Driving investment in sustainable infrastructure

Unfortunately, the way we have built much of this infrastructure over the last century has been extremely carbon-intensive, and the demand for new construction gets greater every year.

Unless we quickly develop a new generation of sustainable infrastructure, particularly in developing economies, it will be very hard to reverse catastrophic climate change. This will involve significant investment, up to USD6.9 trillion per year through to 2030 according to the OECD. Bringing private sector finance to the table is crucial.

However, the generation of bankable projects involving renewable power, green transport, sustainable water and waste, and green buildings is expanding but remains inadequate and sub-scale in the developing world.

One of the key problems is trust. Institutional investors are keen to invest in sustainable infrastructure, which can offer stable, long-term returns. However, there is currently no way for them to verify which assets are genuinely sustainable. Solving this problem is crucial, as the institutional investor base will be vital in providing the necessary sustainable financing flow.

That’s where the ‘Finance to Accelerate the Sustainable Transition-Infrastructure’ (FAST-Infra) initiative comes in. Launched at COP26 in Glasgow, its aim is to transform sustainable infrastructure into a mainstream, liquid asset class. To do this, it has established a consistent, globally applicable labelling system for investments in sustainable infrastructure assets.

Through this labelling system, the market can easily signal the sustainability of the asset, and investors can trust that their money is going to projects that meet environmental, social, resiliency, and governance needs and contribute to the UN Sustainable Development Goals. In the HSBC 2021 Sustainable Financing and Investing Survey, 50% of investors and issuers – particularly insurers, pension and sovereign wealth funds – say they would be much more confident about investing in sustainable infrastructure should this labelling system be implemented. Only 5% say they would be comfortable with such an investment under the status quo.

A sustainable infrastructure label will ensure that governments and project developers embed high environmental, social, governance and resiliency standards into new infrastructure at the design and pre-construction phases, on the grounds that only assets incorporating such standards will obtain the label. This will help governments and private finance channel their infrastructure financing to labelled projects.

The label will also attract private finance at the construction stage and new institutional investors at the post-construction phase. Alongside the labelling work, FAST-Infra is developing financial mechanisms to mobilise private investment at scale for the financing of labelled projects.

FAST-Infra is a truly team effort. It was conceived by the Climate Policy Initiative (CPI), HSBC, the International Finance Corporation (IFC), OECD and the Global Infrastructure Facility under the auspices of President Macron’s One Planet Lab. It’s an example of what can be achieved when organisations work together on common problems.