Ecology, Economy and
Social Responsibility
Sustainable Infrastructure as an Asset Class
Daniel Wiener, Chairman, Global Infrastructure Basel
V7, 19 January, 2014
“We need to juggle out infrastructure from that crazy box called
‘Alternative Investments’ and establish it as a new Asset Class,
somewhere between Equity and Debt.”
Larry Fink, CEO of BlackRock, at a High Level Infrastructure Panel
of the World Bank in Washington DC, 17 September 2013
“Two factors make infrastructure attractive for institutional investors: on the one hand, it
is the goal of attaining attractive returns and high and stable dividends with limited risk; and on
the other hand, it is the capacity to offer protection against rising inflation. (…) However, for
these characteristics to come to fruition, the selection of the projects is crucial.”
David Frost, Chief Investment Officer, Swiss Life,
in Neue Zürcher Zeitung (NZZ), 6 January, 2014
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Sustainable Infrastructure as an Asset Class
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Index of contents
1 Why an Asset Class approach to Sustainable Infrastructure? ................ 3 2 Housekeeping for Sustainable Infrastructure........................................ 6 21 Goals .............................................................................................. 6 22 Sustainable Infrastructure Grading ..................................................... 6 221 The status quo ......................................................................... 6 222 De-risking Infrastructure with Sustainability Criteria .................... 7 23 Structuring of the Sustainable Infrastructure Asset Class ....................... 8 231 Non-correlation with Bonds and Equity...................................... 8 232 Removing the Greenfield Project Bottleneck ................................ 8 24 Sustainable Infrastructure Credit Rating and Monitoring....................... 9 3 Market Development for Sustainable Infrastructure .............................. 9 4 The Key Role of Infrastructure in Re-shaping Finance ......................... 10 Sustainable Infrastructure as an Asset Class
page 3 of 14
1 Why an Asset Class approach to Sustainable Infrastructure?1
Infrastructure needs are huge: around 75% of the infrastructure that will be in place in
2050 doesn’t exist today. The main drivers of this massive transformation are demographic change, expanding consumption, economic growth, and the need to dramatically reduce the use of fossil fuels in order to mitigate catastrophic climate change2.
Estimates from various sources (OECD, World Economic Forum and others) speak of
USD 5 to 6 trillion per year which are needed to develop, refurbish and maintain the
global infrastructure in the next 20 to 30 years.
This unprecedented and fundamental development represents a major opportunity to create the backbone of a sustainable future. In the case of energy, for example, investments in solar, geothermal or wind power plants will have a positive effect
on the offering of clean energy. The demand side of the same equation, however, is
determined by the design of the infrastructure that uses energy: If we get the planning
and construction of our cities, industrial production, services, waste management systems or transportation grids right, these installations become the most powerful levers
for saving resources (be they energy, water, land, biodiversity or other). Should we get
it wrong, we will be confronted with growing demand in spite of new production from
renewable sources. In addition to that, Sustainable Infrastructure3 promotes social cohesion as well as prosperity, for example by creating green jobs.
Infrastructure is defined as the physical assets, facilities, and systems that enable
society to function. It includes the transportation (roads, bridges, tunnels, airports,
railroads, ports, etc.), energy and utilities (power generation, fuels, water systems,
etc.), communication (line-based networks, air-based networks), and social (schools,
hospitals, prisons, other public buildings) assets of society. These are long-lived, real
assets that are costly and time-consuming to replace, often without immediate substitutes, and that typically generate relatively stable cash flows that increase with inflation.4
1
Many thanks to Katharina Schneider-Roos, Head of Global Infrastructure Basel’s Project Outreach
Team, for research and contributions to this Chapter.
2
One major challenge is to sustain human living conditions for the future by keeping global warming
below 2oC. For this purpose, CO2 emissions need to be reduced by at least 80% in OECD countries
by 2050. In all other regions of the world low-carbon growth strategies have to be developed and
implemented. These efforts, in conjunction with climate change adaptation, will trigger a major redesign of the infrastructure in all hemispheres, and mainly in cities. Urban centres are currently responsible for 70–75% of all Greenhouse Gas (GHG) emissions, and many of them are rapidly growing, as
well.
