Tackling risk and bridging the infrastructure finance gap.
In advance of this year’s G20 summit in Buenos Aires, Margaret Kuhlow, WWF’s Finance Practice Leader, Santiago Gowland, TNC´s Executive Vice President for Global Innovation, and Beatriz Nofal, former G20 Sherpa for Argentina, highlight the risks of poor infrastructure design and development, and call for strategic planning and leadership for sustainability.
Infrastructure for Development
One of the priorities of the G20 under Argentina’s presidency is Infrastructure for Development. Infrastructure plays a key role in encouraging economic growth and prosperity, and millions of people around the world still lack access to basic services like electricity, water, and sanitation. Without investment in these fundamentals, we are unlikely to meet the Sustainable Development Goals (SDGs).
The 2018 New Climate Economy report estimates we need to invest $30 trillion to deliver the SDGs by 2030. To bridge this financing gap, we need to unlock private capital investment in infrastructure assets in particular, and ensure those assets are designed for a sustainable future.
One way to help that along, is to get better at addressing risk.
Investors are actively looking for long-term assets like infrastructure. Yet as crucial as infrastructure is for development, the risk of significant unintended negative economic, environmental and social consequences can deter investment.
Some infrastructure projects directly generate significant greenhouse gas emissions over the 50–100-year lifespan of an asset. And many can lead to deforestation and land degradation — according to the Global Forest Atlas, 95% of deforestation occurs within 5 km of a road or navigable river.
Infrastructure can also cause dramatic decline in biodiversity through habitat loss and fragmentation, interruption of wildlife migratory routes, and pollution of land and water.
Poorly planned infrastructure can also have devastating social impacts if it results in involuntary relocation of communities or inequitable access to expected benefits.
A study by the Inter-American Development Bank on conflict in infrastructure projects in Latin America and the Caribbean found that deficient planning led to multidimensional conflicts involving environmental, social, governance and economic drivers. Of the 200 conflict-affected projects assessed, 36 were cancelled, 162 faced delays, and 116 faced cost overruns which on average increased project budgets by 69%.
Risk harms business, investors, communities and national economies. The antidote is holistic integrated planning that anticipates impacts, promotes comprehensive risk management, supports informed decision-making, increases transparency and predictability, and improves net benefits.
Accelerating sustainability and investment
There are three key moves we can make to promote sound investment in sustainable infrastructure.
First, we need G20 countries, development organizations — especially Development Finance Institutions — project developers and the wider investment community to recognize and apply relevant planning and procurement standards for sustainable infrastructure such as those mentioned in the WWF HSBC Greening the Belt and Road Initiative report.
A forthcoming report for WWF and Guggenheim Partners by the Stanford Global Projects Center also examines a number of tools that can help measure sustainability at the project or portfolio level depending on investment type and geography. Agreeing which of these to mainstream as the basis of a common language for sustainability, without compromising their integrity, is a priority.
Second, we need to strengthen national and local capacity to develop strategic infrastructure plans that are not just lists of projects but that offer a comprehensive vision for a sustainable future and guide investment and development. Enabling better upstream planning that considers economic, environmental and social impacts, and involving key stakeholders from government, private sector and civil society at an early stage, are critical.
As the C20 civil society group recommends, we need to enshrine sustainable infrastructure planning in national policy in ways that support SDG delivery and safeguard the environment and citizens, particularly the most marginalized groups. In the Amazon, for example, an integrated territorial approach that supports local priorities, rights, and ways of life has the potential to improve infrastructure planning and development, address risks and impacts, and support inclusive economic growth.
Creating resilient infrastructure needs environmental authorities to be at the same table as planners, financiers, investors and local communities, able to assess trade-offs honestly and deliver the greatest benefit for all. As social and environmental principles enrich infrastructure design and decision-making, existing financial and compensation mechanisms will boost positive outcomes.
Lastly, we must acknowledge that unlocking the trillions we need for sustainable infrastructure, also requires investment in these critical upstream planning and design efforts. This is where G20 countries and Multilateral Development Banks can work together to make resources available.
G20 countries should support knowledge exchange platforms and innovative financial mechanisms that help cover planning and other costs. These could include blended finance with built-in credit enhancement features, as well as instruments that account for the value of natural capital and ecosystem services — estimated to be worth $125 trillion per year to the global economy.
Time for leadership
Infrastructure investment decisions have long-term implications for people, society, investors and our planet. And we need infrastructure to help meet the SDGs.
Creating a framework that supports investment in infrastructure designed for sustainability is the responsibility of everyone involved in building our future. As the world looks once more to the G20, there is an opportunity for those in Buenos Aires to show both foresight and leadership.