Category: Finance

Financing sustainable infrastructure: The building blocks of a greener future

by Dr. Murray Simpson, Global Director Sustainability & Market Integration Lead at IBM

The construction and operation of traditional infrastructure are the largest contributors of global emissions. Therefore, an element of our ability to achieve a net zero future depends on how fast we can implement sustainable infrastructure. It’s imperative that we start to invest in physical, digital and organisational infrastructure that is more sustainable so that we can form the foundations of a greener planet. To mitigate climate change through sustainable infrastructure we need to close the funding gap: a shortfall of $6.9 trillion a year needs to be addressed to meet global development needs through to 2030.

The finance sector is under great pressure from governments, shareholders and wider society to source and direct investment towards the design, building and operation of sustainable infrastructure. Incentives are even materializing from inside financial organisations. But it’s tough for the sector to identify and match credible investments with investors, while balancing its own unchanging return on investment.

To step up to the challenge, financial services need to embrace collaboration – bridging the divide between public and private finance – share data openly to ensure they can target the right, most sustainable initiatives, and leverage the power of emerging technology to match the right investors with the right projects.

The pursuit of credibility

Securing capital fast enough is the major hurdle. It’s a tight timeline, and we’re already behind; if the pledges made at COP26 are kept, the Earth’s temperature will increase by 1.8°C according to the International Energy Agency, which misses the limit of 1.5°C set by the Paris Climate Agreement in 2015.

But we can’t speed things up without willing investors, and this is where the issues of credibility and verifiability cause problems. How can a prospective investor be sure that their capital is being channelled towards genuinely sustainable projects – and making a real difference?

Proving sustainability credentials is relatively fresh ground; sustainability criteria vary and there is currently no overarching body to monitor third-party verifiers. If the goalposts keep moving, convincing people to invest becomes harder. But it’s not impossible. It is getting easier to identify the most impactful infrastructure projects and match them to willing investors, thanks to the power of technology-led solutions.

Trust in technology

There’s an opportunity to generate trust and real change through technology. Where credibility and verifiability can stall the funding of sustainable infrastructure, technology provides the reassurance that investors need.

Solutions such as Internet of things (IoT) sensors, data fabric, artificial intelligence (AI), cloud and blockchain enable efficient, accurate and transparent monitoring of projects, generate insights that improve processes and, critically, make sharing information secure. Digital monitoring also reduces the need to send people out to site, which lightens the burden on reporting teams, cuts costs and makes the very process of verifying a project more sustainable.

Technology can play investment matchmaker too. Digital platforms that act as online marketplaces can connect climate entrepreneurs with funding, institutional investment with well-structured projects, and facilitate public and private financing for sustainable infrastructure. These types of end-to-end digital platforms automate – and accelerate – documentation processes and deal flows, making collaboration across ecosystem partners easier and more transparent.

The ‘Finance to Accelerate the Sustainable Transition-Infrastructure’ (FAST-Infra) initiative is an example of this kind of digital platform. Created in 2020 by Climate Policy Initiative (CPI), HSBC, the International Finance Corporation (IFC), OECD and the Global Infrastructure Facility, IBM is leading the design and development of the FAST-Infra platform.

FAST-Infra leverages technology, including blockchain and AI, to identify and evaluate infrastructure plans and match those that are sustainable with investors, with the aim of closing the multi-trillion-dollar sustainable infrastructure investment gap by turning it into a liquid asset.

What sets it apart is the fact it brings credibility to the space, using a global Sustainable Infrastructure (SI) labelling system endorsed by leading financial institutions including the G20’s Global Infrastructure Facility (GIF) and the Glasgow Financial Alliance for Net Zero (GFANZ).

This labelling function facilitates more accurate and efficient due diligence that helps to cut transaction costs and matches investors to the projects that will make a real impact. By transforming sustainable infrastructure into a mainstream, liquid asset class, the FAST-Infra platform will help to scale-up private investment in sustainable infrastructure in emerging and developing economies.

A credible investment

Put simply, we need to invest and build a sustainable framework now to achieve a net zero future and enable the survival of the generations to come. This demands the creation of strong foundations, and financial services must aggressively tackle the sustainable infrastructure funding gap to ensure the right projects come to fruition.

The power of technology – and the data that informs it – will unlock real, impactful investment in sustainable projects. From matching investors to the right projects, monitoring progress accurately and cutting costs and waste, technology-led, end-to-end initiatives such as FAST-Infra hold the key to plugging the funding gap, accelerating progress and crucially, making sustainability a viable investment.