of the tenant lease agreements. This solves the commonly encountered split-incentives dilemma, whereby the costs of building improvements are borne by owners and the benefits (in terms of lower energy bills) accrue to the tenants. To ensure that the Melbourne City Council could levy the environmental upgrade charge, the City of Melbourne Act was amended in 2010. Most recently the State Government of Victoria amended the Local Government Act 1989, enabling each of Victoria’s 79 local governments to now voluntarily offer EUAs within their municipal boundaries. 

The programme has laid the foundation for a national EUAs marketplace - other States and territories have replicated the State legislation required for such marketplaces. SMF acts as a third party administrator for these programmes. It establishes the programme for municipal governments, operates as a point of contact and facilitates project discussions between property owners and tenants, financiers and the councils, while also providing ongoing monitoring and reporting. 

This approach has several advantages. Research conducted by the council has found it is the property industry’s preferred model, and is also the least costly arrangement for councils. SMF has been able to leverage its knowledge, frameworks and tools in launching the third party administrator model in other municipalities and has maintained consistency in the services provided. Including Melbourne, SMF currently provides its services to ten Local Governments within the State of Victoria, thus creating a new marketplace in the State.

Other types of investments 

SMF also provides up to 100% loans in energy efficiency, water efficiency, waste minimisation and clean technology projects that deliver clear environmental benefits and contribute towards the city’s sustainability outcomes. The fund has developed a range of finance products to target different types of projects in both commercial and residential properties. For instance, SMF Solar Finance8 provides finance for solar installations to both tenants and property owners of small and medium-sized enterprises. SMF Strata Finance9 lends money for different upgrades to common areas of both commercial and residential strata buildings (e.g. lighting, heating, ventilation, and air conditioning (HVAC), solar, and other end of life upgrades). 



SMF has made over AUD 16.9 million (USD 12.5 million) in direct investments in building upgrades, renewable energy systems, residential neighbourhood innovations, lighting solutions and software technology. These direct investments have resulted in over 245,000 tonnes of GHG reductions. Through reinvesting returns and facilitating co-financing from banks, SMF has supported renewable energy and energy efficiency projects worth over AUD 26 million (USD 19.2 million). 


Reasons for success 

  • Understanding where there are market gaps is essential for product and service innovation. After closely examining the market, the SMF created new revenue models, going beyond simply stimulating activity in this area to creating scalable products and services. Their work on the EUAs ultimately contributed to a change in the national market. 
  • Operating city climate funds requires significant resources and will often rely on partnerships with other organisations that can assist with specific needs, such as developing a communications and sales strategy. In partnership with ClimateWorks Australia, SMF has launched the Better Building Finance10 website to streamline their sales strategy, improve communication on the benefits of EUAs, and ensure that a common language is used across the country. This enabled staff to remain focused on their mandate. 
  • Communications and public relations were extremely important, and other cities should not overlook their role in the successful launch of a new climate fund. Funds should sell the full package. SMF has been focusing on selling all the benefits that come with finance. 


When/Why might a city apply an approach like this 

Operating as a facilitator between property owners, tenants, financiers and the councils can help city climate funds create products and services that target the needs of the different parties. In the case of EUAs, the third part administrator role of SMF was cost effective for the council, and was also the industry’s preferred arrangement. 


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. 

The City Climate Funds Good Practice Guide is available for download here.  The full collection of C40 Good Practice Guides is available for download here.  

All references can be found in the full guide.