Our national economy is in a world of hurt when it comes to its very foundation: the public infrastructure and buildings that enable and support economic activity. Bridges, highways, transit, energy, and environmental infrastructure as well as social infrastructure including healthcare, education and administration buildings are no longer sufficient to provide the competitive advantage we have been used to in regional and even global trade. Make one trip from New York’s JFK or from Los Angeles LAX to Tokyo or Beijing and you will get it.
Capacities are strained, facilities are crumbing. Congress is only motivated to cut investments that will reduce decay. With each year of neglect, the problem grows worse. According to the American Society of Civil Engineers, investments of more than $2.2 trillion are required over the next several years just to close the maintenance gap. For several years now, beginning with the 2008 recession, lawmakers have been hoping that the private sector including ESG, SRI and Impact investors would somehow step in to fill the investment gap.
Prequin, an infrastructure data provider, reports that the eight largest U.S. based institutional investors, including CALPERS and TRS, have a target total allocation for infrastructure investment of more than $20 billion. No wonder, as the unique characteristics of infrastructure projects including long term, stable yields, low-market risk correlation, and inflation protection offer plenty to pension fund investors.
Demand for investment opportunities is on the rise. An allocation of $20 billion could be easily consumed (and much more) if it weren’t for a few well-known barriers to unleashing impact capital into infrastructure projects. They include:
- the cost of impact capital as compared to tax exempt bonds, which dominate infrastructure funding;
- lack of standard metrics and analytical tools that can be used to assess risk adjusted value or, impact, associated with infrastructure projects making due diligence time consuming and expensive; the relatively small size of projects often ranging from $5m to $100m that make financing inefficient unless projects can be bundled; and
- the challenge of comparability among disparate projects.
This issue of The Cornerstone Journal of Sustainable Finance & Banking is focused on the challenge of financing sustainable infrastructure and specifically the four barriers listed above. We have turned to professionals that bankers and finance specialists often overlook as they prospect at the finance – or downstream end – of the project pipeline. These professionals dominate the space at the other end of the pipeline and include the planners, engineers, architects and program managers that come on the scene first, leave last and work closest to project sponsors. They have access to a host of project information as they guide sponsors to delivery approaches that can either set the stage, or stand in the way of private financing once the bankers come on the scene.
This issue will shed light on how these professionals and the array of tools at their disposal can close the information gap that is the common denominator behind financing barriers. Readers will gain a feel for the magnitude of capital programs, their relationship to regional and global competitiveness, trends in green investing and tools that harvest data have proven valuable in due diligence within state-of-the-art building information modelling. These professionals and tools could be the answer to many of the current challenges.
By highlighting these key players that are available through, and at the expense of project sponsors, our audience can see sources of comprehensive valuation data that will help financing teams unleash impact capital into public infrastructure projects.
John Williams is the Chairman & CEO of Impact Infrastructure LLC. He has over 33 years as an advisor to infrastructure development programs and 16 years as a principal owner of an international architecture and engineering company.