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A Roadmap for Financing Sustainable Infrastructure

Posted by Content Coordinator on Thursday, October 13th, 2016

THE NEW CLIMATE ECONOMY

The Sustainable Infrastructure Imperative: Financing for Better Growth and Development

Key Messages

Photo credit: Flickr/IIP Photo ArchiveInvesting in sustainable infrastructure is key to tackling the three central challenges facing the global community: reigniting growth, delivering on the Sustainable Development Goals, and reducing climate risk in line with the Paris Agreement.

A comprehensive definition of infrastructure includes both traditional types of infrastructure (everything from energy to public transport, buildings, water supply and sanitation) and, critically, also natural infrastructure (such as forest landscapes, wetlands and watershed protection).

Significant investment is needed over the next 15 years: around US$90 trillion, which is more than the entire current stock. These demands are driven by ageing infrastructure in advanced economies and higher growth and structural change in emerging market and developing countries, especially rapid urbanization.

The global South will account for roughly two-thirds of global infrastructure investment (or about US$4 trillion per year). This new infrastructure offers a great opportunity to “leapfrog” the inefficient, sprawling and polluting systems of the past.

Transformative change is needed now in how we build our cities, produce and use energy, transport people and goods, and manage our landscapes.

The challenge is urgent. The window for making the right choices is uncomfortably narrow because of lock-in of capital and technology and because of a shrinking carbon budget. The next 2-3 years will be crucial in bringing about a fundamental change of direction. We can build cities where we can move, breathe and be productive, we can foster ecosystems that are robust and resilient, and we can avoid the potential displacement of millions of people.

We have a historic opportunity to deliver inclusive economic growth, eliminate poverty and reduce the risk of climate change. Now is an opportune time to act because of record low interest rates, large available pools of finance and rapid technological change.

More money alone won’t do the job. A range of barriers must be tackled to raise the quantity and the quality of infrastructure investment. Concerted action in four, inter-linked areas can together help us overcome these barriers and build the sustainable infrastructure of the 21st century:

  • We must collectively tackle fundamental price distortions – including subsidies and lack of appropriate pricing especially for fossil fuels and carbon – to improve incentives for investment and innovation, to drastically reduce pollution and congestion, and to generate revenue that can be redirected, for instance, to support poor people.
  • We must strengthen policy frameworks and institutional capacities to deliver the right policies and enabling conditions for investment, to build pipelines of viable and sustainable projects, to reduce high development and transaction costs, and to attract private investment.
  • We must transform the financial system to deliver the scale and quality of investment needed in order to augment financing from all sources (especially private sources such as long-term debt finance and the large pools of institutional investor capital), reduce the cost of capital, enable catalytic finance from development finance institutions (DFIs), and accelerate the greening of the financial system.
  • We must ramp up investments in clean technology R&D and deployment to reduce the costs and enhance the accessibility of more sustainable technologies.

Multilateral and other DFIs can support countries and catalyse a virtuous circle of action on sustainable infrastructure. Public investments continue to be essential. Private finance will need to significantly scale up to meet our infrastructure requirements.

The Global Commission has identified a number of priority actions to rapidly shift investments toward sustainable infrastructure. A number of their previous recommendations are also relevant to this agenda.

Figure A Action areas to scale up and shift public and private investments to sustainable infrastructure

TO ACHIEVE THIS, THE GLOBAL COMMISSION CALLS ON:

  • Governments to phase out subsidies for fossil fuels and agricultural inputs and incentives for urban sprawl.
  • Governments, including through the G20, to set a deadline for fossil fuel subsidy phase-out of 2025 at the latest.
  • Government to introduce strong, predictable carbon prices as part of good fiscal reform; with all developed and emerging economies, and others where possible, committing to introducing or strengthening carbon pricing by 2020.
  • All countries to develop transition plans to accelerate a scale-up of clean and resilient energy solutions and a phase-out of coal, in a way that delivers fully on energy access goals and facilitates a just transition for workers.
  • The G20 and other countries to adopt key principles ensuring the integration of climate risk and climate objectives in national infrastructure policies and plans; these principles should be included in the G20 global infrastructure initiative, as well as used to guide the investment strategies of public and private finance institutions, particularly multilateral and national development banks.
  • Cities to commit to developing and implementing low-carbon urban development strategies by 2020, prioritising policies and investments in public, non-motorised and low-emission transport, building effi­ciency, renewable energy and e­fficient waste management.
  • Multilateral and other DFIs – via their shareholders – to enable the doubling of their investments in financing sustainable infrastructure as quickly as is feasible, and scale up further as warranted.
  • Governments and investors to agree on common standards for and scale up green bonds as an instrument to enhance liquidity in financial markets and unlock capital for investment.
  • Countries, especially those in the G20, to build on the Task Force on Climate-related Financial Disclosures’ work to move toward appropriate mandatory disclosure standards as a matter of corporate governance.
  • Governments, multilateral and bilateral finance institutions, the private sector and willing investors to work together to scale up sustainable land use financing, for halting deforestation and putting degraded farmlands and forests into restoration.
  • Governments and the private sector to scale up innovation in key low-carbon and climate-resilient technologies, tripling public investment in clean energy R&D and removing barriers to entrepreneurship and creativity.
  • Governments and businesses to substantially increase investments in R&D and deployment, and calls on governments to develop genuine research partnerships, across countries and with the private sector.

This agenda will help translate the ambitions of the 2015 development and climate goals into effective delivery in countries and key economic systems.

Download full version (PDF): A Roadmap for Financing Sustainable Infrastructure

About the New Climate Economy
newclimateeconomy.net
The Global Commission on the Economy and Climate is a major international initiative to examine how countries can achieve economic growth while dealing with the risks posed by climate change. Chaired by former President of Mexico Felipe Calderón, the Commission comprises former heads of government and finance ministers and leaders in the fields of economics and business…The New Climate Economy is the Commission’s flagship project. It provides independent and authoritative evidence on the relationship between actions which can strengthen economic performance and those which reduce the risk of dangerous climate change.

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