3
4
See definition in Chapter 221.
Thomas Idzorek/Christopher Armstrong: Infrastructure and Strategic Asset Allocation: Is Infrastructure an Asset Class? (January 2009), p. 8
Sustainable Infrastructure as an Asset Class
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Moving from conventional infrastructure to Sustainable Infrastructure improves
the livelihoods of billions of people, North and South, East and West. In order to unleash this potential, the added value of sustainability has to be demonstrated and made
accessible to capital markets and particularly to institutional investors. They are the
only source of funding large enough to make a difference in this space of long-term,
capital-intensive investments. Strategic asset allocators such as large pension funds,
sovereign wealth funds, private capital managers, family offices, grant making foundations (with their endowments) and insurances have the muscle to channel such important financial flows in the right direction.
So how can we adjust the large “tectonic plates” of finance and investment to
bring the necessary capital to update, remake, or put in place the infrastructure the
world’s communities need for the 21st century? Capital is concentrated in vast pools
of value with more than USD 80 trillion in global bond markets, USD 60 trillion held
in worldwide bank deposits, upward of USD 50 trillion captured in equity markets
and more than USD 47 trillion controlled by 10 million high net worth individuals.
The geography of capital is also shifting and far more dramatically than many
could have envisaged at the end of the 20th century as the vibrant BRIC economies
(Brazil, Russia, India, and China) build financial influence and seek out offshore opportunities. China is prudent and yet hungry in its desire to secure productive investments worldwide with its USD 3 trillion of reserves.
But post-crash capital is timid, scared to move, risk averse and fearful of the
next market rupture. At the same time, those institutions controlling capital know that
it needs to be put to work to serve the changing demographic needs of ageing populations in the most advanced economies where savings pools are still the most concentrated. Equally, those less developed economies are often starved of "sticky" capital to
underpin their advancement. A common rule of thumb is that pension funds need a
4% return plus inflation just to tread water. Some in the markets believe that anything
above an 8% return is, in the long run, financially unsustainable.
Such “Wholesale investors” typically distribute their assets into Asset Classes
based on a strategy that matches their risk appetite and future liabilities. Once they
recognise the distinct financial features of Sustainable Infrastructure investments regarding investment goals, risk appetite and investment time frame, Sustainable Infrastructure will be seen as an Asset Class, on the same level as Bonds, Equity, Cash or so
called Alternative Investments.
This would mean leaving behind the exclusive, complicated and often costly
“bankability”, PPP5, PFI6, BOT7, CSR8, ESG9, “Impact” or “business plan” approach-
5
Public-Private Partnership.
6
Public Finance Initiative
Sustainable Infrastructure as an Asset Class
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es, which are nowadays generally applied when considering Sustainable Infrastructure
investments. An Asset Class of Sustainable Infrastructure has three main benefits:
a) It gives a broader and more important range of investors the opportunity to
participate in the market (many pension funds would nowadays be happy to
place funds in that field but need to avoid project finance because of their
regulations, risk aversion or the high transaction cost).
b) It paves the way for innovative financial instruments (e.g. “Sustainable Infrastructure Funds”) that bundle and securitise equity and debt of Sustainable Infrastructure Projects into investment vehicles with distinct risk adjusted returns and customer-focused investment time frames.
c) It lowers transaction costs and smoothens cash flows for investors, placement agents and project originators.
All of these advantages factor into a broader use of sustainability criteria in infrastructure investment and thus support the expansion of resource-saving, socially
and environmentally sound infrastructure by several orders of magnitude. The importance of adhering to quality standards when selecting the right investment targets
has also been confirmed by David Frost, the appointed CEO and currently Chief Investment Officer of Swiss Life, one of the World’s leading insurers. He wrote10: “Two
factors make infrastructure attractive for institutional investors: on the one hand, it is
the goal of attaining attractive returns and high and stable dividends with limited risk;
and on the other hand, it is the capacity to offer protection against rising inflation.
