Approximately 70% of global greenhouse gas (GHG) emissions are caused by the construction and operation of infrastructure. Infrastructure projects can have a lifespan of multiple decades, even centuries, meaning that any project built today will bring with it significant lock-ins for the climate change trajectory. Given the significant infrastructure needs, for climate considerations alone, it is crucial that infrastructure solutions are designed in the most sustainable way. However, the concept of sustainable infrastructure goes beyond climate change impacts; it also includes other environmental considerations (including climate resilience), economic and financial aspects, governance issues and social considerations. There is now a unique window of opportunity for a big sustainable infrastructure push, for a “green recovery” to “build back better”, as economic stimulus packages of enormous dimensions are being drawn up in the context of the corona crisis.
However, despite the compelling evidence in favour of making infrastructure more sustainable, there are still significant challenges that prevent existing infrastructure from being turned into a more sustainable one and future infrastructure from being designed more sustainably, and making better use of natural infrastructure. These challenges tend to be more pronounced in the developing world than in the developed world, but in both cases they apply to varying degrees. They span the entire project cycle, the upstream environment for infrastructure projects, financing considerations, but also definitional questions as well as political economy issues nationally and internationally.
Sustainable infrastructure as a concept has evolved over the years, with first mentions of the concept around 2006 in major international conferences. While the jury is still out on the precise labels and the detailed elements of it, sustainable infrastructure may be considered to consist of the following four dimensions:
- economic and financial sustainability;
- social sustainability;
- environmental sustainability (including climate change and resilience);
- institutional sustainability.
Infrastructure projects are sustainable if they are planned, designed, constructed, operated and decommissioned sustainably, i.e. if they are sustainable across the entire project life-cycle. However, the various sustainable infrastructure standards partially overlap, partially cover similar items that are labelled differently and partially provide additional aspects of sustainability. This makes it difficult for external users of these standards – normally investors in sustainable infrastructure – to differentiate between different types of sustainable infrastructure. This, in turn, impacts on their ability to make investment decisions based on the degree of sustainability of a given infrastructure asset. To address the issue of lack of alignment in the sustainable infrastructure sphere, there are ongoing efforts among the standard setters together with some multilateral development banks (MDBs) aimed at agreeing on a core set of indicators. The goal is to reduce complexity and thereby promote the attractiveness of sustainable infrastructure as an asset class.
The label sustainable infrastructure is not alone in claiming the space for infrastructure that is economically and financially viable, socially inclusive, environmentally sound, resilient to catastrophes and well set up institutionally. Building on the G7 Ise-Shima Principles for Promoting Quality Infrastructure, under Japan’s 2019 Presidency, the G20 issued the Principles for Quality Infrastructure Investment, which rests on six pillars:
- Maximising the positive impact of infrastructure to achieve sustainable growth and development;
- Raising economic efficiency in view of life-cycle costs;
- Integrating environmental considerations in infrastructure investments;
- Building resilience against natural disasters and other risks;
- Integrating social considerations in infrastructure investments;
- Strengthening infrastructure governance.
Generally, there is considerable overlap between sustainable infrastructure on one hand and quality infrastructure on the other. By and large, sustainable infrastructure is equivalent to quality infrastructure. The challenges in promoting either of them are ultimately the same.
Challenges in Driving the Sustainable Infrastructure Agenda Forward
The reasons why sustainable infrastructure is not taking off as much as needed and wanted are manifold. The first one is the need for agreement on a shared definition and understanding of sustainable infrastructure to ensure alignment of efforts for scaling up infrastructure. The other challenges for what may be labelled an “integrated framework for the delivery of sustainable infrastructure” are:
- Strengthening the upstream framework conditions for sustainable infrastructure.
- Supporting country coordination platforms for project preparation, engaging all stakeholders and to attract private sector investors.
- Ensuring the quality and sustainability of individual projects. This would be achieved by further developing and applying high-quality and – ideally aligned – sustainability standards and tools;
- Developing better structures to mobilise more financing from the private sector. While the public sector plays an important role in infrastructure funding, mobilising all sources of finance is crucial, especially private capital from institutional investors. Green finance, including green bonds, may play an increasingly important role here.
To these challenges, the following can be added:
- A (national) political economy dimension that may interfere with the transitioning process towards the new desired state of sustainable infrastructure.
