Bridging the Gap: 2021 Roadmap

Financing the Transition — Blog 3.

This is the third of a series of blogs on financing the transformations that our societies need. It is part of our project ‘Re-coding for a civic capital economy’, co-financed by EIT Climate-KIC, and also builds on ideas developed through the EmergenE Room programme with McConnell Foundation, our work with Viable Cities, and the EIT Climate-KIC supported Long Term Alliance. See the first and second blog here and here.

Introduction

In the first post of the Bridging the Gap series, we outlined our overall Investment Thesis. This entails the urgent need to transition existing public and private capital, as well as to orient the new intergenerational investments towards five new asset classes, structured as a portfolio of novel infrastructure investments. These asset classes present a direct opportunity to address the interrelated health, economic, social, and climate crises in our cities and societies, all of which have been exacerbated by the Covid-19 pandemic.

The asset classes we see are:

1. Natural Assets.
2. Deep district retrofits (‘Future-fitting’)
3. Social infrastructures.
4. Large-scale, sustainable new urban developments.
5. Agricultural land.

It is insufficient (and in any case seemingly impossible) to simply ‘allocate more capital’ to these five key areas of intervention. Of equal importance are the investment structures behind these assets. Specifically, we believe the following three ‘re-codings’ of capital are required:

1. Long financing: New investment instruments for the long-term allocation of capital.
2. New public governance models: Off public balance sheets yet for public interest.
3. Innovating funding: New mechanisms for contracting multiple value flows.

In combination, holistic value chains that include multiple co-benefits can be strung together via a system of smart contractual rights and obligations that enables macro-aggregation of capital and micro-deployment of solutions.

We have outlined a roadmap for this Investment Thesis with ten recommendations, each of them a step towards bridging the gap from macro-policy to micro-implementation. The purpose of this third post is to outline the Dark Matter Labs (DML) strategy for the next twelve months, as well as to extend an open invitation for collaboration. Only through open dialogue and testing of our assumptions will we collectively be able to refine our thinking and put ideas into practice.

Our Investment Thesis

The Investment Thesis we put forward is derived from DML’s mission of the past two years. It is based on three interlinked dimensions that are crucial to transformative markets.

First dimension: Develop Prototypes that establish the operational viability of the frameworks with our partners, including the EIT Climate-KIC initiatives on Transformation Capital, on Long-termism and on Healthy Clean Cities, our work with Viable Cities on their Transition Lab, and the EmergencE Room collaboration with the McConnell Foundation, among others. By prototyping we can test the viability of proposed solutions and collect evidence that can be factored into the design of each constituent element. This also provides an opportunity to nurture relationships and trust with all stakeholders.

Second dimension: Development of key elements of the above prototypes that can be used to structure and build rich complex systems of value, as well as instruments, such as Smart Perpetual Bonds and Smart Carbon Treasury, and novel governance vehicles, such as Smart Public Trust and Smart Covenants.

Third dimension: Development of whole-city value models, which weave together the frameworks to create a comprehensive narrative. One such example is our collaboration with stakeholders in Madrid, Spain, where a carbon sequestration capacity that includes an emphasis on multiple co-benefits capacity is currently being planned via a ring of urban forests around the entire city. It is within this dimension that we showcase the demand and market viability for the societal scale investment models.

Pathways of engagement

Over the next twelve months, DML will build on the last two years of collaborative work across all three dimensions and future asset classes, such as the emerging ‘Future-Fit’ deep district retrofitting model and TreesAsInfrastructure. We will also seek to engage with a wider circle of external partners and participate in a wider transformation capital movement.

From our experience to date, we have identified two distinct pathways to integrate the elements into prototypes. The first involves deliberate undertakings by the cities to test the entire framework in a dedicated prototype. The second pathway involves the integration of a series of more discreet elements within an existing project or infrastructure. We aim to pursue both opportunities as we believe that they complement and inform one another.

Conclusion

There remains little doubt regarding the depth of the current health, economic, social, and climate crises. The problems are well understood, the solutions less so, requiring extensive innovation and testing of unproven ideas. We have outlined our ideas and recommendations in the hope of opening a dialogue and testing assumptions. We look forward to hearing from you.

If you want to find out more about how to engage with this mission, please contact Indy Johar, Anastasia Mourogova Millin, Raj Kalia, Joost Beunderman or Chloe Treger at info@darkmatterlabs.org.

We have been supported in this mission by our close partners, Dominic Hofstetter and Thomas Osdoba at EIT Climate-KIC, Viable Cities, The Long Alliance, and Emergence Room Alliance in Canada. Dominic Hofstetter’s excellent stage-setting for Transformation Capital Framework has been fundamental in guiding our thinking. Our collaboration with the Emergence Room on the future of Canada has been generatively vital to the development of this agenda.

A big thank you to the many people who have knowingly and unknowingly contributed to this thinking and work — Dominic Hofstetter, Jayne Engle, Olga Kordas, Rupesh Madlani, Stephen Huddart, John Brodhead, Tim Draimin, Michael Lewkowitz, Alex Ryan, Patrick Dubé, Thomas Osdoba, Riyong Kim, Robin Parker, Lucy Geoghegan, Peter Reekie, Andrew Chunilall, John Uttley — Thank you

Also a massive acknowledgement to all the many people at Dark Matter who have made this possible.