Infrastructure gap will require urgent and sustainable solutions

The need for a global system for sustainable infrastructure investments is vital if the world is to meet the challenges of climate change and future major health crisis.

A new white paper authored by the Swiss Re Institute and the World Bank Group’s Global Infrastructure Facility (GIF), has called for institutional investors to utilise far greater percentages of their funds into sustainable infrastructure projects particularly in emerging economies.

It comes and the impact of COVID-19 and climate change threatens to have long lasting and damaging effects on developing states across the world.

The report, “Closing the Infrastructure Gap”, warned COVID-19 is exposing the urgent need for better health infrastructure in emerging markets and developing economies (EMDEs). It added when the worst of the current pandemic subsides, it will be vital that governments work to close their infrastructure investment gaps.

It added the consequences of climate change – including rising sea levels, more frequent and extreme weather events, and increasing global temperatures – can have lasting, damaging effects on existing and planned core infrastructure, with a disproportionately damaging effect on small island developing states and least developed countries.

As such infrastructure investment plays a crucial role in stabilising EMDEs and providing access to basic services and will become an even more important driver for economic development in the aftermath of the COVID-19 pandemic – as such, priority must be given to not only driving more investment, but also to ensuring that such investments fill critical infrastructure service gaps.

“Despite the growing need for accelerated investments in sustainable, quality infrastructure, such activity, particularly among institutional investors, remains staggeringly low – hovering at around 0.7 percent of total private participation across debt and equity investments,” it warned.

Makhtar Diop Vice President for Infrastructure The World Bank Co-Chair of the Global Infrastructure Facility (GIF) Advisory Council explained action was urgently needed if future crisis were to be addressed.

“The coronavirus pandemic is a test of global resilience – whether of health, the economy, or society as a whole,” he said.  “Infrastructure investments are at the core of a society’s ability to absorb shocks. They provide access to basic public services, such as water, sanitation, transportation, and power systems.”

EMDEs are among the most vulnerable from a health and economic perspective to a global pandemic.  Mr Diop said sustainable, quality infrastructure can strengthen the pandemic response today, support economic recovery tomorrow, and strengthen a society’s resilience going forward. A focus on “building back better” is urgently needed, including for EMDEs.

“Previous crises have demonstrated that governments must avoid rushing to build lower-quality, more expensive, higher-carbon, and less resilient infrastructure assets,” he added. “Instead, governments have an exceptional opportunity to launch green stimulus packages that prioritise sustainable infrastructure designed to mitigate the next public health crisis, bolster long-term economic growth after COVID-19, and adapt to the effects of climate change.”

But the solutions cannot be delivered in isolation.

“Closing the infrastructure investment gap is a collective effort: governments need to promote the development of quality and sustainable infrastructure; Multilateral Development Banks (MDBs) to leverage tools such as credit enhancements to create risk-adjusted investment opportunities; and the private sector to prioritise investments that adhere to environmental and social best practice,” added Mr Diop.  “Times of crisis have the potential to create transformative change. We can plan now for the future we want through careful infrastructure project preparation and targeted investment.”

To close the infrastructure gap, the report proposes five specific areas for action:

  • Expand infrastructure pipeline development through high-quality project preparation by governments;
  • Promote standardisation of new greenfield projects;
  • Employ more development finance institutions, which provide risk capital for economic development projects on a non-commercial basis;
  • Create aggregation platforms, which pool several smaller and/or below-investment-grade assets into a single securitised vehicle; and
  • Enhance the rigorous integration and disclosure of environmental, social, and governance (ESG) factors across the infrastructure lifecycle, including during upstream project preparation carried out by emerging and developing market governments, as well as during downstream private investment.