The coming rise of urban infrastructure: turning infrastructure green

By Andrew M. Deutz, Ph. D., Director, International Government Relations, The Nature Conservancy

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There are a handful of truly critical global sustainability challenges that will determine whether or not the world will be prosperous and healthy by the middle of this century—or by the time my kids are my age. Can we generate energy without overheating the planet? Can we feed ourselves without despoiling landscapes and waterways? And can we build cities such that nature and people thrive?

Environmental challenge

For many, urban planning and infrastructure design may sound like the least interesting topic in sustainability—but in fact, it is essential. Consider a few projections. The world’s urban population is set to grow from 3.5 billion today (half of the world’s population) to 6.3 billion by 2050. Sixty percent of the area projected to be urban by 2050 has yet to be built, which means that we will more than double the amount of urban built infrastructure in the next few decades.

In fact, it is estimated that urban land use will increase anywhere from two to five times its current footprint. That leads to the environmental challenge. Urban expansion is happening fastest in low-elevation, biodiversity-rich coastal zones, often in the poorest places, which correspondingly have the least capacity to inform policy and manage these changes effectively.

Financial challenge

There is also a financing challenge. The G20’s global growth targets call for a global infrastructure growth program of some 80 to 90 trillion dollars to meet the United Nations Sustainable Development Goals by 2030, or roughly 6 trillion dollars per year. Seventy percent of global infrastructure demand in the next 15 years will come from cities, mainly in the developing world. That is why the multilateral development banks (MDBs) are collectively focused on “sustainable infrastructure finance”—with a heavy emphasis on the “finance” part and not as much attention given to the “sustainable” part.

The Sustainability Opportunity

But that misses an opportunity. There is a growing evidence base that suggests that sustainable infrastructure is also more financially sustainable, on top of being more environmentally and socially sustainable. We know that individual infrastructure projects can, if properly designed, be fully sustainable within a given footprint. The technology exists and demonstration projects abound. But the real opportunity to unlock financial value and cost-savings comes from systematic, upfront planning at a large spatial scale. That allows planners and project developers to optimize among potential systems of infrastructure investments, avoiding the most environmentally and socially disruptive options—which are also the ones that lead to lawsuits and delays, raise costs and decrease social value.

Up-front, large-scale planning, involving key players such as the insurance and risk industry, urban and ecological infrastructure specialists alongside construction engineers and city planners, can result in significant time savings and value creation—cheaper and better infrastructure for less time and money overall.

The Catalytic Role of Public Banks

Multilateral development banks (MDBs) have a critical role to play to support the build-out of sustainable infrastructure in developing country cities. They have a unique combination of financial, technical and policy assets: they can provide policy and technical support, low-cost long term financing, and risk mitigation services, all of which can crowd in multiples of private sector investment.

The challenge for the MDBs is that they first need to do a better job at incorporating sustainability into their own analytical and investment frameworks. They also need to do a better job of learning how to engage with municipal entities as clients. That is structurally difficult for MDBs since they were set up to support national governments, but it is good to see that several of them are making real progress in figuring out the policy and financial pathways to engage with sub-national entities.

The global development banks also have a comparative advantage—in terms of both technical expertise and concessional capital—to help developing country governments undertake the kinds of sectoral, large-scale planning processes that can make sustainable infrastructure possible.

For their part, municipal leaders will need to learn the language of the MDBs and of the other global financing mechanisms. Each entity – whether the World Bank or the Green Climate Fund —has a counterpart in the national government. Municipal leaders will need to learn to engage with these national focal points to convince them of local investment opportunities in smart infrastructure. These national officials already think in terms of sectors and regions to invest in; they just need to have their minds changed to think of municipalities as offering profitable opportunities at local level.

Municipalities in the developing world tend to have a common problem—lack of creditworthiness. They can potentially overcome this challenge if they work together with the help of financial intermediation by institutions like the MDBs. Some MDBs already issue catastrophe bond products that cover the uncorrelated risks of, an earthquake in Quito, a flood in Mumbai, or a typhoon in Manila. That approach could be significantly scaled to bundle municipal projects into a diversified portfolio that could, with some credit enhancement by the development banks, attract private investment to cover a wide range of municipal investment needs.

There is a real role here for some innovative financial intermediation services by the MDBs, as well as assistance with the up-front planning that increase value. The upside for the municipalities is enhanced access to credit. The upside for the banks is potential to develop a whole new and hungry client base—not to mention accomplishing their development mission.

Given a willingness to engage and learn each other’s language, a functional partnership between development banks and cities may emerge, supported by efforts from city networks like ICLEI and others, which can ensure that the growth of infrastructure investment is beneficial for both people and nature.

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