2024: Infrastructure’s next transformation
Investing in the infrastructure transition is critical to achieving climate and sustainable development goals. Governments are making progress – but there is much more work still to be done
When the Covid-19 pandemic hit in 2020 and governments provided immediate financial relief, the Global Infrastructure Hub highlighted the need to invest in infrastructure. Through our analysis, we knew that public investment could be more effective than other types of public spending in increasing economic output over the medium term, achieving a cumulative multiplier in recessionary periods of 1.6 (versus a 1.4 multiplier for public spending).
Governments recognised infrastructure as among the most critical sectors for investment, but had limited information for designing infrastructure programmes that maximise economic, social and environmental outcomes for their communities.
In response, in 2021 we developed InfraTracker for the G20 – a tool that tracks public investment in infrastructure and helps governments learn from each other to shape programmes and budgets for transformative outcomes such as circularity, inclusive mobility, digitalisation and climate adaptation. G20 finance ministers have endorsed InfraTracker as key for designing economic stimulus targeting infrastructure. It is freely available on the GI Hub website at InfraTracker.gihub.org. Also a valuable tool for the private sector, it provides visibility for the sub-sectors and outcomes targeted by government investment, contributing to de-risking both actual and perceived risk.
Mobilising private capital
Where governments lead, private capital follows – provided policy and regulatory enablers are in place. In 2022, the G20 created a framework to address barriers and scale up private sector investment in sustainable infrastructure. The GI Hub led the development of this framework with G20 members, multilateral development banks and the private sector. As G20 members continue prioritising the actions in the framework, and the GI Hub tracks progress, private participation should increase.
An important area for progress is the ongoing effort to establish infrastructure as an asset class, including aligning regulatory capital requirements for infrastructure to the historical risk profile of infrastructure. This is critical because banks dominate private investment in infrastructure projects in primary markets, and the last package of Basel III reforms will likely reduce the attractiveness of infrastructure investments for banks and the ability of the private sector to invest – at a time when the need is most acute, particularly in emerging markets and developing economies. The GI Hub has convened a coalition of globally leading banks to advise on potential solutions. We look forward to advancing this work with Brazil’s 2024 G20 presidency and G20 members as well as the Financial Stability Board, the Bank for International Settlements and the Basel Committee on Banking Supervision.
Driving the transition
With government and private investment, the transformative outcomes that can be achieved with infrastructure can be catalysts for realising climate and sustainable development goals. The
GI Hub has identified 15 transition pathways for infrastructure to directly support those climate targets and goals. However, our 2022 analysis of the long-term infrastructure plans for the
G20 Infrastructure Working Group indicated that more needs to be done across all the pathways – particularly beyond renewables.
The International Energy Agency sets out strong solutions for the energy transition, and most of the G20’s long-term infrastructure plans cover this well. But pathways for transport, water, and waste that are key to the transition are less developed.
Work is also needed to structure public balance sheets to reflect how infrastructure is managed and its overall impact on the transition. We are committed to supporting this as we contribute to the work programme of Brazil’s G20 presidency.
Converging standards
Standards and taxonomies can help attract and focus private capital, but the multiplication of standards within the infrastructure ecosystem remains a challenge. There are signs of convergence, but governments should not wait for a single standard, which may be decades away. Governments can act now with policies that respond to the basic and common denominators across the current frameworks.
One non-binding set of principles that aligns with the Sustainable Development Goals is the G20 Quality Infrastructure Investment principles, developed under Japan’s 2019 G20 presidency. Developed to give policymakers an actionable framework to implement infrastructure projects, they are also a clear and accessible guide to best practice – a good starting point for governments looking to level up infrastructure delivery at home or confirm that national practices will align with international standards.
Increased public and private investment in the sustainable infrastructure transition delivers outsized economic, social and environmental good. Because they drive this investment, governments can leverage today’s challenging economic climate to encourage greater investment in infrastructure that achieves transformative outcomes across each of these domains. By learning from each other’s infrastructure investment strategies, collectively removing barriers to private participation, driving the infrastructure transition, and embracing standards and taxonomies that attract private capital, governments can position themselves for the future. All these results are achievable, and through cooperation and the multilateral system, we can achieve them on a global scale that will give all countries an equal footing for a sustainable future.
