Q&A: How infrastructure investing can improve sustainable development

What role can infrastructure investors play in driving the United Nation’s Sustainable Development Goals?

Infra­struc­ture is the plat­form on which a lot of the oth­er Sus­tain­able Devel­op­ment Goals (SDGs) deliv­er. We live in a world with very uneven infra­struc­ture which doesn’t reflect pop­u­la­tion dis­tri­b­u­tion. There is a huge infra­struc­ture deficit in devel­op­ing regions of the world and in devel­oped regions infra­struc­ture is often not fit for pur­pose in terms of SDG achieve­ment. We’re a world bad­ly in need of an infra­struc­ture surge to cor­rect the exist­ing infra­struc­ture foot­print and to build out a new foot­path where there is cur­rent­ly just a toe­hold in many parts of the devel­op­ing world.

Why is infrastructure a better route to sustainable investing than other asset classes?

Part­ly because it’s an anchor for the rest. You need a new infra­struc­ture plat­form in the world that address­es green trans­porta­tion and ener­gy if, for exam­ple, you are to achieve cli­mate change goals. Sec­ond­ly, infra­struc­ture is one of the most finan­cial­ly attrac­tive com­po­nents of envi­ron­men­tal, social and gov­er­nance invest­ing because it tends to pro­vide attrac­tive cash flows and good returns on invest­ment. There’s an infra­struc­ture squeeze; there isn’t enough of it to go round, so it secures old-world returns for a new econ­o­my pur­pose.

What specific type of infrastructure projects can make the most impact from a sustainability perspective?

The shift to renew­able ener­gy is going to fun­da­men­tal­ly reshape the trans­port net­work on which we oper­ate, as peo­ple move first towards more mass-tran­sit sys­tems and sec­ond towards a shared car own­er­ship mod­el. For almost every sec­tor, where peo­ple are seek­ing change in terms of SDG per­for­mance, there is an infra­struc­ture role. For exam­ple, we’re going to see a dra­mat­ic change in agri­cul­ture and food pro­duc­tion with a real focus on cut­ting down food waste by invest­ing in infra­struc­ture that improves stor­age, short­ens the jour­ney times to mar­ket and localis­es food pro­duc­tion in ways not seen before.

What are the wider social benefits of infrastructure investing?

Infra­struc­ture is sim­ply at the core of any devel­op­ment mod­el. Peo­ple who have not been reached by mod­ern infra­struc­ture are every bit as much in need of it as mid­dle-class city dwellers whose infra­struc­ture is not deliv­er­ing the ben­e­fits they expect it to deliv­er. When you look at the num­bers, there is such a gap between the invest­ment need and the amount of invest­ment going into this sec­tor. But it’s not as sim­ple as say­ing that we need X hun­dred bil­lion and we’re only get­ting Y, and all you need to do is fill the gap. You need the right finan­cial prod­ucts and the right pub­lic-pri­vate mix to address the par­tic­u­lar risks of long-term invest­ments of this kind.

Where do you see the most need for infrastructure investment to support the UN’s SDGs?

In the devel­oped world, the financ­ing is often eas­i­er because the returns are secur­er. But in eco­nom­ic terms, if you improve, say, rail­way infra­struc­ture in the devel­oped world com­pared to installing a mass-tran­sit sys­tem in a devel­op­ing coun­try where there wasn’t one before, the eco­nom­ic returns in the lat­ter case are going to be much high­er than in the for­mer, but the finan­cial returns are riski­er. So at the moment there is an invest­ment bias towards infra­struc­ture in the devel­oped world even though the eco­nom­ic returns to soci­ety as a whole maybe con­sid­er­ably less.

What needs to be done to boost infrastructure investment in developing markets?

First, design­ing invest­ment prod­ucts that sat­is­fy the investor they are tak­ing a rea­son­able, but not exces­sive, amount of risk, so that’s usu­al­ly some kind of pub­lic-pri­vate invest­ment mod­el where a pub­lic enti­ty is tak­ing a por­tion of the risk. The sec­ond is struc­tur­ing deals where the investor is not tak­ing a huge cur­ren­cy risk. Beyond the finan­cial aspects, there’s also risk around the qual­i­ty and capac­i­ty of infra­struc­ture projects on the ground, so ensur­ing there is a trained local labour sup­ply and local man­age­r­i­al capac­i­ty is impor­tant to make sure projects can be exe­cut­ed as effi­cient­ly in a devel­op­ing coun­try as in a devel­oped coun­try.

Pro­mot­ed by I Squared Cap­i­tal