Promoting investment in sustainable urban development with JESSICA: Outcomes of a new EU policy initiative

Abstract

Between 2007 and 2015, the European Commission invested €1.846 billion in a new policy initiative called JESSICA (Joint European Support for Sustainable Investment in City Areas). Since European cities in particular have perceived a shortage of investment dedicated to urban regeneration projects, JESSICA will finance more than 2000 higher risk projects through Urban Development Funds as a financial intermediary in order to create economic stimulus. Moreover, replacing traditional grant funding by revolving financial instruments (loans, guarantees and equity capital) is a central part of the ongoing reform of EU cohesion policy. The special challenge of JESSICA is to combine these financial engineering instruments with integrated urban planning issues in a sustainable fund model. However, it is not yet clear whether this new policy instrument is as effective as European decision-makers believe, because up to now there has been no evaluation available on how successful JESSICA has been in achieving its ambitious objectives. Our empirical analysis is the first one to cover the impact of this innovative EU initiative in all 28 EU member states by making outcomes of the policy change measurable in monetary terms. Since revolving financial engineering instruments are a central part of the Europe2020 strategy, we derive key success factors for sustainable urban finance and give recommendations to adjust the policy instrument in the current programming period as part of the ongoing process of a reformed EU cohesion policy.

Successes & Failures in EU Cohesion Policy: An Introduction to EU cohesion policy in Eastern, Central, and Southern Europe

“…This may mean that the benefits assumed by the designers of JESSICA at the EU level are being achieved only partially. A recent study on this topic, carried out by Nadler and Nadler (2018), confirms the previous findings and outlines several reasons for the main difficulties encountered, including among others, incapacity of private financial institutions to risk sharing, relatively high implementation and administrative costs, and low financing at the project level.…”

“…As a result, it is possible to measure the economic efficiency by calculating the economic performance indicators; in particular, an economic-net present value (ENPV) and an economic rate of return (ERR)80. With all of this in mind, it is important to note that all projects supported by UDFs are required to demonstrate their capacity to generate not only FIRR, but also ERR (Nadler & Nadler, 2018: 1843. This means that only such projects, on the one hand, ensure the return on investment, which facilitates the repayment of the JESSICA loan, whilst, on the other one, provide 80 ENPV and ERR are the most commonly used measures in appraising projects funded from EU Funds because they include social and environmental externalities.…”

Taxonomy and tendencies in sustainable finance: A comprehensive literature analysis

“…Since 2018 there has been an increase in scientific production regarding SF, dealing with the subject from different perspectives. Several authors mention the need to carry out projects on specific themes using SF tools (Galaz, Crona, Dauriachet al, 2018;Nadler and Nadler, 2018;Pueyo, 2018;van Brakel et al, 2018;Bohorquez, Dvarskas and Pikitch, 2019;Higgins, 2019;Negra et al, 2020). Nadler and Nadler (2018) analyze the political initiatives for sustainable investment in urban areas, such as the Joint European Support for Sustainable Investment in City Areas (JESSICA) project, which attempts to combine SF instruments with urban planning themes.…”

“…Several authors mention the need to carry out projects on specific themes using SF tools (Galaz, Crona, Dauriachet al, 2018;Nadler and Nadler, 2018;Pueyo, 2018;van Brakel et al, 2018;Bohorquez, Dvarskas and Pikitch, 2019;Higgins, 2019;Negra et al, 2020). Nadler and Nadler (2018) analyze the political initiatives for sustainable investment in urban areas, such as the Joint European Support for Sustainable Investment in City Areas (JESSICA) project, which attempts to combine SF instruments with urban planning themes. There are several studies that present evidence to sustain the claim that sovereign debt is risky for the financing of public infrastructure if it exceeds certain limits; they make recommendations on the need to mobilize internal resources and innovate new financial models to promote sustainable development.…”

The The territorial impacts of JESSICA projects in municipalities: evidence from the city of Poznań

“…Bode (2015);Dąbrowski (2014);Fotino (2014);Nadler, Nadler (2018).3 Idczak, Musiałkowska (2019); Idczak, Musiałkowska, Mrozik (2019);Musiałkowska, Idczak (2018).4 Camagni, Capello, Caragliu (2015);Henderson (2000).5 Castells-Quintana Royuela (2014);Duranton, Kerr (2018);Glaeser (2010).…”