Making sustainable infrastructure a unique asset class is key to the net zero transition

The transition to a low-carbon economy hinges on the development of sustainable infrastructure. We know that infrastructure is responsible for 79% of global greenhouse gas emissions, spanning sectors across energy, transport, water, waste management and buildings¹. But we also know that achieving net-zero emissions by 2050 requires a whole $139tn in global infrastructure investment².

That is enormous.

At the crux of the challenge is that emerging economies – which often require the most sustainable infrastructure development – are not receiving sufficient private capital.

Data shows us that private capital is predominantly deployed in high-income countries – 70% in 2023³. And in contrast, investments in low and middle-income countries grew by only 6% from 2017 to 2022, a rate ten times slower than that in high-income countries⁴.

Closing that gap has never been more important in an age where we are in desperate need of reaching net zero goals, globally.

There are few challenges facing today's investors when they're thinking about sustainable infrastructure. At the heart of these are access, transparency and consistency.

There is a clear lack of freely accessible and transparent financial and non-financial company data, particularly at the asset or project level. This challenge is critically apparent when we think about projects in emerging economies. A lack of a consistent definition for "sustainable infrastructure" also leaves investors exposed to the risk of potential greenwashing.

Other factors can also contribute to perceived risk for investors, be it concerns around corruption, as well as the environmental, social and regulatory considerations at a project level.

So, how do we tackle this and build investor confidence? Establishing a consistent definition and metric for the impact of an infrastructure asset is key.

This consistency helps to elevate sustainable infrastructure out of the "alternative investments" category and establish itself as its own asset class. Understanding the characteristics and performance measures – specific to sustainable infrastructure – will enable investors to allocate a larger proportion of their portfolios to it.

It will also allow regulators to set appropriate risk weightings, capital charges, or other measures and incentives. This, in turn, helps manage investor concerns about the risk-return profile of infrastructure assets in emerging economies and facilitates the urgent flow of capital to where it is needed most.

The FAST-Infra Label leverages trusted technology and infrastructure expertise developed by private companies to address this challenge. It builds a consistent, transparent, and globally applicable label for projects that demonstrate significant sustainability outcomes.

The Label supports better data and definitions and improves project preparation, addressing many of the risk-related concerns that currently hinder investment.

By building on the work of over 55 existing standards, frameworks, and taxonomies, the Label aims to consolidate the wide range of sustainable labels and frameworks that currently coexist in the market, presenting a reliable source for investors.

The Label serves different stakeholder needs across the investment ecosystem.

For example, investors can use the Label to demonstrate that they are financing projects that tangibly meet environmental, social, resiliency, and governance needs and contribute to Sustainable Development Goals (SDGs).

Project sponsors and developers can use it to integrate best practices acris all ESG aspects throughout the project lifecycle, signalling the sustainability of the project and attracting capital.

Asset managers can apply the Label framework to develop sustainable infrastructure deal origination, decrease risks in screening, and streamline disclosure processes.

It also helps ESG managers meet regulatory sustainability disclosure requirements by ensuring that key data fields are available, standardized, and accessible at the asset level, simplifying the reporting process, especially for challenging data points.

However, while the Label is a critical tool in helping to unlock much-needed finance for sustainable infrastructure, it cannot work alone.

Boosting investor appetite relies on other enabling environments, such as domestic policy frameworks. These may include regional concessionary finance, favourable interest rates, or complementary investment in broader energy infrastructure at a national level.

Since its launch, projects from South Africa to Southeast Asia have received the FAST-Infra Self-assessed Label. These projects are diverse in asset type, from solar parks to renewable energy infrastructure for public transport.

But while progress has been made, there is much more to be done.

The more projects that apply and the more investors begin to use the Label, the more data is disclosed, accelerating our progress towards net zero.

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