(…) However, for these characteristics to come to fruition, the selection of the projects
is crucial.”
An Asset Class approach opens a new door to massively employing the financial
markets for a substantial and fundamental transformation of the economies, living
conditions and environmental performance of settlements, services and industry
around the world, particularly in rapidly growing urban centres. It turns sustainability
into a profitable business, which attracts mainstream investors and a huge flow of capital. Many decisions that still go in the wrong direction today will be reformed and
reshaped for the well-being of generations to come (for more information about the
7
Build Operate Transfer
8
Corporate Social Responsibility
9
Environmental, Social and Governance oriented
10
On 6 January, 2014, in the leading Swiss economic daily newspaper Neue Zürcher Zeitung (NZZ)
Sustainable Infrastructure as an Asset Class
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significance of Sustainable Infrastructure for capital markets and the finance industry
see Chapter 4, The Key Role of Infrastructure in Re-shaping Finance ).
2
Housekeeping for Sustainable Infrastructure
21 Goals
In order to establish Sustainable Infrastructure as an Asset Class, three elements are
key:
1) Sustainable Infrastructure has to be distinguished from conventional infrastructure.
2) Securitised investments in Sustainable Infrastructure need to demonstrate a
distinct and non-correlating financial performance when compared to other
Asset Classes both regarding (risk-adjusted) returns and potential runtime.
3)
These characteristics need to be transparently monitored and reported to
the market, e.g. through an exchange that offers verifiable pricing for individual investment vehicles.
22 Sustainable Infrastructure Grading
221 The status quo
Infrastructure is playing an important role in capital markets – not as a distinct asset
class, but as dispersed investment opportunity that taps four main sources:
1) Direct investment into infrastructure: Some pension funds and family offices
are large enough to carry the risk invest directly into the debt or equity of
infrastructure projects. The volume of this market amounts to 2 to 4% of
the whole assets of pension funds worldwide and is growing.
2) Investment into shares of infrastructure projects: Investment managers such
as Macquarie or Blackrock are placing the shares of wind parks, airports,
ports, subway systems, toll roads or other so-called “brownfield” investments with their clients (e.g. Pension Funds or Insurances). The vehicle for
this placement is often a themed Equity Investment Fund. The shares become part of the equity exposure of these clients.
3) Bonds for infrastructure: Bond markets like the Municipal Bond Market of
the US generate a lot of debt finance for infrastructure, be it public water or
energy utilities and transportation or private industrial development.
4) Shares and debt of infrastructure developers, technology providers and contractors: Equity and debt markets have helped companies along the value
chain of infrastructure to create and expand their businesses.
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These investments don’t make a distinction between conventional infrastructure
and Sustainable Infrastructure. The performance of Sustainable Infrastructure, however, is different for two reasons:
a) Because of the de-risking features of Sustainability and
b) Because of the non-correlated behaviour of specific Sustainable Infrastructure investments in the capital market (as compared to equity, debt and direct infrastructure investments).
222 De-risking Infrastructure with Sustainability Criteria
Under the assumptions that Sustainable Infrastructure generates similar returns to infrastructure in general, and that Sustainability helps to mitigate risk, Sustainable Infrastructure would feature a relatively higher return for the same risk. The potential derisking capability of Sustainability in long-term infrastructure debt and equity finance
is the key feature of Sustainable Infrastructure.
Further studies will show in more detail and depth how the following mechanisms are to be valued. The Sustainable Infrastructure Grading of the Global Infrastructure Basel (GIB) Foundation11 has laid the groundwork for defining and evaluating Sustainable Infrastructure.
