People are fed up with the lack of progress on the sustainability agenda. And they are making their opinions known. From the individual actions of people like Greta Thunberg through to the massive civic protests fielded by groups like the People’s Climate Movement and Extinction Rebellion, the message is clear: sustainability is an issue that can no longer be ignored.
Infrastructure CEOs and government leaders know they need to act. In fact, in a recent survey of infrastructure CEOs conducted by KPMG International, 85 percent of respondents acknowledged that their future success would be determined by their ability to move towards a low-carbon, clean technology economy.
From talk to action
Yet all signs suggest we are not moving fast enough to head off disaster. António Guterres, current Secretary-general of the UN, recently admitted that “we are seriously off-track” from achieving the UN’s Sustainable Development Goals. Most reputable climate authorities are pessimistic the world will achieve the ‘1.5 degree’ goal set out in the Paris Climate Agreement. Everyone knows that more action and more commitment will be required.
The good news is that – over the past 12 months or so – we have started to see significant progress. Spurred by public protest, ballot box pressure and consumer advocacy, governments are starting to move beyond platitudes and towards actual policy. So, too, are businesses; in September, 87 major companies representing more than US$2.3 trillion in market capitalization committed to support the 1.5 degree goal.
Show me impact
Announcements such as these are welcome. But the really exciting stuff is how policy and the voice of the consumer is impacting the market. Financial markets are now starting to take a lead role in developing sustainable finance solutions to help businesses and governments move towards a low-carbon future. Sustainable/green bonds, loans, funds and alternative and blended finance solutions are increasingly being used as a way to finance infrastructure projects that meet investors’ environmental, social and governance (ESG) criteria.
Two years ago, you would struggle to find an investor who knew what ESG was, let along cared about it. Now, it’s becoming difficult to find an infrastructure investor who isn’t using ESG criteria to assess their investments. The Impact investing market is now estimated to be worth more than US$500 billion. Another $500 billion has been invested into Green Bonds.
Clearly, the impact of this shift goes far beyond the investment and financial community. What it means is that assets and projects with poor ESG credentials will become increasingly expensive to finance and operate as capital flows away from assets that don’t qualify and towards cleaner investments. Many infrastructure owners and operators are starting to worry that their assets may soon become ‘stranded’ as investors, consumers and policy makers push them into obsolescence years ahead of schedule.
No time to wait
While the markets are certainly evolving quickly to shift economies towards a low-carbon future, my view suggests that infrastructure providers, investors and operators cannot afford to wait for these effects to trickle down into individual assets. They must move now.
In part, more action will be required internally. Infrastructure players could start by quantifying the ‘true value’ of their assets and investments by assessing the actual impact on the environment, society and governance. If a consistent approach to measuring ESG impact can be found, this would allow governments and planners to create more sustainable strategies and prioritize the most impactful projects.
Infrastructure developers could be making ESG a top-level strategic imperative, embedding ESG considerations, goals and standards into every aspect of their projects. Infrastructure operators could be investing into greener technologies and approaches that have been proven to reduce an asset’s carbon footprint (like, for example, moving towards renewable energy sources or retrofitting facilities). Investors could be creating more green capital and ESG-focused vehicles and funds.
Taking the lead
Infrastructure players must also unite as advocates for the low-carbon economy. We need to work together – as an industry and as catalysts of other industries – to help inform the conversation and provide leadership. We need to elevate the conversation about key issues such as resource scarcity, climate risk, resilience costs and the environment. And we need to articulate how we will improve quality of life through the delivery of greener health, education, utility, employment and housing assets.
As I noted in an article in the most recent Change Readiness Index, governments will need to do much of the heavy lifting to create an environment that encourages and enables the shift to a low-carbon economy. But private infrastructure participants also have a huge role to play.
The public is shouting for a more sustainable future. And we have the tools, experience, capabilities and assets to deliver on that demand. We have an obligation to act – not simply for our investors and stakeholders, but for the future of our planet.