Know-How

Sustainable finance as driver for future-proof infrastructure

Finance is often a hot topic in infrastructure development but with an abundance of public and private capital, why are crucial sustainability projects missing out?

A strong focus and often barrier to effective implementation of future-proof infrastructure is the availability of finance. Whilst there is no shortage of private climate financing in traditional sustainability projects, often future-proof infrastructure projects miss out on private capital as the return is sometimes difficult to quantify, contain indirect monetary and non-benefits and frequently involve long lead times. These scenarios can be a barrier to private investors that could be disincentivised from investing into emerging technologies and techniques where a new approach is required to tackle complex problems. These barriers to sustainability investment are often a main criticism of investors and even public entities with already strained budgets. But these issues aren’t just symptomatic of developing nations. Developed nations also face challenges of financing projects. Unfortunately, in developing nations where financial markets and institutions aren’t as robust and with unstable macroeconomic profiles these issues are exacerbated.

 

Laying the groundwork for investment

 

Financial capital and its associated instruments can be a powerful yet dynamic driver in the pursuit of sustainable projects. Funds primarily engaged in sustainable investing, commonly known as ‘Green Finance’, have the power to drive countries toward developing sustainable and future-proof infrastructure. Such investment can quickly become a pull factor for other investment institutions intent on capitalising on the flow of investment and capital into emerging markets. Private capital generally favours financial systems with clarity and predictability and in the sphere of infrastructure investment, require market trust and the long-term viability of infrastructure assets.

 

With the ever-growing requirements of infrastructure but hindered by strained public budgets, Public-Private Partnerships (PPP) have become more prevalent in the provisioning of infrastructure. Although the emergence of PPPs are not entirely recent, infrastructure investors are still deconstructing the complicated structure of funding and its associated monetary and non-monetary benefits. Partial or incomplete information may render infrastructure projects a higher risk especially in countries without a robust financial system or developing markets as investors grapple with the task of how to recoup their investment. However, sustainable financing and world governments are gradually creating market instruments to monetise the sustainability benefits of infrastructure projects, such as carbon trading credits. The slow development of complete information, clear separation of investment returns and carbon pricing is promising however the crucial infrastructure projects may be passed over or delayed. A serious effort must be made to make investment in sustainable infrastructure clearer, certain and secure.

 

FAST-Infra Announces GIB and Bloomberg announced as Label Secretariat and Data Repository

 

There are still a multitude of efforts required from an array of stakeholders to improve the financial viability and clarity of sustainable infrastructure projects. Fortunately, there is promising progress towards creating foundations for more investment. Recently at COP27 in Sharm El-Sheik, The FAST-Infra Group (Finance to Accelerate the Sustainable-Transition Infrastructure) announced the Partnership of Bloomberg L.P and Global Infrastructure Basel (GIB) to serve respectively as the Data Repository and Secretariat of the Fast Infra Sustainable Infrastructure (FISI) Label.

 

The FISI label will: 

 

  • Define and measure sustainability contribution and credentials
  • Increase market trust and confidence around the sustainability of infrastructure assets
  • Inform investment decision-making and attract private investment into infrastructure
  • Encourage new financial product development (e.g. sustainable infrastructure funds and platforms)
  • Enable the development of a secondary financial market (e.g. indices, bonds, securitization)
  • Support alignment with regulatory compliance and disclosure initiatives (e.g. EU Taxonomy, Sustainable Finance Disclosure Regulation, Task Force on Climate-Related Financial Disclosures)

 

With the advancement and adoption of these labels, infrastructure investors benefit from increased clarity of their investments and are able to better manage the risk of their investments. This announcement will fast track and streamline the process for investors to determine which projects are the most viable, bankable and effective sustainable infrastructure projects.

 

Join us on March 28th & 29th 2023 in Basel to gain early access insight to how sustainable infrastructure will be promoted and managed.