New Climate Economy Report: The Sustainable Infrastructure Imperative
Key messages from this report, which is the third of three reports by the Global Commission on the Economy and Climate, are outlined below. Starting on page 53, the report highlights the important role of green investment banks and green banking in greening the financial system.
Investing 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:
1. 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.
2. 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.
3. 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. One of the five policy priorities listed is to mobilize and reallocate private finance to green investments, including through green bonds and green banking.
4. 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.
