Financial professionals should use the data and technical know-how of engineers to help make the investment case for low-carbon infrastructure projects, according to a new report from the Institution of Civil Engineers (ICE) published recently.
The report, Financing Low-Carbon Infrastructure, argues that civil engineers have a vital role to play in communicating the data investors need to manage risk and prove the climate benefits. It also explores some of the factors that have allowed infrastructure projects to succeed or fail in attracting finance using real-life examples from around the world.
It comes as delegates at the COP27 climate summit in Egypt debate how to turn the funds pledged by pension funds, finance institutions and governments in Glasgow last year into spades-in-the-ground projects. Global spending on physical assets to achieve net zero is expected to average US$9.2 trillion per year between now and 2050.
Despite growing pressure on banks and the private sector to account for the carbon intensity of their portfolios, and to direct investment toward green infrastructure, the report finds that many projects fail to attract funding. This is partly due to the high initial construction costs and the long timelines associated with seeing value from infrastructure projects, but also increasingly the challenges around quantifying climate benefits.
The report argues that attracting private investment will be crucial to financing the infrastructure projects needed to achieve net zero – especially with the current pressure on the public purse from rising inflation, interest rates and major geopolitical conflict.
Allan Baker, head of power advisory and project finance at Societe Generale and one of the contributors to the report, said: “As an engineer working in finance, my general observation is that there could be a lot more engagement between the engineering community … and the finance world to create a better understanding of what makes a project financeable … Engineers have a critical role in this engagement to help financiers fully understand the risks and deliver optimal financing solutions.”
The report highlights case studies of innovative financial models that have been used, including for the Dogger Bank Wind Farm and associated South Bank Quay in north-east England, the Orca direct air carbon capture and storage plant in Iceland, and community renewable energy projects in South Africa.
Mark Hansford, Director of Knowledge at the ICE, said: “There is a huge opportunity to unlock investment in the clean, low-carbon infrastructure of tomorrow. Greater collaboration between the engineering and finance communities could be an important catalyst. I hope this report, and the network we are creating, will help professionals from different disciplines talk to each other and foster a spirit of cooperation.”
Today’s report recommends that the ICE set up a new Knowledge Network on financing infrastructure, to increase collaboration between civil engineers and the investment community. The ICE invites financial professionals to join and help promote the network when set up, and to collaborate with its future work.