There’s no timelier topic at the midpoint of 2020 than justice – racial, economic, or otherwise. And, from my admittedly privileged perspective, a huge component of that conversation must address equality in access to functioning infrastructure – clean water, affordable mass transit, and reliable power and internet access – among so many of the institutional shortcomings that have repressed disadvantaged communities for so long, and which the pandemic has in many instances served to exacerbate.
But one positive impact that the COVID crisis could create is the opportunity for governments to address these failures through infrastructure stimulus, stakeholder engagement, and innovation. To that end, and for the third consecutive year, the global infrastructure giant AECOM recently released its “Future of Infrastructure” report, which is always a great read about the zeitgeist of the infrastructure industry. (Available for download here.)
This year’s edition covers infrastructure stimulus, reopening airports post-COVID, building a “better case” for infrastructure investment, resiliency, effectively deploying private finance, net-zero energy projects, mobility in mega-cities, and innovation.
Here are some key takeaways:
The time to invest in infrastructure stimulus is now.
For every $1 that we invest today in infrastructure, $3.70 in economic growth will accrue over the next 20 years. There is a current backlog of $4.6T in deferred projects that will limit US economic growth by $3.9T over the next 5 years if they don’t proceed. Addressing this should be a bi-partisan slam dunk but seems increasingly likely to hinge on the results of November’s elections.
There are important lessons for infrastructure to learn from the post-2008 financial crisis stimulus.
Just 14 percent of those stimulus funds were earmarked for infrastructure. That figure should increase. And any federal infrastructure bill should remove procurement hurdles, make it easier for projects to proceed, and “leave a post-COVID legacy for infrastructure that matches post-WWII.” Projects fitting that bill include the Gateway Tunnel in New York/New Jersey, where shovels could be in the ground immediately, with economic benefits accruing quickly along the entire Northeast Corridor (which generates 25% of the entire country’s GDP).
Making a “better case” for infrastructure investment should also include the social and environmental benefits that will accrue to the public.
One specific example that the report points out is how tools like the “Social Value Portal” could be used to quantify an infrastructure project’s social impacts from a holistic perspective, marshalling public support, and preventing the kind of special interest-led NIMBY backlash that can sink worthy projects.
Costs of capital remain historically low, so the private sector will need to demonstrate real value-add in order to identify investment opportunities.
This means that traditional “pay-as-you-go” debt finance will remain a cheaper way for governments to fund infrastructure projects, particularly in traditional markets like surface transportation and transit. But private-sector expertise can play an important role on more complex, long-term projects, particularly where public agencies may not have the same level of sophistication.
For example, the report notes how advanced technologies like AI, 5G, IoT, and decarbonization are redefining next-generation infrastructure. These are the types of projects that will be best positioned for private-sector financing and accompanying public-private partnership (P3) or design-build-finance-operate-maintain (DBOFM) delivery models.
Reducing infrastructure-related CO2 emissions should focus on five key areas.
A few are obvious: energy, buildings, and transportation. But “nature-based solutions and prioritizing action” are particularly intriguing. “Prioritizing action” (in the context of the report) refers to a custom digital tool that AECOM developed for the C40 Cities Climate Leadership Group, a network of 96 cities globally that are working collaboratively to reach net zero CO2 emissions by 2050.
The AECOM tool helps cities prioritize climate change mitigation measures, including programs, policies, and potential projects. It rates them based on their potential to reduce CO2 emissions and displays them on dashboards that can help stakeholders make better decisions about climate risks and where to invest precious dollars – a valuable tool in the COVID era where budgets are stretched thin.
“Nature-based solutions” are mechanisms where firms that benefit from natural resources (like, say, a coffee grower or a hydroelectric power provider) finance land management or other environment-friendly measures (typically in developing parts of the world, where curtailing CO2 emissions is a challenge) that help ensure the long-term viability of the resource, to the firm’s benefit. These are called “payments for ecosystem services” (PES), and they’ve been deployed in diverse geographic locations, from Rhode Island to Latin America and eastern Africa.
Diversified sources of funding for major projects will be critical post-COVID.
Funding mega-projects post-pandemic will require stakeholders to demonstrate more than just financial returns. For example, many of the international investors in the New Clark City project in the Philippines (which will eventually replace Manila as the nation’s capital) are evaluating the project’s resiliency, environmental, social, and governance targets, all of which backstop “green” bonds that will help finance the project. (AECOM prepared the master plan for this project, which will ultimately be a 23,000-acre “smart” city and home to 1.2M people.)
Innovating in risk-averse industries (like infrastructure) is hard!
The report states it well: “[l]arge-scale transport infrastructure projects are by nature complex and uncertain. The risks of failure are high financially, environmentally, technically, managerially, politically and legally. It’s no wonder that the promoters and financiers of such projects tend to be wary of innovation. At the same time, to be sustainable, these transport projects need to understand the needs of their future evolution. This requires visionary leadership, persuasive arguments, innovative thinking and the ability to launch and learn.” This means there is virtually unlimited potential for innovators to transform the ways the industry does business.
Thought leadership pieces like the Future of Infrastructure can go a long way towards helping industry stakeholders take a holistic view of all of these critical issues. Moreover, they can help spur the development of infrastructure that functions for everyone – not just the elite, wealthy, and privileged classes. That’s a post-COVID legacy that we can all rally around.
Again, you can download a copy of the report here.
As always, let us know what you think in the comments below!