Rapid and intensifying climate change demands investments in innovative infrastructure projects that will lay the foundation for a more sustainable and resilient future. Now more than ever, it is imperative to reconfigure sustainable finance to ensure that these projects are adequately funded.
According to UNCTAD's World Investment Report 2014, developing countries face a $2.5 trillion annual investment gap in key sustainable development sectors. Unlocking the potential for private investment in key SDG relevant sectors such as infrastructure, environment, food security, and energy is hence crucial.
Future-Proof Infrastructure is a unique platform aiming to promote sustainable infrastructure globally by linking early stage sustainable infrastructure projects with investors. In the early stages of pre-development and construction, infrastructure projects face high risk as capital is scarce, host governments often have constrained capacity and inadequate data and local development teams are limited. An early stage partnership between project developers and investors can help mitigate many of these challenges. We outline six compelling reasons why investors should consider investing in early stages of projects:
Contribute to building a more sustainable future by actively shaping the project and its implementation framework
Sustainable finance aims at creating long term social and environmental impact, as well as financial returns by taking into account environmental, social and governance (ESG) considerations when making investment decisions around asset allocation strategies. Deploying sustainable finance for early stage projects plays a key role in integrating sustainability considerations into the design of the project, thus reducing its resulting environmental impact, and ensuring sustainability of future generations. Further, private investments can be leveraged for transitioning to a climate-resilient, carbon-neutral, resource efficient, inclusive and just economy.
Minimize risk and maximize long-term gains
The infrastructure sector has proved to be vulnerable to shocks, resulting in private investors reassessing investment risks. Yet there is a change in investor preferences. Young investors are expressing keenness to invest in sustainable infrastructure, which can offer stable, long-term returns.
Integration of sustainability at an early stage contributes to the creation of a low-carbon, climate resilient infrastructure and the circular economy. Investments are re-oriented towards more green technologies and operations. Financial systems are aligned to address key sustainability risks, and provide long-term support for sustainable infrastructure, enhancing transparency and disclosure standards. This creates investment value for infrastructure projects, and also increases the availability of sustainable finance solutions.
Act as a cornerstone investor:
At present, early-stage infrastructure projects, especially those where users do not pay for services, rely largely on public finance commitments. Leveraging private sector finance for early commitments in the investment process, along with embedded ESG considerations, can help attract other private investors with a positive impact profile. In addition to minimizing risk, it demonstrates support for the project and trust in its viability. It also adds value and attracts competition. This will gradually increase finance for sustainable infrastructure.
Gain competitive advantage:
Getting in at an early stage can give investors a first-mover advantage in a rapidly expanding market. Investors can secure favorable terms and pricing, leading to significant returns on investment in the long term. Considering the constantly evolving technology and innovative solutions for addressing the climate crisis, investors can also integrate new design tools and technologies, and address multiple sectors as the project progresses.
Support in generating data and good practices:
Investing at early stage projects allows for deploying funds towards building knowledge networks, research and robust evidence creation, training and capacity building of local teams, and putting in place impact standards and best practices. As these climate-related standards and frameworks continue to gain ground, it will attract more investments.
In times of constant innovation and new technology, by engaging with public sector entities to support early stage infrastructure projects, the private sector establishes value investment. In addition to drawing in more investments, this also builds coalitions with technology providers, labor unions, communities, and citizens in a constructive way.