Katharina Schneider-Roos, CEO
September 2017
Infrastructure Financing: the Role of Sustainability and ResilienceSession 2: Infrastructure Investment Trends and the Investment Gap
Content
Infrastructure Investment, Investment Demand and Investment Gap1
Drivers of Infrastructure Demand2
Supply of Finance3
2
SuRe Standard and Financing of Infrastructure4
Conclusion5
• There is no unique definition of resilience.• Resilience does not only involve physical but also qualitative
components, which are harder to measure.
> Data on resilience and climate change adaptation is limited.
> Comprehensive and efficient frameworks are required
Introduction
4
Infrastructure Investment DemandAnnual global infrastructure investment requirements:
• USD 5 trillion until 2020 (WEF, 2013)• USD 5 – 7 trillion from 2015 until 2030 (Unctad, 2014)
Specific requirements for climate change adaptation:• USD 21 – 37 billion (World Bank, 2010)
Taking climate resilience in the urban infrastructure context into account:
• Business as usual investment needs: USD 4.1 – 4.3 trillion annually
• Additional investment needs for a low emission and climate resilient path: USD 0.4 – 1.1 trillion
Premium of 9 to 27 percent
Source: (CCFLA, 2016)
5
Global Infrastructure InvestmentEstimates of current annual infrastructure investment:
• USD 2.7 trillion (WEF, 2013)• USD 2.5 trillion (McKinsey, 2016)
Global infrastructure investment is stagnating
Example: total inland transport infrastructure investment as percentage of GDP, 1995–2014Source: OECD (2017)
0
0.5
1
1.5
2
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
Canada
France
Germany
Italy
Japan
United Kingdom
USA
Russia
India
11.7%
6.5% Policy3
Other support2
Urban development 4 Natural resource protection4.0%
1.7%
19.9%Energy
Water and waste16.6%
Transport and telecom40.1%
1 Estimates based on aggregated data from ADB, AFD, CAF, IDB, JICA, KfW, AfDB, WB (IBRD and IDA only); may not add up to 100% due to rounding or differences in reporting methodologies across institutions.
2 Includes education, technical cooperation, agriculture, non‐identified items, and other items that may not directly affect infrastructure.3 Includes democracy, civil society, and public administration.4 includes sustainable economic development.
Urban climate finance by sector, 20141
Provided by CCFLA
6.8%8.6%
weighted average6
17.5%
6.7%6.6%
1.1%1.0%
34.7%
10.5%9.0%
16.216.2 10.710.77.37.3 11.711.712.712.7 22.822.8 7.47.4
Total bank commitments,2$ billions3
27.527.5102.2102.2
1 Total urban climate figures reported by each institution or calculated as a sum of reported urban mitigation and urban adaptation finance.2 Total bank commitments sourced from 2014 annual reports; ADB provided an amended number which excludes financing not directly administered by ADB.3 Calculations based on totals in US dollars; currency conversions made using average exchange rates for calendar year 2014.4 ADB and WB include as “urban” only projects taking place within the geographic boundaries of urban areas.5 JICA totals reflect total disbursements rather than approvals/commitments.6 Weighted average of urban climate finance as % of total bank commitments across the nine DFIs.
Urban climate finance as % of total bank commitments1
4
2014
54
Share of development bank capital directed to urban climate finance
Provided by CCFLA
8
Global investment demand
– Global current investment level
= Global infrastructure investment gap
Estimates of the annual global investment gap:
• USD 1 trillion (WEF, 2013)
• USD 1 trillion (McKinsey, 2016)
• USD 2 trillion for developing countries to achieve the SDGs (Morgado & Casado‐Asensio, 2015)
• USD 2.5 trillion for basic infrastructure (roads, rail, ports, power stations, water, sanitation, agriculture, climate change mitigation & adaptation, health, education) (Unctad, 2014)
Infrastructure Investment Gap
General driversPopulation growthUrbanizationIncreased mobility
Drivers of Infrastructure Demand
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“The importance of infrastructure becomes obvious by recognizing that sustainable infrastructure is the common denominator bringing the agendas of ecological sustainability and poverty reduction together. By reducing the carbon footprint, implementation of sustainable infrastructure creates employment…“
Bhattacharya et al. (2015)
Resilience‐specific driversDisaster preventionAdaptation to climate changeSustainable development• Sustainable Development Goals• Paris Agreement 2015
10
Existing obstacles to mobilization of investment in low carbon and climate resilient infrastructure:
• Sustainability and resilience may be perceived as critical in the financial sector but well‐defined concepts are not spread, yet (MEL CoP).
• Sustainability and resilience benefits are not always defined in monetary but rather qualitative terms.
