18 April 2019 | 9 minutes.

Breaking barriers: Financing the low-carbon transition

Dino de Francesco
Communications Manager at the Regions of Climate Action (R20)

Dino de Francesco, Communications Manager at the Regions of Climate Action (R20)

Tackling climate change and building a global green economy is the opportunity of our time. The economic case for climate action is strong— investments in clean, resilient infrastructure contribute to the development priorities needed to achieve the United Nations Sustainable Development Goals (SDGs) by 2030 and the 2015 Paris Agreement. Finance flows for such projects should therefore be massive, but this is not yet the case. While project bankability and access to finance are major barriers to scaling-up project implementation, one question remains: What can be done to break these barriers?

Sustainable infrastructure investment: A cornerstone for the SDGs

Keeping pace with population growth, migration and urbanization trends demands an increase in infrastructure development especially in emerging economies and developing countries. Energy, water supply, sanitation and waste management, mobility services and communications systems are critical to ensuring effective economic and social development. According to the OECD, more than 80% of the SDGs rely on infrastructure development. Successfully reaching the SDGs will require unprecedented investment across multiple sectors and given the long-term nature of infrastructure, the type we implement today will lock-in economic and climate benefits – or costs – for the decades to come. If we are to mitigate climate risks, improve living standards and deliver long-term sustainable growth, infrastructure projects need to be low-emission, energy-efficient and climate-resilient.

In the face of rapid urban expansion, the demand for such sustainable infrastructure projects is particularly high at the city, state and regional levels. Projects designed and implemented to serve the needs of these expanding populations, typically of mid-size or between $5-50 million in construction costs, offer the greatest potential. When appropriately prepared, projects that deliver both energy and public services can have significant impacts on local populations by reducing greenhouse gas emissions and air pollution, creating employment opportunities and improving overall health.

For John Tidmarsh, Chief Investment Officer at R20 Regions of Climate Action, a non-profit environmental organization, mid-size projects offer an unprecedented opportunity to maximize development impact while meeting the financial objectives of investors. “Mid-size, subnational and sustainable infrastructure can make a highly attractive investment proposition. They represent a potentially huge investment market in terms of number and of aggregate capital required for implementation. If such projects are designed to integrate the needs of a broad range of stakeholders, not only will social, economic and environmental impacts be achieved and scaled-up, but consequently, investment risks can be significantly reduced.”

Why investor interest isn’t enough

There is growing interest amongst investors in what is a potentially huge investment market. Recent estimates suggest that between $90-100 trillion worth of investments are needed over the next 15 years to fully implement the SDGs. Of the investment needed, 60-70% will be required by emerging countries with the lion’s share required for transport (43%) and energy (34%).

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