Because of the Paris Climate Agreement, municipalities must halve their CO2 emissions over the next ten years. To achieve this, sustainable investments are needed. Sometimes this goes wrong, like this spring in Rotterdam. This is part two of a two-part series.
At the end of May, the City of Rotterdam announced that it had made a big mistake by buying shares in the Guide Plus Sustainable Investment fund that invests in innovative start-ups. This was because the major shareholder R. did not come up with the capital that he had promised. The fund collapsed as a result. The original aim was that the start-ups in the fund would be able to accelerate the sustainability of Rotterdam.
Like most other Dutch municipalities, Rotterdam wants to halve CO2 emissions by 2030 in accordance with the Paris Climate Agreement. That is why the municipality signed a climate agreement last year with almost 50 companies in the Rijnmond region. Part of this includes the closure of two coal-fired power stations. Another part concerns making homes more sustainable through all kinds of measures. Consider insulation of houses, installation of solar panels on roofs and experimenting with solar energy storage so that you can also use it when it rains.
Failed investment in Guide Plus
All in all, making Rotterdam more sustainable is a huge puzzle, of which the investment in the Guide Plus Fund for innovative start-ups was one of the many small pieces. What the question now is: Was that investment such a good idea? The answer can best be explained by a reconstruction of the way how the municipality made the decision to get involved in the first place.
Sometime in 2018, the founder of the Guide Plus Sustainable Investment Fund, Edgard Creemers, turned up at the municipality and asked if they were willing to put money into his sustainable start-up fund. Creemers had read in the coalition agreement that the municipality was committed to sustainability. One way to do this was by investing in green start-ups.
Blood from a stone
The highly motivated green-minded alderman that is responsible for this in Rotterdam, Arno Bonte (GroenLinks), said “yes” rather quickly. Bonte hoped to bring innovative start-ups to the city this way – good for employment opportunities and good for the climate – and promised Creemers that the municipality would pay €2 million into his fund. After that, the municipality paid about €50,000 in start-up costs. Before the €2 million was to be transferred for investing in start-ups, the municipality first made a downpayment of €100,000.
The good news is: Guide Plus repaid that amount. The €2 million was not invested and therefore not lost. The bad news is that the €50,000 of start-up costs has evaporated and must be recovered from Mr R, which is like getting blood from a stone. According to the municipality, he is a crook and a fraudster – and it is his fault that the Guide Plus fund collapsed. In all likelihood, that amount has been lost.
No control by Dutch Authority for the Financial Markets (AFM)
Then the question is: How did this happen? Various councillors such as Jan Willem Verheij of the Rotterdam VVD fraction, Geert Koster of Leefbaar Rotterdam and Faouzi Achbar of DENK (all political parties in the council coalition) asked the alderman the same question again and again during the various meetings about the involvement with the Guide Plus fund: Why does the municipality of Rotterdam suddenly think it understands investment? They did not understand why Bonte seemed to rely almost blindly on fund founder Creemers. It constituted a major risk, certainly because this type of fund is beyond the control of the Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten). PvDA Councillor Dennis Tak, a banker by profession, spoke up and said that Creemers had a great resume in the finance field so it shouldn’t be a problem.
That may be the case. But Creemers himself has also made serious mistakes. He set up the fund based on a promise of an acquaintance of an acquaintance – Mr. R. Who has been bankrupt (and not for the first time) since mid-2019. R. was supposed to invest €20 million in the fund that was to total more than €23 million. He did not do this in the end, resulting in the fund’s collapse.
The largest financier was bankrupt
Creemers did not do an in-depth investigation into R.’s business background, according to R., as he was familiar with it through a private contact and because an accountant’s audit is very expensive. Moreover, there was no formal need to do this because this fund falls outside the rules of the Dutch Authority for the Financial Markets (AFM). However, if he had done so he would have found out during their initial discussions that R. was going through bankruptcy proceedings in 2018 or had just come out of them.
Large investors in start-ups normally work very differently than Creemers and the municipality had done in this case. They check the companies they work with down to the last decimal point before they even transfer a penny. None of this was checked. Not by the City of Rotterdam, and not by the founder of the Guide Plus Sustainable Investment Fund.
No insight into the Rotterdam Municipality investment team
CDA councillor Segers-Hoogendoorn had a suggestion for the alderman about the Guide Plus fund during one of the meetings, which he offered in the form of a question. He asked whether it would not be a good idea for the municipality of Rotterdam to join the Innovation Quarter investment fund, which invests money in innovative sustainable start-ups on behalf of the province of South Holland. But that question was also not given the green light, given that he province’s specialist investment team would not be specifically focused on Rotterdam.
That is perhaps true. But as already mentioned, the city of Rotterdam is not specialized in scouting innovative start-ups. Nor in assessing or investing in start-up funds such as the Guide Plus Sustainable Investment Fund. But the municipality does want to invest millions in green innovative start-ups so as to reduce CO2 emissions. The alderman has announced that there will be a new municipal fund this coming autumn that will invest in innovative start-ups contributing to the energy transition. This will be paid out of the proceeds from the sale of the shares in Eneco, which will purportedly raise approximately one billion euros.
Rotterdam will reinvest in green start-ups
As was discussed during the public forum on Rotterdam’s involvement in the Guide Plus Sustainable Investment Fund, it is not yet clear which experts from the municipality will be responsible for investment in this new start-up fund. What is their track record? The fund strategy recently adopted by the city council which aims to make this new fund possible does not provide any information on this.