We need to act now for sustainable infrastructure investments

|

This page in:

Image
Wind Park near Kavarna, Bulgaria. Photo credit: Ivelina Taushanova/World Bank
Wind Park near Kavarna, Bulgaria. Photo credit: Ivelina Taushanova/World Bank

This post can also be found on the Voices blog in English, Portuguese, FrançaisEspañol, and 中文

The public and the private sectors have a shared interest in sustainable economic growth and resilient infrastructure.  Yet, today's reality is that global economic growth is weak, while downside risks remain concerning. Coupled with this is the toll climate change continues to take on our planet and the unpredictable future it brings. While these circumstances will affect us all, we know that developing countries are especially vulnerable to both macroeconomic slowdowns and the impacts of climate change.

Investments in sustainable infrastructure are a "win-win" for economies: they help increase productive capacity and lift economic growth rates, while strengthening a country's resilience to withstand and even combat future climate risks. Lifelines, a report by the World Bank and the Global Facility for Disaster Reduction and Recovery, finds that the net benefit of building more resilient infrastructure in low- and middle-income countries would be $4.2 trillion with $4 in benefit for each $1 invested.

Yet, governments lack the financial capacity to fill these needs alone. The private sector must play a bigger role. Unlocking the approximately $80 trillion long-term investor asset base, which includes assets under management from insurance companies, pension funds, and sovereign wealth funds—for example—would go a long way to help finance these requirements.  

A call to action: Three key pillars can make the world more resilient

I believe there are three key pillars that the public and the private sectors need to address to jointly bridge the infrastructure financing gap and help make the world more resilient :

First, investing in sustainable infrastructure requires us to spend more and better. Yet, many countries aren’t constructing the infrastructure necessary to advance economically. And when they do, they aren’t adequately insured to protect them from the potential impacts of climate change, such as physical and transition risks.  

Second,institutional investors such as insurers are ideally positioned to commit long-term infrastructure funding, given the long-time horizon of their liabilities.  Nevertheless, World Bank research shows that  institutional investors’ share of total global private participation in infrastructure financing is a scant 67 percent. There are many challenges to overcome to encourage greater participation; for example, we know that that greater standardization would help. Yet, one of the greatest challenges for investors is still the lack of bankable opportunities, particularly in sustainable infrastructure.

This is where global platforms such as the Global Infrastructure Facility (GIF) can play a critical role. Through the GIF, we’re among 50 partners that provide the voice of the private sector—sharing knowledge and conducting market soundings to help create an enabling environment for sustainable infrastructure projects that are bankable. In particular, Swiss Re and the GIF support harmonized project terms and disclosure requirements to facilitate more investor engagement.

The third pillar is the use of smart public private partnerships (PPPs), which can reduce pressures on government budgets. Done well, PPPs can lead to efficiency gains, provide attractive returns, and enable effective risk-sharing. The latter is particularly important for institutional investors, as less than 20 percent of the 500 largest cities in the world have an investment grade credit rating. A "best practice" pilot benchmark PPP transaction for both contract terms and documentation would be of great value for all parties—especially if a multilateral development bank is involved—and moves us forward in creating a tradable asset class.

Sustainability must be at the core of our infrastructure investment decisions

At Swiss Re we believe that sustainable investing also makes economic sense. Our paper "Responsible Investments – The next steps in our journey" shows that environmental, social, and governance (ESG) benchmarks improve the risk-adjusted return profile over the long term. That is why we now invest close to 100 percent of our roughly $130 billion in assets that meet our ESG criteria.

The public sector, including multilateral development banks, also makes key contributions.  For example, two-thirds of the GIF’s portfolio is currently climate friendly and we expect this number to grow as the private sector increasingly focuses on ESG values. To push this along, we will publish a joint paper with the GIF on Sustainable Infrastructure to further strengthen the public-private dialogue. 

As eyes are on Madrid this week for the UN Climate Change Conference, there’s no doubt that climate risk is systemic risk. We must not wait to do what's right to prevent a climate Minsky moment. The public and the private sectors must work hand in hand. Investing in sustainable infrastructure, particularly in developing countries where the needs are the greatest, is an opportunity to foster economic and climate resilience, while also boosting global prosperity. 

 

Disclaimer: The content of this blog does not necessarily reflect the views of the World Bank Group, its Board of Executive Directors, staff or the governments it represents. The World Bank Group does not guarantee the accuracy of the data, findings, or analysis in this post.


Related Posts

Municipal infrastructure needs more investment: harnessing private capital (responsibly!) will help

Factoring climate risk into infrastructure investment

What’s next for ESG and investment decisions?

How to protect infrastructure from a changing climate

 

This blog is managed by the Infrastructure Finance, PPPs & Guarantees Group of the World Bank. Learn more about our work here.

Authors

Jérôme Jean Haegeli

Group Chief Economist, Swiss Re and Co-Chair of the Global Infrastructure Facility (GIF) Advisory Council

Join the Conversation

Lucila Cedilla
June 29, 2020

Climate change should still be geener and cleaner through financial support from world bank!.

AHMEDALI JATOI
June 29, 2020

OK , REALLY THIS IS A BEST WAY TO SAVE THIS OUR PLANET FROM POLLUTION AND PROVIDE ENERGY ECONOMICALLY FOR THE PEOPLE LIVING THERE , I M A RETIRED ENGINEER , I OFFER MY SERVICES IF NEEDED !

John Turner
June 29, 2020

Still to little support or investment into water and sanitation projects. Please check us out with technologies worth further assistance. Sewerage = Liquid Gold. Leaving "waste"behind the 2020 vision is "Water Recovery and Re-use Facilities" these stand on the corner of your street in the city. No Waste, No Wastewater, what comes to the city stays in the city in circularity. Please check us out at www.biopolus.net and www.solarwater together we can provide quick long term solutions with good ROI.

Gbemiga Oyeleke
June 29, 2020

Good read

Gbemiga Oyeleke
June 29, 2020

Good read

Gbemiga Oyeleke
June 29, 2020

Good read

Violette
June 29, 2020

There are many entrepreneurs out there with great ideas for profitable climate & clean energy projects
•There are also many investors looking to invest in such projects
•There is a gap however to match project developers with investors through capacity building ie coaching entrepreneurs to develop business plans that investors will want to invest in. This gap is prominent in Africa and other deveolping countries.
Somehow it seems there is no ownership between the public sector and the private sector to close this gap. Each sector feels it is the other party's responsibility

Jose Cordovilla
June 29, 2020

Jerome,
Thanks for your ideas. Despite all the good intentions and clever talks in our sector, the current models for infrastructure investment are ill-suited to deliver on the promises, unless some fundamental governance issues are tackled, starting with real transparency and true people-first arrangements. This is why PPPs have gone into a debacle in the last decade:
https://www.linkedin.com/pulse/ppp-crisis-final-chapter-evolution-jose-…
Kind regards, Jose