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Financing sustainable projects

by Kat Usita

Financing sustainable projects


The world requires around $94tn to fund infrastructure between now and 2040, according to the G20-backed Global Infrastructure Hub. With tremendous investment needed, focus will be placed on how best to combine private, public and multilateral resources to fill the infrastructure gap. It is important, however, to be mindful of how a strong infrastructure push might compromise environmental sustainability goals.

One of the dangers of a substantial infrastructure catch-up is that too much attention will be paid to speed of delivery without enough consideration of related risks, such as greenhouse gas emissions. Developing most kinds of infrastructure generally takes time. Years may pass between conceptualisation and completion, and costs typically escalate.

There are incentives to build as quickly as possible, sometimes at the expense of sufficient planning that adequately considers environmental impact.

In selecting infrastructure projects to finance, investors should consider both urgency and carbon footprint. Energy and transport are the two sectors which require the most investment, and both are among the largest contributors to greenhouse gas emissions. Together they account for around 40% of global emissions based on 2014 measurements from the Intergovernmental Panel on Climate Change. Reducing emissions from these sectors involves two key points: upgrading underlying technology, and urging changes to human behaviour.

Promoting sustainable networks
Energy innovation has rightly focused on moving away from the use of fossil fuels. Investments in renewable energy fell in 2016, in part because of declining costs as the industry became more competitive. But the capacity generated increased, indicating that returns will grow over time. Solar, wind and hydroelectric projects have gained traction and will need continuous financing before they can become primary sources of power.

Investors should consider financing infrastructure which promotes sustainable development generally. Building sufficient charging stations for electric vehicles is a crucial element in promoting greener driving. In the UK, where electric vehicles make up barely 1% of new car sales, there are around 14,000 charging stations in nearly 5,000 locations. To make electric cars more attractive to new car buyers, there must be sustained investment in developing an extensive charging network.

Aside from electrifying vehicles, greener transport includes encouraging a greater shift towards mass transit. Traditionally, this has meant building fewer roads and more railways, but there are transport modes which bridge the trade-off. Bus rapid transit systems feature dedicated lanes that high-capacity buses can pass through undisturbed by other vehicles. The terminals are typically spread out at the same distance as rail stations and can be built on existing roads where rail construction may be too disruptive or expensive.

Bus rapid transit systems began to operate in the 1970s and are today being developed in cities looking for low-cost alternatives to railways. Using electric buses would make these systems still more sustainable, and the environmental return on such an investment would be higher than electrifying fleets of private cars.

Reimagining infrastructure projects
Selectiveness in the types of projects to finance is crucial in maintaining high environmental standards for building. Ideally, construction activity should be as low-emission as possible, but transitioning from traditional to more sustainable processes can have high upfront costs. There may, too, be technological constraints depending on where the infrastructure is being built and what equipment is available in that location. The construction industry needs to be financially incentivised to modernise, otherwise it is unlikely to shift to low-carbon processes.

Policy-makers can influence construction standards when they tender infrastructure contracts and issue building permits, although regulatory enforcement can be difficult because of measurement challenges. A more simple policy to implement is to require all new publicly and privately financed infrastructure to have energy-saving features, such as efficient heating and lighting – not only in residential and commercial buildings, but in public spaces as well, including rail stations, bus terminals and airports.

To minimise financial and environmental costs, infrastructure should be built to withstand natural disasters. Often this means adhering to strict building codes to ensure the facility’s structural strength, but it should likewise include reimagining the functionality of certain types of infrastructure. In Kuala Lumpur, a three-level tunnel caters to vehicles during normal weather conditions, but the lowest level is repurposed into a storm drain during heavy flooding.

Inevitably, there will be tension between meeting infrastructure needs and achieving emission reduction goals. By carefully selecting projects and being mindful of building standards, the infrastructure gap will be filled without causing undue environmental damage.

Kat Usita is Researcher at OMFIF.