Climate goals have been on the minds of nations over the years, but the pace of global commitments towards a net-zero future has accelerated. In 2021, several countries have stepped forward with more ambitious goals to lower carbon footprint. Aiding this push is the trend of renewables becoming more affordable, for example, the cost of supplying renewable energy has reached an all-time low.
Greater global collaboration for climate change comes at a time when COVID-19 has ravaged the world, and this is not coincidental. Many nations are seeing the opportunity to “build back better” and they are also seeing new growth areas that sustainability can bring to help ailing economies get back on their feet.
Among the many sustainability priorities of countries is infrastructure. This does not just point to building foundations that can weather the elements of climate change, but speaks to a multi-dimensional approach, encompassing economic, financial, social, environmental and institutional goals. This is also known as the Environmental, Social and Governance (“ESG”) aspects of infrastructure.
Sources: KPMG’s Global Infrastructure and Climate Change Discussion Document (October 2020); United Nations Sustainable Development Goals (“UN SDG”); and Infrastructure Australia.
Encouraging the wave of sustainable infrastructure are market sentiment, investors, corporate agendas, and the public sector taking the lead to drive change.
As the COVID-19 pandemic continues to inflict an immense toll on economic, healthcare and social sectors, there has been an awakening of the world’s response to climate change, and a more profound understanding of our impact on our planet and societies. Markets have been responding to put greater focus into how infrastructure can help future-proof our economic and environmental livelihoods.
Most investors are therefore emphasising the incorporation of ESG principles into their investing mandates and portfolio holdings. They are also looking to identify and track complex ESG considerations for infrastructure opportunities in debt and equity markets. Infrastructure developers and operators, in turn, are striving to embed ESG criteria in their projects, and across their asset lifecycles, to attract investor and lender interest. Based on KPMG’s recent Survey of Sustainability Reporting 2020, a large proportion of investors, asset managers and ratings agencies now factor sustainability or ESG information into their assessment of corporate performance and risk.
Corporate agendas are also reflecting risk identification, assessment and mitigation as top priority areas. Companies are looking to quantify the financial, physical, regulatory, reputational and transitional risks of climate change-driven impacts on assets and businesses. Based on KPMG’s 2020 CEO Outlook survey, business leaders now believe that environmental and climate change risks pose the greatest threat to their organisations’ growth. The same survey also revealed that most companies worldwide already have carbon targets in place and are disclosed.
On a sectoral level, companies in the automotive, mining, utilities, and technology, media and telecommunications industries are leading in ESG disclosures, with 70 per cent or more major companies disclosing carbon targets. These corporate carbon targets are also being increasingly linked to global climate goals or targets set by governments or other authorities.
Furthermore, governments and intergovernmental organisations are also increasingly taking the lead in setting clearly defined ESG criteria and policies to guide investment priorities and programmes as well as to evaluate new development opportunities. As a result, existing infrastructure pipelines have pivoted to sustainability-focused assets.
There is also an increased availability of grants and subsidies from the government for sustainable projects, which help to accelerate growth in this area. This explains the increasing partnerships between governments and corporations to further drive the sustainable infrastructure agenda. In this regard, the availability of blended finance — a structuring approach that enables public and private investors with different objectives to invest alongside one another — and transition finance could help spur momentum for sustainable project development.
Climate change is expected to have long-lasting impacts across the infrastructure lifecycle in terms of how we plan, finance, build and operate infrastructure assets. This fundamental rethink is spawning multibillion-dollar industries and opportunities for the ecosystem of existing and new players.
Source: KPMG’s Global Infrastructure and Climate Change Discussion Document (October 2020)
Looking ahead, there are many possible manifestations of sustainable infrastructure:
Real-world success stories also provide vital learnings on project planning and implementation.
Even as the global push for sustainable infrastructure accelerates, many challenges lie ahead that could potentially derail implementation efforts. Hence, three factors are key in managing the transition:
As more countries work together towards a shared net zero vision over the next three decades, the collective will and effort from stakeholders of the private and public spheres will trigger shifts in policies, mindsets, and investment models.
Green infrastructure is more than just about climate-friendly buildings and networks. It involves thinking how to build sustainability into daily living while creating innovations and alliances to make it happen.