The GIB Sustainable Infrastructure Grading assesses and sets the course of infrastructure projects early on, in the stage of the feasibility study (in addition to later,
conventional due diligence). It potentially
•
Reduces political and related default risks;
•
Lowers borrowing rates;
•
Lowers transaction and running costs;
•
Lowers liquidity risks by smoothening cash flows;
•
Mitigates inflation risk;
•
Provides outstanding residual value;
•
Thus improves credit quality and investor confidence;
•
Spurs engagement/involvement/placement of investors.
These effects would transform Sustainability features of projects from obligation
into opportunity for investors. The main reason why Sustainability plays a superior
role in infrastructure investments as compared to other types of investments is the rel-
11
The GIB Sustainable Infrastructure Grading is the result of an empirical study that analysed a large
number of infrastructure projects around the globe with the help of several hundred experts and
stakeholder representatives. Two Swiss Government Agencies and Swiss Re contributed USD 1.5M
to the development of the Grading, which helps set the course of infrastructure projects at feasibility
study stage in ten key areas: Accountability, Transparency, Balanced Partnership, Result Orientation,
Resource Protection, Shared Incentives, Proactive Risk Management, Sound Financing Mechanisms,
Customer Focus and Poverty Alleviation. Version 2.0 is currently available on the website of the
Global Infrastructure Basel Foundation www.globalinfrastructurebasel.com.
Sustainable Infrastructure as an Asset Class
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atively capital-intensive and long-term nature of the assets involved. Hedging against
political, environmental and social risks becomes more important the more capitalintensive an investment becomes and the longer the investment cycle lasts.
Specific case studies, a track record and market building are needed order to develop
this concept beyond indicative evidence, which is thus far based on the empirical development of the GIB Sustainable Infrastructure Grading.
23 Structuring of the Sustainable Infrastructure Asset Class
231 Non-correlation with Bonds and Equity
As Bonds invest in securitised debt and Stock buys shares of businesses, Sustainable
Infrastructure, as an Asset Class, will be ultimately funding project development and
implementation based on a blended capital engagement of equity and debt. The Asset
Class of Sustainable Infrastructure will therefore yield attractive returns when compared to bonds and show lower volatility when compared to stock.
Securitised Sustainable Infrastructure Funds would invest in a number of projects that meet the term requirements and risk appetite of potential Fund customers.
The investment cycle of an individual project usually starts with funding a Feasibility
Study (with equity at high risk), moving to several stages of Planning (with equity and
little debt) and then to building, operating and establishing a revenue stream (with
typically 40% equity and 60% debt).
The key difference to the performance of Asset Classes of Equity or Debt alone
is seen in the non-correlating returns that are generated from project finance for Sustainable Infrastructure: Cash flows usually result from tariffs generated from infrastructure services (e.g. toll roads, water utilities, power plants, ports, public transportation systems, rent from urban development projects) or direct returns from upgrading sites or new settlements and neighbourhoods. These returns have built-in hedges
against inflation because tariffs are adjustable in this respect. In the case of Sustainable
Infrastructure, they are also highly valued and accepted by all stakeholders as an indispensable public good.
All of these features clearly demonstrate the different nature of Sustainable Infrastructure as compared to stock and equity. Or, as BlackRock-CEO Larry Fink put
it at a high level infrastructure panel of the World Bank on 17 September 2013 in
Washington DC: “We need to juggle out infrastructure from that crazy box called ‘Alternative Investments’ and establish it as a new Asset Class, somewhere between Equity and Debt.”
232 Removing the Greenfield Project Bottleneck
One of the main reasons for Larry Fink’s call for action is the current bottleneck of
Infrastructure Finance: There is a shortage of so-called “Greenfield Infrastructure”
investment opportunities. “Greenfield Infrastructure” in this case is defined as new
Sustainable Infrastructure as an Asset Class
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infrastructure that still awaits development (as opposed to “Brownfield Infrastructure”, which pertains to “off the shelf” investments, e.g. a completed and running offshore wind park or an established toll road system). Because there is little appetite
from investors to take over the risk of “Greenfield Infrastructure”, developers are discouraged from moving forward except in cases where public money is covering the
cost.
