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It's no secret that modern infrastructure is important for the economy and society. But new infrastructure projects can also give rise to attractive investment opportunities.
Remote working has been a huge topic of discussion since the early days of the pandemic. And in the meantime, this phenomenon, which started as an involuntary experiment, has become an integral part of the working world. However, the sudden transition to new working models required a massive amount of flexibility from companies everywhere.And that transition didn't always go smoothly. In fact, in many cases, it ruthlessly exposed a range of deficiencies in digital infrastructures. Governments, institutions and companies often struggled to meet the new challenges. A survey of Japanese executives, for example, found that while respondents recognized the benefits of working from home, much of their paperwork had not yet been digitized, making the new model difficult to implement.
But when it comes to infrastructure, developing countries face even greater challenges. For example, according to the United Nations, around half of the world's population has no access to the internet, making distance learning and working from home virtually impossible. The pandemic has thus also further exacerbated inequality between rich and poor.
Access to the internet is just one example of how the quality of infrastructure impacts our everyday lives. Well-functioning and sustainable infrastructure is important for the well-being of society and the economy. It ensures that people have reliable access to essential resources and services - from water and energy, to housing, transport and communication.
However, the world's existing infrastructures are also a major contributor to climate change. For example, nearly 80 percent of global greenhouse gas emissions are linked to infrastructure, with buildings, energy and transport accounting for a large share thereof.
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This means that infrastructure systems must be taken into account if climate goals and the United Nations' 17 Sustainable Development Goals (SDGs) are to be reached. In a recent policy brief, the UN highlights the importance of infrastructure investments as a tool for boosting productivity, stimulating economic growth, creating decent work and addressing inequalities. It goes on to explain that these goals can only be achieved if sustainability becomes an integral part of infrastructure. This is especially important considering the additional strain the world's growing population is putting and will continue to put on infrastructure systems.
In order to meet climate targets, greenhouse gas emissions must fall to net zero by 2050. Investments in sustainable infrastructure have a pivotal role to play in achieving this. The Organization for Economic Cooperation and Development (OECD) estimates that to deliver on the UN Sustainable Development Goals alone, 6.9 trillion US dollars must be invested globally each year over the next ten years. Investments in renewable energy sources will be especially important in supporting the shift away from fossil fuels.
More and more policymakers are recognizing the urgent need for sustainable infrastructure investments. In fact, numerous governments around the world have included sustainability in their post-COVID-19 economic stimulus packages.
The US, for example, passed the Inflation Reduction Act, which will see around 380 billion US dollars invested in green energy and climate protection. And Europe is investing 1.2 trillion euro with its "EU Green Deal" and "RePowerEU". With the help of these initiatives, the US and the EU hope to achieve net-zero emissions by 2050 and improve energy security.
However, while financial support for green infrastructure projects such as green power generation and transmission, and green transport is increasing, a considerable amount of funding is still flowing into climate unfriendly buildings and systems. The G20 countries, for example, have invested more than 570 trillion US dollars in energy projects since the outbreak of COVID-19, and around 40 percent of that went to fossil fuels. The UN refers to these investments as missed opportunities to advance the transition to a greener economy that is also resilient in crises.
Today, the lion’s share of infrastructure investments is made by the public sector. However, given the massive investment gap, opportunities also exist for the private sector. This is reflected in the fact that capital flows into infrastructure investment funds have quadrupled over the past decade. According to a report by the non-profit Global Infrastructure Hub, these investments amounted to around 130 billion US dollars in 2021.
The report also finds that demand for green infrastructure projects is on the rise. According to Global Infrastructure Hub, while investments in renewable energies are proving very popular with investors, investments in telecommunications infrastructure saw the greatest increase in 2021, and have quadrupled since 2019. This trend is giving rise to a growing number of new digital solutions, and underscores the importance of greater digital connectivity to ensure that both the economy and society are better prepared for future crises.