Bridging the Gap Between Sustainable Infrastructure Development and Finance

LAGOS (Capital Markets in Africa) – We live in an age of fundamental infrastructure development. Roads, ports, energy generating facilities, water and waste management systems etc. will be key to ensuring increased connectivity between rural and urban areas in the future. They will also play a vital role to give local and regional markets better access to the global economy, increase the circulation of goods, services and people, and thereby improve economic and social development.

Given this important role of infrastructure for development, and knowing about its close interrelation with the environment, it is vital that decision-makers from the public, construction and financial sectors take on board as many elements from sustainable and resilient development as possible. Only by doing so can we pave the way for further sustainable infrastructure development, which will serve current and future generations as the backbone of our global economy.

A recent study by EDHECinfra¹ identified diversification and possible higher returns as the key drivers for private investors’ increased interest in infrastructure allocation. However, due to the lack of bankable quality infrastructure projects, current figures still reveal an infrastructure investment gap of about USD 39-51 trillion until 2030².

Global Infrastructure Basel (GIB), a Swiss foundation, aims to bridge this gap by equipping the relevant stakeholders (project developers, public sector institutions and financial players) with SuRe® – The Standard for Sustainable and Resilient Infrastructure, and its complementary products.

SuRe® is the first independent, cross-sectoral, globally applicable and ISEAL-compliant infrastructure standard in the world. Together with the French investment bank Natixis, GIB successfully launched SuRe® at COP 21 in December 2015. This global voluntary standard was developed using a multi-stakeholder approach and helps to integrate state-of-the-art sustainability and resilience aspects into infrastructure development and upgrade.

SuRe® establishes a common understanding of sustainable and resilient infrastructure between project developers, financial players, public sector institutions and end-users. It integrates leading standards and consists of 65 criteria divided into 14 themes spanning environmental, social and governance (ESG) aspects.

Applying SuRe® will generate numerous benefits for the financial sector. In particular, SuRe® will:

• facilitate risk mitigation and benefit definition;
• identify sustainable investment opportunities (particularly for unlisted infrastructure);
• enable the comparability of infrastructure projects, within and across sectors;
• ensure compatibility with ESG safeguards, principles and standards used in project finance.

GIB has also developed the SuRe® SmartScan, a self-assessment tool for infrastructure projects and the first step towards certification using the SuRe® Standard. Using the SmartScan allows project developers to present their sustainability efforts to a broader audience and shows the strengths and weaknesses of a project according to different ESG criteria. Consequently, it enables project developers to identify specific areas where they can adjust their resource allocation to reduce a project’s exposure to high levels of risk. This helps to improve the project’s overall ESG performance while allocating resources in an optimal way.

In order to complement SuRe® with additional financial products, GIB is currently developing Credit SuRe and SuRe Underwriting.

Credit SuRe will become an essential tool to promote private-sector investment in sustainable infrastructure. The possibility to obtain a resilience and sustainability rating via Credit SuRe will make it easier for projects to access credit from ESG-sensitive investors. Credit SuRe can be applied to projects that have reached financial closure, and can be used for refinancing purposes during both the construction and operation stages.

Complementary to the above product, SuRe Underwriting is an underwriting tool based on the SuRe® criteria. It is being developed in cooperation with the South African insurance company Santam. SuRe Underwriting aims to improve on existing risk assessment standards and to identify new and possible project-inherent mitigation measures.

Considering ESG factors in the underwriting process is likely to lead to improved resilience and reduced initial risks. It will also result in new products, increased access to insurance, and better prices for insurance coverage.

GIB’s current endeavours will incite other players in the financial community to pursue ESG benefits, and should in the future lead to an adjusted cost and premium calculation for projects which respect ESG aspects.

From a mid- to long-term perspective, the presented tools will help to establish sustainable and resilient infrastructure as a separate asset class in order to mobilise additional financial means from institutional investors and asset managers.

^1.Frédéric Blanc-Brude, Grace Chen, Tim Whittaker. “Towards Better Infrastructure Investment Products? A survey of investor’s perceptions and expectations from investing in infrastructure.“EDHEC Infrastructure Institute Publications, July 2016. 
²Aaron Bielenberg, Mike Kerlin, Jeremy Oppenheim and Melissa Roberts. “Financing change: How to mobilize private-sector financing for sustainable infrastructure.” McKinsey Center for Business and Environment, January 2016.

This article features in the November edition of INTO AFRICA Magazine, insights on Real Estate and Property Investment prospects and challenges in Africa.

Contributors’ Profile
Hans-Peter Egler is the CEO of Global Infrastructure Basel (GIB). He has long-standing expertise in international cooperation, management and project innovation. Before joining GIB, Hans-Peter led the Trade Promotion Division of the Swiss State Secretariat for Economic Affairs (SECO). Prior to that, he was responsible for investment promotion activities and infrastructure financing for Latin America and Africa. Hans-Peter holds a degree in Economic Sciences and has also studied Economic History and Sustainable Management. He has over 28 years of work experience.

André Kummer joined GIB in 2016 as part of the communications team. Prior to that, he gained experience in sustainability at WWF Switzerland. André studied Economic Sciences at the Universities of Fribourg (CH) and Pantheon-Sorbonne (FR) and holds a Master’s degree in Economics from Leuven University (BE).