The demand for sustainable infrastructure is high, given the importance of climate change mitigation and environmental benefits. However, the gap in sustainable infrastructure financing is widening globally. Let’s understand how sustainable infrastructure financing is done, its challenges, and how we can deal with them.
Sustainable Infrastructure Finance
Sustainable infrastructure is the need now in every sector, be it rail, ports, water, energy, and others, for an inclusive economy, social, and environmental benefits. The World Bank has reported globally that the investment gap in the infrastructure sector is increasing; hence, countries need to look into ways to tackle this gap.
Sustainable infrastructure is key to meeting the environmental goals, sustainable goals, and contributing to the growth of nations. However, financing an infrastructure project is another story, considering the large-scale projects. So, as per the World Bank or other authorities, such as ASCE, here are some methods that can help finance sustainable infrastructure:
- Project Finance: With the project finance method, you can generate long-term funds for the capital infrastructure and other needs, where the loan or debt is repaid through project revenue. This is the best option for large fund projects handled by private companies or public-private partnerships.
- Private investment: The private financial institution, commercial banks, or corporations can invest in the infrastructure projects if they find some profit in the project.
- Sustainable finance: The achievement of the project in terms of environmental and social goals can get the financing for the project from the government or public institutions.
- Government programs: The government budgets, tax revenue, bonds, and other governmental bodies have initiated programs that support the sustainable infrastructure projects, which may offer some subsidy or regulation support.
Why invest in sustainable infrastructure?
Sustainable infrastructure delivers long-term benefits that will resolve the major problems of today’s time. To understand the importance of sustainable infrastructure, you should know about the benefits it brings to the global infrastructure:
- Climate targets and Sustainable Development Goals: The investment in sustainable infrastructure will boost the sustainable practices that will deliver the Sustainable Development Goals, reduce climate risk, and meet the Paris Agreement goals.
- Solve the Environmental risk: 79% of greenhouse emissions are due to infrastructure, and according to the World Bank, 92% of the SDG targets are achievable through the investments, which will reduce the environmental risk in the future.
- High Returns and Economic Growth: The sustainable infrastructure is exposed to low risk and offers better results, thanks to its use of renewable energy, which will offer higher and stable returns, eventually good for the economy.
- Cost Saving: The sustainable infrastructure practices can reduce the cost of future maintenance, which can be costly in the future. Investing in climate resilience infrastructure, we deal with major problems and reduce the spending on post-development of the project.
- Capital Access: The market is shifting towards green and clean energy projects, so sustainable infrastructure attracts green finance, which is great for overall infrastructure.
What are the challenges for sustainable infrastructure finance?
With the demand for sustainable infrastructure, many challenges are reducing the speed and implementation of such projects, such as:
- The World Bank reported the lack of infrastructure gap in the world, such as 2.2 billion people still lack drinking water, 700 million people still don’t have access to electricity, and others, which increases the demand for infrastructure and creates the gap between demand and supply.
- The sustainable infrastructure projects can be costly, given the innovative ways to make them eco-friendly, which can create a barrier to investment.
- The regulations for the sustainable infrastructure and standards are set by various organizations, such as ASCE, GIB, and others; however, we still need stringent regulations to regulate their design, construction, and other aspects.
- The uncertainty of the sustainable infrastructure positively impacting the environment is one of the drawbacks that can create problems in attracting investment.
- Climate change: As we move into the future, climate and environmental conditions are also changing, which can create uncertainty for the success of sustainable infrastructure. Climate resilient infrastructure is needed, but it is important to understand and analyze the future risks due to the climate.
How can we resolve the issues of Sustainable infrastructure finance?
The World Bank encourages countries to solve the sustainable infrastructure finance issues and promote sustainable practices. Here you can see some of the best ways to resolve the financing issues for sustainable infrastructure:
- PPPs: The public-private partnerships help the government in building sustainable infrastructure and generate the upfront cost for the project.
- Innovative financing: The borrowers can follow the innovative financing methods, such as private institutions, global organizations, and other green platforms, to resolve the sustainable infrastructure financing.
- Sustain investment: With the use of the project revenue, the borrowers can mitigate the risk of repayment and gain the confidence of the investor for the sustainable project funds. For instance, the eco-friendly project user fees, or others.
- Strategising the finance: Sustainable infrastructure has many benefits, hence you can strategize your finance, where you can take help from a global organization, link the project to ESG frameworks to increase the credibility of the project.
The infrastructure development sector is dealing with an investment gap; hence, the government or other shareholders have to come up with innovative or long-term investments to meet the demand of the future.