Shifting Investments for Sustainable Infrastructure
A new report from the Global Commission on the Economy and Climate calls on governments and finance institutions to scale up and shift investment for sustainable infrastructure as a fundamental strategy to spur growth.
“The Sustainable Infrastructure Imperative: Financing for Better Growth and Development” identifies the main barriers to financing sustainable infrastructure and lays out an action agenda for unlocking the capital required. The report was launched by former Mexican President Felipe Calderón and Lord Nicholas Stern as well as other Global Commissioners at an event hosted by President Luis Alberto Moreno at the Inter-American Development Bank in Washington, D.C.
The Paris Agreement, which recently reached the required number of countries to enter into force, shows the global community has agreed on a global climate agenda, noted Calderón. “Now we should act on it,” he said. “Investing in sustainable infrastructure is the wisest decision we can take for our future. Not only can it deliver on the goals of the Paris Agreement it is also the best growth path forward.”
The report finds that investments totaling about $90 trillion will be needed in infrastructure over the next 15 years, more than is in place in the entire current stock. The good news is that it does not need to cost much more to ensure that this infrastructure delivers a low-carbon economy consistent with the climate goals agreed in Paris.
Meeting these investment needs will require a combination of public and private investment, with public investment used strategically to help crowd-in or leverage further private investment. The report also breaks down future infrastructure needs by sector and country groupings. It finds that the global south will account for roughly two-thirds of investment, with energy and transport sectors dominating.
The report notes that a single infrastructure project can require dozens of financial institutions, all with their own demands, and take more than a decade to build. The cost of project preparation is substantial, typically 2.5 to five percent of total investment. The risk-return ratio for sustainable infrastructure is often too high to attract private capital.
The report identified four action areas to finance sustainable infrastructure at the scale required: reforming fossil fuel subsidies; better planning and governance to ensure the right projects are selected; greening the existing financial system; and ramping up investments in innovation and deployment of clean technologies.
“We cannot continue with business as usual which will lock in high-carbon infrastructure and create further congestion and pollution, while choking off development opportunities, particularly for poor people,” said Stern. “This will require not only better policies but also a sea change in the financial system itself to make it fit for purpose for the scale and quality of investment we now need. The development banks, both national and international, should be at the center of this: the growth story of the future.”