By Simon Whistler, Senior Specialist, Investment Practices
Investment in infrastructure is critical to the achievement of the Sustainable Development Goals (SDGs). Not only is there a specific goal – SDG 9 on industry, innovation and infrastructure – dedicated to it, but investment in infrastructure can underpin direct and indirect contributions to many others: renewable energy for SDG 13 on climate action or SDG 7 on affordable and clean energy is an obvious example. But meeting the SDGs targets requires an estimated US$90trn in total global spending on infrastructure by 2030. While this presents a major challenge, given that much of this new investment is required in emerging markets or underserved parts of developed markets, it is also a major opportunity for the investment community.
The PRI is working with its infrastructure investor signatory base to take up the mantle. A recent private roundtable with industry practitioners in London and a workshop in Mexico City were the first two of a series of activities planned in the coming months. Infrastructure investments can have a range of positive and negative impacts and we hope that two objectives of this programme – to identify good practice in the infrastructure community on the SDGs and develop initial guidance – will provide a great basis to support their wider take-up by investors.
These events provided a positive insight into the current state of play. The conversation around the SDGs among infrastructure investors is clearly gaining traction. A year ago, much of the discussion would have focused around simply mapping portfolios and assets to different SDGs. The evidence of these two events suggests that consideration of the SDGs can and is now shaping how infrastructure assets are managed, how they are beginning to drive different levels of engagement between investors, managers and the companies they invest in, and how they could influence valuations in the long term.
Evidence suggests that consideration of the SDGs can and is now shaping how infrastructure assets are managed
One stand-out from the London roundtable was that asset managers are using the SDGs as a forward-looking guide for improving their assets over time, as a benchmark against which progress can be measured year-on-year. One investment manager gave the example of how using SDG 4, on education, to better articulate and communicate both the rationale and scope of education programmes at a UK port operator had helped bring a better pipeline of people into the business and had reduced absenteeism – ultimately driving better operational and financial performance.
Both sessions also highlighted that aligning infrastructure investments with the SDGs should not mean giving up adequate financial reward. In the words of one participant in the London roundtable: “arbitrary subsidisation of impact is not long-term sustainable”. This again emphasises the importance of financial instruments that will allow such investors to move more emphatically into currently underserved markets. (Work around blended finance and other such mechanisms is another area of focus for the PRI).
There is of course much to be done. The discussions emphasised that infrastructure investors face the same challenges as any other investor to understand which goals and indicators are the most appropriate to align with: the sheer range of both – 17 goals and 169 indicators – can often appear overwhelming at worst and confusing best. And once those have been identified, how do investors find the data and the tools to genuinely measure their particular level of impact?
Our work on the SDGs in infrastructure should answer some of these questions. More broadly, the PRI’s work with the Impact Management Project (IMP) and other like-minded organisations aims to provide a clear framework on impact identification and measurement.
Governments also have an integral role to play. In both London and Mexico, we heard examples of how government agencies, such as the Environment Agency and Mexican Public Works Ministry, are beginning to integrate the SDGs into both individual projects and more strategic planning. In the UK, the SDGs are also featuring as part of some infrastructure tender processes, with bidders having to detail their approach to the goals and project developers being incentivised to deliver against a wider range of outcomes than just cost.
As most infrastructure projects are reliant on government decision making, public bodies have a critical role in determining how infrastructure planning and delivery aligns with national SDGs targets. Though the public sector calls many of the shots, participants in London highlighted how the private sector can send a strong message to government to improve SDGs outcomes by screening out projects that do not deliver positive impact, or managing investments in such a way to influence future regulatory cycles
The PRI’s work on the SDGs in infrastructure aims to support both the investor and enabling environment agenda. We do not expect to find all the answers in 2019, but the early indication is that the infrastructure community is ready and willing to engage on the SDGs, and that there is common ground to exploit and keep the conversation moving forwards.
This blog is written by PRI staff members and guest contributors. Our goal is to contribute to the broader debate around topical issues and to help showcase some of our research and other work that we undertake in support of our signatories.
Please note that although you can expect to find some posts here that broadly accord with the PRI’s official views, the blog authors write in their individual capacity and there is no “house view”. Nor do the views and opinions expressed on this blog constitute financial or other professional advice.
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