In order to accelerate the market for “Greenfield Infrastructure”, a new approach is needed, one which entails more risk but also higher returns. With the introduction of Sustainable Infrastructure as an Asset Class this Gordian knot may be cut
as well.
24 Sustainable Infrastructure Credit Rating and Monitoring
Given the de-risking potential of GIB Sustainable Infrastructure Grading, the next logical step is to establish a credit rating for Sustainable Infrastructure debt finance. A
“green” credit rating in addition to the “black” credit rating by traditional Rating
Agencies could establish a new or secondary market with significantly lower interest
rates for debt finance of projects that adhere to the GIB Sustainability Criteria or perform above benchmark. In the context of a “black” triple B rating, for example, an
AA+ in the “green” sphere should result in savings equivalent to 25 or even 50 basis
points for the borrower. This is not only relevant for the credit cost, but may also be
used as a monitoring system by regularly confirming the on-going good “green” performance of an asset over its life span with the help of a re-certification, which typically happens every three years.
The credit rating of a project or a bundle of projects will also be reflected in the
price of a Sustainable Infrastructure Fund or Trust, as it will be listed in a future Sustainable Infrastructure Exchange.
3
Market Development for Sustainable Infrastructure
Unless Sustainability is transformed from an obligation into an opportunity for longterm, capital-intensive investments into infrastructure, many future decisions will go in
the wrong direction by continuing to look just at the short term, or by neglecting
stakeholder interest or resource contingencies. In order to develop the market for Sustainable Infrastructure, a number of actors along the value chain need to be convinced.
Among them are policy makers (who need to create favourable framework conditions), project originators (e.g. industries and cities), project developers (engineers and
their firms), and technology providers and contractors, particularly general contractors.
Sustainable Infrastructure as an Asset Class
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The Global Infrastructure Basel (GIB) Foundation works with all these contributors and also encourages them to interact during the yearly GIB Summits12. GIB is also
aspiring to integrate these partners into specific learning cycles, as follows:
•
Project Originators: Cities are encouraged to develop Sustainable Infrastructure
Projects and present them either at the (online or on-site) good practise platform
of GIB or in the GIB Investment Forum, which is part of the GIB Summit, but
will also be available online. GIB staff or authorised agencies work with the
project originators in order to make these projects “bankable”. GIB offers its
tools as well as Sustainable Infrastructure Capacity Building Courses for Project
Originators in English, French, Spanish and Chinese (status of January 2014).
•
Investors: Investors are encouraged to attend the yearly GIB Summit in order to
get to know project originators and their projects in person and to contribute to
the good practise and policy dialogues. They are involved in the development of
the Sustainable Infrastructure Asset Class by creating flagship investments and
helping with GIB’s backtracking exercises. The creation of an investor’s community under the working title Sustainable Infrastructure Investor’s Club is under consideration.
•
Project Developers, Technology Providers and Contractors: GIB is currently developing a specific platform for qualified firms that are committed to serving the
market of Sustainable Infrastructure and to becoming familiar with the concept.
The creation of a Sustainable Infrastructure Project Developer status is under
way.
•
There is no general Project Preparation Facility that encourages or promotes
sustainability as a major driver in the project development of infrastructure. GIB
is planning to create a Sustainable Infrastructure Bankability Facility in order to
close this gap. GIB Sustainable Infrastructure Grading will help to preselect projects that would be eligible for investment at the Feasibility Study stage. The facility will work as a revolving fund, composed of blended capital from commercial and philanthropic sources.
4
The Key Role of Infrastructure in Re-shaping Finance
Finance used to follow the principle of “making money with money”. While this aspect is still prevalent and legitimate, because it allows for efficient asset allocation, the
mainstream is moving away from this sole purpose and towards finance that “makes a
difference” beyond sheer profitability: In the quality of life, by creating jobs, in stabi-
12
The 4th GIB Summit will be held on 21/22 May, 2014, in Basel, Switzerland under the theme:
Mainstreaming Investment into Sustainable Infrastructure.
