by Dr. Murray Simpson, Global Director of Sustainability and Market Integration at IBM
The construction and operation of traditional infrastructure are major contributors to global emissions. Therefore, part of our ability to achieve a net zero future depends on how quickly we can implement sustainable infrastructure. It is imperative that we start investing in more sustainable physical, digital and organizational infrastructure so that we can lay the foundations for a greener planet. To mitigate climate change through sustainable infrastructure, we need to close the financing gap: a gap of $6.9 trillion per year needs to be closed to meet global development needs through 2030.
The financial sector is under intense pressure from governments, shareholders and society at large to seek out and direct investment towards the design, construction and operation of sustainable infrastructure. Incentives are materializing even within financial organizations. But it’s difficult for the industry to identify and match credible investments with investors, while balancing its own unchanging return on investment.
To meet the challenge, financial services must embrace collaboration – bridging the gap between public and private finance – openly sharing data to ensure they can target the right, most sustainable initiatives and leverage the power of technologies emerging markets to find the right investors with the right projects.
The pursuit of credibility
Securing the capital fast enough is the main hurdle. It’s a tight schedule, and we’re already behind schedule; if the commitments made at COP26 are kept, the Earth’s temperature will increase by 1.8°C according to the International Energy Agencywhich exceeds the 1.5°C limit set by the Paris Climate Agreement in 2015.
But we can’t speed things up without willing investors, and that’s where issues of credibility and verifiability become problematic. How can a potential investor be sure their capital is being channeled into truly sustainable projects – and making a real difference?
Proving sustainability credentials is relatively new ground; sustainability criteria vary and there is currently no overarching body to oversee third-party verifiers. If the goal posts keep moving, convincing people to invest becomes more difficult. But it is not impossible. It is becoming increasingly easy to identify the most impactful infrastructure projects and connect them with interested investors, thanks to the power of technological solutions.
Trust the technology
There is an opportunity to generate trust and real change through technology. Where credibility and verifiability can block funding for sustainable infrastructure, technology provides the assurance investors need.
Solutions such as Internet of Things (IoT) sensors, data factory, artificial intelligence (AI), cloud and blockchain enable efficient, accurate and transparent project tracking, generate insights that improve processes and, above all, secure the sharing of information. Digital monitoring also reduces the need to send people on site, which eases the burden on reporting teams, reduces costs, and makes the very process of verifying a project more sustainable.
Technology can also act as an investment matchmaker. Digital platforms that act as online marketplaces can connect climate entrepreneurs with finance, institutional investments with well-structured projects, and facilitate public and private financing of sustainable infrastructure. These types of end-to-end digital platforms automate – and accelerate – documentation processes and transaction flows, making collaboration between ecosystem partners easier and more seamless.
There ‘Financing to Accelerate Sustainable Transition-Infrastructure‘ (FAST-Infra) is an example of this type of digital platform. Created in 2020 by Climate Policy Initiative (CPI), HSBC, the International Finance Corporation (IFC), the OECD and the Global Infrastructure Facility, IBM is leading the design and development of the FAST-Infra platform.
FAST-Infra leverages technology, including blockchain and AI, to identify and assess infrastructure plans and match sustainable ones with investors, with the aim of closing the investment gap in multi-trillion dollar sustainable infrastructure by turning it into a liquid asset.
What sets it apart is that it brings credibility to the space, using a global sustainable infrastructure (SI) labeling system endorsed by leading financial institutions, including the Global Infrastructure Facility (GIF ) of the G20 and the Glasgow Financial Alliance for Net Zero (GFANZ).
This labeling feature facilitates more accurate and efficient due diligence that helps reduce transaction costs and matches investors with projects that will have real impact. By transforming sustainable infrastructure into a liquid and mainstream asset class, the FAST-Infra platform will help increase private investment in sustainable infrastructure in emerging and developing economies.
A credible investment
Simply put, we need to invest and build a sustainable framework now to achieve a net zero future and enable the survival of generations to come. This requires building strong foundations, and financial services must aggressively address the sustainable infrastructure funding gap to ensure the right projects come to fruition.
The power of technology – and the data that informs it – will unlock real and impactful investments in sustainable projects. From matching investors to the right projects, tracking progress accurately, and reducing costs and waste, end-to-end technology-driven initiatives like FAST-Infra hold the key to bridging funding gap, accelerate progress and, above all, make sustainability a viable solution. investment.