• Reduction of climate risks involves a long‐term investment horizon.
• Comprehensive and efficient measurement tools are needed to make risks and benefits transparent.
Supply of Finance 1/2
Governance
Society
Environment
Supply of Finance 2/2Potential private sector contribution to investment gap
Source: Unctad (2015)
Why should sustainability and resilience be integrated into infrastructure design and planning?
Sustainability and resilience are particularly effective due to the long‐term, asset‐heavy, localised, and relatively illiquid nature of infrastructure.
Sustainability and resilience de‐risk infrastructure projects:• Lower default risk: better credit rating and lower borrowing rates• Lower damage risk in disaster case: lower insurance premium• Faster recovery after a disaster
Due to de‐risking, sustainability and resilience increase infrastructure projects’ cash flows.
Financing Sustainable Infrastructure
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As sustainability and resilience de‐risk and improve financial performance of infrastructure, they can contribute to unlock capital needed to fill the investment gap.
SuRe® - the Standard for Sustainableand Resilient Infrastructure
3 Dimensions 14 Themes 63 Criteria + 2
ENVIRONMENT
Climate
19
Materiality Assessmen
t
Repo
rting &
Impact
Assessm
ent
Biodiversity and EcosystemsEnvironmental ProtectionNatural ResourcesLand Use and Landscape
SOCIETY
Human Rights
25 Labour Rights and Working ConditionsCustomer Focus and InclusivenessCommunity ImpactsSocioeconomic Development
GOVERNANCE
Management and Oversight‐ Financial Sustainability
19 Sustainability and Resilience ManagementStakeholder EngagementTransparency and Accountability
Three dimensions, 14 themes and 65 = 46 Management Criteria + 17 Performance Criteria + 2 Overarching Criteria
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Montreal Protocol on substances thatdeplete the ozone
layer
Montreal Protocol on substances thatdeplete the ozone
layer
Conventionon Biological Diversity
Conventionon Biological Diversity
Sendai Framework for Disaster and Risk Reduction
Sendai Framework for Disaster and Risk Reduction
IUCN Red list and Key
Biodiversity Areas Standard
IUCN Red list and Key
Biodiversity Areas Standard
UNFCCCUNFCCCRotterdam ConventionRotterdam Convention
Stockholm Convention on Persistent Organic Pollutants
Stockholm Convention on Persistent Organic Pollutants
UN Universal Declaration on Human Rights
UN Universal Declaration on Human Rights
ILO Fundamental Principles and Rights at Work
ILO Fundamental Principles and Rights at Work
UN Guiding Principles on Business and Human Rights
UN Guiding Principles on Business and Human Rights
OECD BRIDGE Indicators (for gender equality)
OECD BRIDGE Indicators (for gender equality)
Sustainable Development Goals (SDGs)
Sustainable Development Goals (SDGs)
The MNE (multinationals) Declaration
(ILO)
The MNE (multinationals) Declaration
(ILO)
FIDICFIDIC
The OECD Guidelines for Multinational Enterprises
The OECD Guidelines for Multinational Enterprises
Transparency International Business Principles
Transparency International Business Principles
FATF National Money Laundering
and Terrorist Financing Risk Assessment
FATF National Money Laundering
and Terrorist Financing Risk Assessment
The Equator Principles
The Equator Principles
GRI Sustainability Reporting Standards
GRI Sustainability Reporting Standards
IFC Performance Standards
IFC Performance Standards
The SuRe® Standard brings existing international frameworks and agreements on environmental, social and governance topics together and is in line with them.
The SuRe® Standard is developed in compliance with ISEAL.
The SuRe® Standard supports the delivery of the 17 Sustainable Development Goals (SDG) of the UN.
The Addis Ababa Action
Agenda: Financing forDevelopment
The Addis Ababa Action
Agenda: Financing forDevelopment
SDG SDG
SDG 14
SuRe® - the Standard for Sustainable and Resilient Infrastructure
InfrastructureProject
SuRe®Standard
1) SmartScan2) Certification
CreditSuRe
SuReUnderwriting
Return
Interest
Premium
Equity
Debt
Insurers
SuRe®Standard
SuRe®Standard
GIB‘s Concept of Infrastructure Finance
15
Conclusion
Sustainability and resilience frameworks and measurement tools are needed to…
… show the sustainability and resilience performance of an infrastructure project.
… indicate the benefits that can be achieved by integrating sustainability and resilience into infrastructure planning and design.
… highlight the room for improvement: optimizing sustainability and resilience lowers default risk and damage risk. This implies lower borrowing rates and insurance premium and hence increases cities’ and investors’ financial scope.
… show the themes where cities and investors should be looking at for increasing sustainability and resilience, to save costs and to reduce risk.
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