Authors: Andy Deacon and Savina Carluccio
Scaling up and improving urban infrastructure can deliver considerable social, economic and environmental benefits. Yet, there is a significant gap between identifying projects for climate action and sustainable development and bringing such projects to fruition.
Investors have capital ready to invest in urban climate projects, cities have a demand for financing solutions, and some government or multilateral institutions even have specialized capacity-building programs. Nevertheless, projects do not move forward from project concept to financing due to a lack of support at the earliest stages of project preparation. Fortunately, actors at all levels have the ability to help close the investment gap.
Unleashing the potential of cities by closing the investment gap
The Global Infrastructure Hub estimates that there is a $15 trillion infrastructure investment gap globally. The OECD reports that a $6.3 trillion investment is needed between now and 2030 to be in line with delivery of the UN SDGs while $6.9 trillion would be needed in infrastructure investments to meet the Paris Agreement goals.
Setting cities on a path to green investments
By making major investments in sustainable and resilient urban infrastructure, governments and financial institutions can unleash new economic activity, create local jobs, increase public health outcomes, and set cities on a path of prosperity and sustainable long-term development.
A report by the Coalition for Urban Transitions, Seizing the Urban Opportunity, found that investments across these areas are estimated to hold the potential to unlock a direct economic dividend worth at least $24 trillion by 2050, including at least 87 million jobs in 2030 (mostly from building efficiency improvements) and 45 million jobs in 2050 (mostly in the transport sector).
De-risking infrastructure investments
National governments can employ a range of strategies to reduce the risk and uncertainty in the early stages of project planning. Reducing financial and other risks during pre-development enables stakeholders to focus on the social, environmental, and technical aspects of project preparation and fitness.
For example, governments, lending institutions and non-governmental philanthropic funders can provide direction on deal structure and design options to achieve well-defined risk allocations that yield risk-return trade-offs acceptable to both sponsors and investors. This can be supported by an infrastructure risk and resilience assessment as a criterion for funding. This assessment ensures that climate and disaster risks are adequately considered and inform whole lifecycle costs, operational procedures and maintenance needs alongside adaptive management strategies.
Recommendations for investing in sustainable urban infrastructure
As governments and financial institutions make investment decisions that will shape infrastructure and the built environment for decades to come, concerted effort is required to make smart investments and not default to a business-as-usual approach in stimulus plans.
In a recent research paper —Green Recovery and Finance for Sustainable Infrastructure —the International Coalition for Sustainable Infrastructure (ICSI), and the Global Covenant of Mayors for Climate & Energy (GCoM) outline recommendations for key stakeholders to close the investment gap and direct funding towards sustainable and resilient urban infrastructure, including:
- National Governments can play a key role in financing infrastructure development by being responsible for initiating some of the largest scale infrastructure investments globally.
- Regional, sub-national, and local governments are largely responsible for initiating and implementing infrastructure projects and can independently leverage a variety of tools to enable pre-development planning to ensure more successful, sustainable outcomes.
- Multinational financing institutions can play an important role, beyond funding, through capacity building and planning at each stage of an infrastructure project’s lifecycle. These institutions can play a particularly important role in integrating climate and other sustainability components into pre-development activities. Multinational financing institutions can also bring in blended finance approaches to accelerate green, resilient, and sustainable infrastructure investments faster than the market otherwise might.
- Private sector developers often engage in robust pre-development activities because it’s good business and can ensure that good public-private cooperation around pre-development activities increases the likelihood of successfully implementing sustainable, green and resilient infrastructure.
- The engineering community can provide technical assistance needed at the early stages of infrastructure projects to ensure that they are technically feasible and will deliver the intended outcome.
Investing in sustainable infrastructure, whether through government stimulus packages or private financing, can be the difference that allows promising projects to be implemented to build a sustainable and resilient future. As we recover from the pandemic and move towards building low-carbon and more resilient economies, ICSI and GCoM look forward to collaborating with public and private sector leaders on taking bold action to support sustainable and resilient urban infrastructure.