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.
- Economic sustainability – Generating economic activity, creating job security or diversification, or construction optimisation and reduced lifecycle costs
- Social sustainability – Infrastructure that provides services and connects society, promotes quality of life, cultural preservation, and considers social impact and human rights
- Environmental sustainability – Protecting the environment and mitigating climate change
- Governance and Institutional sustainability – Transparency and robust governance framework with clear objectives
Sources: KPMG’s Global Infrastructure and Climate Change Discussion Document (October 2020); United Nations Sustainable Development Goals (“UN SDG”); and Infrastructure Australia.
Key drivers and enablers
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.
The Climate Imperative
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:
- Smart and green cities: Focuses on citizen-centric design to build smart cities that improve quality of life. Smart mobility/intelligent transport systems, security and policing, smart grid, smart healthcare, and smart utilities – resilient and sustainable water, power and urban waste management – are hallmarks of this new breed of cities.
- Sustainable energy technologies: There are now increasing investment opportunities in clean energy technologies, including renewable energy-based electricity generation, carbon capture, utilisation and storage (“CCUS”), hydrogen as well as bioenergy as fuel.
- Smart infrastructure delivery: Technology is leveraged to lower project risks and costs across the entire project lifecycle - from planning to construction monitoring (use of drones) and performance management (digital twin, predictive maintenance and robotic process automation). This is likely to become pervasive, ensuring high reliability and resilience of infrastructure services.
Real-world success stories also provide vital learnings on project planning and implementation.
- Protecting the coastlines in Singapore is critical in the midst of rising sea levels and extreme weather. KPMG in Singapore developed coastal protection measures for one of the nation’s key tourist island destinations, which entailed analysing potential flood damage forecast, developing coastal adaptation strategies, quantifying maintenance requirements, and considering the impact of these measures on the island’s character, residents and businesses to manage the long-term economic and social impact of protecting our coastlines.
- Navi Mumbai Municipal Transport in India is integrating digitalisation and technology into the city’s transport system, thereby making the overall system operation more cost-effective and efficient. In the long run, these cost savings will likely ensure the project’s economic sustainability.
- Infrastructure Victoria (IV) in Australia led an independent, in depth inquiry for the Victorian Government on infrastructure planning for automated and zero emission vehicles. IV demonstrated that the introduction of automated vehicles in urban areas, car sharing models and the adoption of electric vehicles will lead to reduced carbon emissions, fewer vehicles on the roads and improved quality of life. The advice identified a pathway, including policy and recommendations, for enabling automated and zero emission vehicles.
- A leading utility company in the UK is developing a vision for a Net Zero Energy System in 2050 by mapping various consumer archetypes and their expected future lifestyles to different forms of energy and technology needs, as well as fuel diversification options.
Managing the transition
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:
- Institutional capacity development – The conceptualisation and structuring of bankable and commercially viable projects is vital. Critical to this is a conscious effort to move away from traditional ways of delivering infrastructure and tapping on successful models. Urban infrastructure frameworks in Singapore, renewable energy experience in Vietnam, or road project models in India are among the templates that other countries may adopt as a starting point for their own sustainable project pipelines.
- Whole-of-government approach – Alongside capacity development, a whole-of-nation movement is essential in driving a sustainability agenda, wherein different government agencies work in unison towards a shared goal. Many countries have already started to chart a roadmap to net zero. For example, Singapore’s Green Plan 2030 lays out specific and concrete targets over the next ten years that will strengthen the country’s commitments under the United Nations sustainable development goals (SDG) and Paris Agreement.
- Leveraging the private sector – Key to delivering infrastructure services in an innovative and sustainable way is the role of the private sector. In today’s highly competitive market, there are major advantages to utilising infrastructure-as-a-service. The private sector is incentivised to combine technology, management and financial innovations, with energy efficiency and life cycle cost management solutions to deliver sustainable infrastructure without compromising returns. With rapid urbanisation and the increased need for robust and resilient infrastructure, the focus may have to shift towards smart urban infrastructure services. This has underscored the need to develop private sector capabilities to support economic planners and regulators in charting the roadmap for a sustainable future.
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.