If you’ve watched Game of Thrones, you might find that the Night King and his White Walkers are an eerily precise allegory for climate change. It took almost too long for the belligerent seven kingdoms embroiled in the civil wars to realize the magnitude of the threat that the dwellers north of the Wall represented to humanity.
Similar to the disturbing reports of the Night’s Watch, the first 19th century reports about human emissions of greenhouse gases changing the climate yielded little public reaction. And just like the kings believed the White Walkers to be mythological, so did many governments around the world initially turn a blind eye to scientific research about climate change. It was not until a century later, in 1988, that the Intergovernmental Panel on Climate Change (IPCC) was established to provide policymakers with regular scientific assessments.
Since then, governments signed on to the Kyoto Protocol in 1997 and the Paris Agreement in 2015, setting up mechanisms and commitments to work towards a greener future. The Paris Agreement has shown that, unlike the kingdoms on the continent of Westeros, modern countries are able to collaborate to tackle global problems.
COVID-19 is yet another challenge the world must rise to meet together. The World Bank’s baseline forecast envisions a 5.2% contraction in global GDP in 2020, with developed economies contracting by as much as 7%, and developing economies by 2.5%. In a few years, this health crisis may be contained; however, our economies will have taken a severe hit, which climate change will only exacerbate.
What does this mean for infrastructure finance? In response to the pandemic, multilateral development banks (MDBs), development financial institutions (DFIs), national governments, and other stakeholders recognize the need to mobilize more private capital for infrastructure development—especially as countries look to this sector to stimulate their economies. Yet, the fundamental risks that countries are facing during and post-pandemic add to investors’ uncertainty.
At the same time, this crisis presents a unique opportunity for the private and the public sectors to collaborate to move forward green and climate-resilient investments to provide jobs and economic stimulus in the medium term, while also providing long-term gains. There was already a fair amount of momentum in this direction; COVID-19 just hit the accelerator. In other words,
It’s 2020 and we're lagging on our Paris 2015 commitments, but there are a few things we’ve learned along the way. We were heartened to see precisely these points addressed during a by-invitation-only event—Post COVID-19: A Brave New World for Investing in the Infrastructure of the Future—that was part of the all-virtual World Bank Group/IMF Annual Meetings last week.
These were important takeaways:
- H.E. Cora van Nieuwenhuizen, the Netherlands’ Minister of Infrastructure and Water Management, made this point at the outset. New business models bolstering resilient and green infrastructure must become the new norm. The business case is strong: the Global Commission on Adaptation led a study suggesting that investing $1.8 trillion in climate-resilient infrastructure by 2030 could amount to more than $7 trillion in net benefits. In other words, in order to save money tomorrow, the government must spend (wisely) today.
- Veronica Scotti, Chairperson for Public Sector Solutions at Swiss Re, underlined during the event that institutional investors, according to their estimates, have $80–85 trillion available for infrastructure financing while the global infrastructure financing gap is along the lines of $66 trillion. Two-thirds of this gap is in developing countries, where domestic long-term financing remains rare. Luckily, there are already steps governments can take (even in the uncertain environment of COVID-19) to mobilize these long-term funds. Timely identification and de-risking of priority infrastructure projects, strengthening local currency financing, and simplifying legal frameworks to promote regional collaboration are all pieces of the same puzzle. MDBs, DFIs and other stakeholders can help put the pieces together by scaling up their capacity-building instruments, such as PPP project preparation, climate risk screening toolkits, and innovative financing tools such as blended finance. And while more investors seek infrastructure projects that are compliant with environmental, social, and governance standards, there is no global agreement on what “resilient” means. So here, governments, MDBs, and private sector partners have a role to play in standardization of infrastructure asset classes and in defining the meaning of resilience to drive investor interest.
- Lastly, We need to learn that going from recession to recovery in cycles needn’t be the norm. Together we can bounce forward to resilience; bouncing back is not enough. There may be many differences between us, but there is at least one thing we all have in common: we want a safer future for our children.
Can we work together to win this battle against poverty, pandemics, and climate change all together?
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