Sustainable Infrastructure as an Asset Class
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lising countries, in spurring innovation, in promoting health and education. The art of
post-crisis investing involves coupling sound and safe returns with positive impact on
livelihoods, the environment and society as a whole.
This relatively new approach to mainstream finance is neither idealistic nor ideological. Rather, it is what businesses in other sectors – e.g. health care, food & agriculture, energy or trade – learned long before the financial sector started listening: In
order to survive you need a “licence to operate”. And this licence comes from public
acceptance and acclaim. Transparency and communication, namely the widespread
use of the Internet and of social media in conjunction with the attention stakeholders
are paying to “good corporate citizenship”, call for new business practises. Thus
meaningful investments are not only good for society, but have become an imperative
for financial success, at least in the long term.
Infrastructure is about enabling good livelihoods. Access to and design of infrastructure determine how people settle, work, eat and drink, heat their homes, move
around, visit schools and hospitals or simply enjoy themselves. The infrastructure allows businesses to produce, to innovate, to hire and to sell. It enables the creation of
jobs, notably “green jobs”.
Infrastructure is almost always governed locally and thus spurs local engagement, placement (of funds) as well as governance. If there are no bicycle lanes or convenient, affordable public transportation systems in place, you may be as environmentalist as you wish, but you will still be forced to use a car for commuting, shopping
and every other activity away from home. If your flat is poorly insulated, how can you
possibly save energy when heating or cooling? It is the infrastructure that gives people
and businesses the opportunity to make the right choices that foster a sustainable lifestyle, the choices necessary to meet challenges like climate change, water and energy
scarcity, desertification, and loss of biodiversity.
The emerging architecture of the Financial Sector will see securitised Sustainable
Infrastructure Investments for balancing off other risks (or dwindling returns), e.g.
from Bond and Equity Markets and partially replacing Alternative Investments like
Real Estate, Hedge Funds or direct Infrastructure Investments. But even more importantly, the purposefulness of creating new and refurbishing old infrastructure represents an opportunity for the Financial Sector to get back on its feet again and to
demonstrate its usefulness (and thus regain reputation).
While differences in the infrastructural challenges and opportunities between the
four continents where GIB’s “Infrastructure for a Changing World” Roundtable Se-
Sustainable Infrastructure as an Asset Class
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ries13 took place were notable, opinions with respect to the financial industry in general had a lot in common.
Many of the speakers and participants at the GEB meetings in London, New York,
Cape Town and Hong Kong echoed the need for finance and investment to “re-make or
re-invent” itself after the turmoil of the 2008 global financial crash and the ensuing economic downturn in many developed markets. It was broadly agreed by participants that
supplying the vision, capital, and expertise to meet the long-term needs of countries, cities,
communities, and industries, all with a demand for smart, resilient and efficient infrastructure, was a clear way for modern investment and finance institutions to highlight their social and environmental utility as well as the fundamental role they play in driving business
and industry in the real economy. The crash caused many people, quite understandably, to
lose sight of the positive influence that a strong and robust financial services sector can
have across society. Backing the world’s infrastructure needs is one way for the global investment and financial services sectors to rebuild a trust that has all but disappeared.
As those large institutions controlling the deep pools of capital twist and turn to
identify safe - or at least safer – assets, they are asking new questions of a system, and its
institutions, that failed them so badly just a few years ago. How are social risks managed
and positive impact prioritised? Is climate change and resource depletion a real threat to
the long-term fabric of our societies? How does poor governance across specific sectors or
within individual companies or governments impact investment choices?
These questions underpin the reasons why forward-looking capital is turning its attention to hard, tangible assets with lasting value, whether those assets are the infrastructure projects underpinning socio-economic development or the natural wealth where real,
long-term value accrues.
