Developing a Green Financing Framework for Local Municipalities in Hungary

Abstract

The analysis explores the possibility of green financing from the perspective of local governments, incorporating unconventional elements into the subject area such as public goods, public services, and public financing. The study focuses particularly on the process and methodology of preparing the Urban Green Financing Framework (UGFF) document, which must be prepared by designated Hungarian sustainable cities. The aim of the research is to demonstrate how the financing of initiatives and projects supporting the municipal green transition can be realized within the Hungarian regulatory environment and how the inclusion of resources backed by the green financing framework fits into this.

The article defines the types of municipal green transition interventions at the local level. It also presents the range of financing possibilities for these interventions. Table 1 lists financiers (public actors, private investors, potential ecosystem services traders, households, financial organizations, bond financiers) and financing methods (generate own revenue, generate savings, borrowing, bond financing, etc.) that may be behind urban green projects.

The methodology employed focuses on the innovative and structured presentation of expert recommendations, building on the regulatory environment and international best practices, in addition to literature and legal background analysis. Furthermore, interviews were conducted with sustainable cities (one big city and two small towns, which have moved out of sustainable cities) and experts (from two professional group) involved in the process of ZFK production at the level of Hungarian settlements.

Arguments are presented in the study in favour of the idea that the only relevant UGFF preparation for sustainable cities in Hungary would be the creation of a green loan/green bond framework that meets international standards and is suitable for external certification. Among the potential municipal green financing methods presented in the study (Table 1), the utilization of these (green bond/green loan) resources is only possible with a certified UGFF document. International experiences also support this, and although Hungarian regulations and conditions pose significant barriers to the involvement of urban-level green resources, the preparation of a central (state) coordinated UGFF, followed by central management of local resource utilization, would enable the urban application of green loan/green bond resources.