Infrastructure forms the backbone of the welfare and wellbeing we create and obtain as human beings. Without infrastructure, we wouldn’t have access to for instance water, electricity, internet, connectivity and healthcare.
However, not all of us have access to (high quality) infrastructure in the country or city we live in. If we strive to support the growing population to have access to their needs through better infrastructure (not always more), we should also understand the value infrastructure brings us, the consequences it brings to the environment and society, and the impact on our wellbeing and welfare. COVID-19 has shown the need for new measurement methods to better understand the trade-offs we can and need to make between wellbeing, health and the economy on the short and longer term. Without a common and holistic method to compare these, it can be difficult to make decisions for the greater good.
The Sustainable Development Goals (SDGs) provide a good starting point on what we as a society are trying to achieve to make the world more sustainable. Infrastructure plays a key role in achieving these goals: the achievement of 75% of the SDGs depends on infrastructure. At the same time, asset developers, owners and operators are struggling to understand how assets impact society as a whole and are in need for better insights into the impacts infrastructure creates. Through a holistic measurement approach, in which we obtain a better understanding of societal value creation, decision-making can be supported and the path towards a sustainable future can be shaped better.
Impact measurement and valuation: creating a common language to measure impact of infrastructure
Although there are many methods and standards to measure the (financial) costs and returns of an infrastructure project throughout its lifetime, the main challenge the infrastructure community faces is to compare wider economic, social and environmental outcomes. The challenge here is the fundamental way of how we currently measure non-financial impacts and the inability to compare these. For example, how do you compare 70 tons of CO2 emissions with 15 cubic meters of water withdrawn from a water scarce region and how does this compare to a return on investment of 15.4%?
The answer is: you can’t compare unless you convert these outcomes into impacts which are expressed in the same unit. Impact measurement and valuation (IMV) is a method which aims to create a common language for investors and other stakeholders, by expressing all impacts a project creates (economic, social and environmental) in one language. The results, expressed in a single unit, can be used to support decisions linked to allocation of capital because the broader impacts of projects can now be compared as ‘apples with apples’. Therefore, capital can be allocated to prioritize projects which enhance the wellbeing and welfare of where this is needed most.
So how can IMV support the infrastructure community to prioritize investments in infrastructure?
Impact measurement and valuation can support various stakeholders in the infrastructure community to answer the questions they have related to prioritization of infrastructure investments such as:
1) Infrastructure developers (business):
- How do we find a balance between financial and societal impact created by our projects?
- Will a focus on more societal impact right now, create more future financial growth opportunities as we might limit future risk?
- How do we communicate a holistic view of the value created by our projects to our stakeholders and future clients?
- How do we integrate the social and environmental performance of assets meaningfully into our investment decisions? Which investment will have the highest return both financially and to society?
- During the current COVID-19 crisis, we see that old buildings are easily restructured into hospitals. If mobile hospitals are becoming the new future norm, could we integrate the value of the modularity of a building providing different kinds of access to people?
3) The government (policy makers):
- Within our budget to spent on infrastructure, how do we decide which infrastructure project generates the most financial, social and environmental value?
- Which infrastructure projects do we prioritize based on the SDGs?
Investments in sustainable infrastructure will be instrumental to meet the SDGs. To address the challenge of prioritizing and allocating capital to projects that optimize societal impact, organizations need a new lens to understand and quantify societal impacts. Impact measurement and valuation can provide comprehensive insights enabling decision-making that contributes to meeting society’s challenges and allocating capital to where it’s needed most.
Want to know more? Visit our Sustainable Infrastructure webpage.