- A geopolitical dimension, which affects – potentially both positively and negatively – the international processes surrounding sustainable/quality infrastructure and related funding efforts for sustainable infrastructure globally. For instance, significantly scaling and speeding up infrastructure funding in developing countries is often associated with a race to the bottom in terms of sustainability standards; but dynamics may change in the face of increasing public pressure, and the race may turn into one that is increasingly about quality and sustainability.
The Importance of Strengthening the Upstream Framework Conditions
At the outset of the decision on what type of infrastructure (system) to put in place, stands the question of what is the right solution for the problem that needs to be tackled for the benefit of citizens, rather than what type of project to build or even just how to make an already chosen project more sustainable at the margin.
This can only be done if decisions on sustainable infrastructure are taken as early as possible and as necessary in the upstream process. In doing so, sustainability opportunities can be integrated without requiring significant modifications or causing cost overruns.
The upstream policy and institutional framework for sustainable infrastructure can be understood to include the policies, plans, legislation, regulations and organizational capacities that enable projects to be sustainable. This includes the (i) business and policy environment, consisting of the general investment climate, sustainability policies and the regulatory framework for infrastructure investments; (ii) for the specific upstream stages of the project cycle growth and investment strategies, infrastructure investment plans, investment frameworks and project prioritisation, initial design and feasibility analysis, procurement, detailed design and project preparation; and (iii) leadership and coordination; ensuring integrity, transparency and openness; and capacity building.
The Transition Path Toward More Sustainable Infrastructure – Political Economy Considerations
While overall, sustainable infrastructure is by design intended to benefit everyone, the transition towards more of it will create winners and losers, economically, socially and otherwise. For instance, with the introduction of more efficient sustainable public transport systems, such as a metro line, residents in urban centres may experience lower levels of exhaust fumes and noise from combustion engines. This will make living in cities more attractive and most likely lead to a further population influx into cities, pushing up property prices in the process. The improved situation is likely to benefit everyone in terms of better transport services and pollution levels. However, the increase in property prices and rent levels redistributes income and wealth. In principle, these are nothing but classical political economy challenges, in which losers need to be compensated by winners. Otherwise the potential losers may block reforms, at the local, regional, national or international level. Fiscal policy has an important part to play in this. An integrated approach to sustainable infrastructure should take into consideration possible policies to address this, bearing in mind that monetary compensation may not be sufficient in all cases, especially when elements of personal dignity and human relationships are involved. In other words, sustainable infrastructure solutions are in principle technologically, economically/financially, socially, and even politically feasible, but the key challenge is their political acceptability. In other words, the transition needs to be “just” to be politically acceptable.
Sustainable (or quality) infrastructure is the infrastructure of the future. Concern for the environment and the impact of climate change and environmental destruction on humankind has entered the mainstream. Based on a global multistakeholder survey, the World Economic Forum’s (WEF) Global Risk Report, for the first time since its inception, lists exclusively environmental risks as its top five global risks in terms of likelihood, including extreme weather, climate action failure, natural disasters, biodiversity loss and human-made environmental disasters.
The global grassroots pressure to do more for climate change may be one of the most important drivers for more sustainable infrastructure, and, as initiatives such as the European Green Deal show, governments are reacting to this. These initiatives are best understood in the context of the climate change debate and go beyond infrastructure. However, given the major role played by infrastructure in generating GHG emissions, making infrastructure more sustainable will be the linchpin for success. What is more, as the New Climate Economy has highlighted, accelerating investment in sustainable infrastructure also brings enormous opportunities for a new growth path, which will “deliver higher productivity, more resilient economies and greater inclusion”. The NCE (2018) estimates that what it calls the transition to a climate economy, which encompasses but goes beyond infrastructure, “could yield a direct economic gain of $26 trillion through to 2030 compared with business as-usual”, would generate over 65 million new low carbon jobs in 2030, and generate, through subsidy reform and carbon pricing alone, an estimated $2.8 trillion in government revenue p.a. in 2030. In the context of the current corona crisis and related economic recovery options, these are strong arguments in favour of a green recovery. In these efforts, it is crucial that the framework conditions are in place to ensure that infrastructure solutions can be designed, planned, constructed, operated and decommissioned in a sustainable way. It is also crucial that social considerations carry sufficient weight. More generally, digitalisation and big data play an important role in making infrastructure more sustainable. Last but not least, infrastructure is not just about supply. It is also about demand. One of the burning questions and future trends will also be about how to change user demand patterns. Big data will have to play a role in this as will behavioural economics.