On infrastructure specifically, participants at the four regional gatherings also
pointed to a broad range of structural, policy, fiscal and technical barriers that impede the
smoother flow of institutional capital at scale into early-stage projects. Exacerbating the
early-stage infrastructure financing challenge in the post-crash age of austerity, many believe that the “old model of project finance” is broken while the creation of new innovative financing mechanisms to accelerate infrastructure projects faces a broad range of constraints, such as misaligned incentives along the investment chain and inconsistent implementation of public policy that shrouds long-term projects in seemingly unmanageable
risks, often political in nature. Such challenges undermine deployment of capital for those
13
Cf. www.globalinfrastruturbasel.com for the full report of the Roundtable Series conducted in
London, New York, Cape Town and Hong Kong in the winter of 2012/2013 under the leadership of
GIB Board Member Paul Clements-Hunt, who has also contributed to the analysis in this chapter.
Since the Report was published in February of 2013, the Global Infrastructure Basel Foundation has
changed its name (from “Global Energy Basel”), but not its purpose.
Sustainable Infrastructure as an Asset Class
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projects which by their very nature have a drawn out, complex development process followed by a long payback horizon. Complexity and long term are typical characteristics for
urban, industrial, transport and energy infrastructure. These myriad issues, coupled with
risks associated with short-term political cycles in democratic countries and poor governance in many less developed countries, often create the perception of significant risk for
those conservative institutional investors that allocate a small percentage of their capital to
alternative asset classes where infrastructure is often found.
On the positive side, it is clear that the political, financial and capital market turmoil of the past five years has catalysed a process that has started to redefine a new set of
investment values consistent with the social, economic and environmental needs of communities worldwide. Although nascent, the idea that the “long term” is relevant is gaining
support, as witnessed by the 1200 plus institutional investment organizations representing
USD 32 trillion in assets now supporting the United Nations-backed Principles for Responsible Investment (www.unpri.org).
Participants in the GIB meeting series were then challenged with the simple question: “So what's next?” if we are to secure the multi-trillion dollar scales of investment
required to set in place new resilient infrastructure. Such investment at scale is needed:
•
to rehabilitate old stock in developed countries to re-boost efficiency, improve
quality of life across diverse communities, and handle a greater frequency of extreme weather events such as hurricanes Katrina and Sandy in the USA;
•
to embed resilience in newly built infrastructure in emerging and less developed
countries to better mitigate the impacts of climate change and to more effectively manage natural disasters such as the Thai Floods of 2011;
•
and to replicate and roll out a different model of urban and industrial development in the vibrant emerging markets where the race for growth and environmental protection are colliding head on.
A recurrent theme at the regional workshops was the increasingly evident link between infrastructure, disaster risk and destruction of value in a globalised market-place.
Appendix 1 presents a set of short case studies presented or referenced during the global
series exploring the economic and capital market impacts resulting from the Thai Floods
(2011), the Great Eastern Japanese Earthquake, Tsunami and nuclear incident (2011), and
the BP Gulf Oil Spill (2010).
To address the question “What's next?” the four regional workshops offered up a
broad spectrum of answers and viewpoints covering policy, investment, finance and infrastructure development challenges. The hurdles associated with the takeup by mainstream
investors of Sustainable Infrastructure as an emerging asset class are manifold. Poor interaction between policy communities, developers and investors, misaligned incentives locking in short-termism in the investment chain, lack of a carbon price and full value accounting for a broad swathe of natural resources, and deeply embedded vested interests associated with infrastructure “Business as Usual”, create a complex tapestry of issues weighing
Sustainable Infrastructure as an Asset Class
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against adoption of sustainable infrastructure practices along the entire value chain. Despite the challenges, there is a growing realization amongst a forward-looking group of
major asset owners that the community, socio-economic, productivity, competitiveness and
environmental benefits of sustainable infrastructure promote balanced growth based on
robust, resilient and efficient systems. A supportive policy environment with clear price
signals, smart regulations and city-level incentives coupled with low carbon technological
and mobility innovation will be the most effective set of mechanisms to mobilise capital at
scale into sustainable infrastructure. On-going education on sustainable infrastructure for
mainstream investors is critical.