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3 questions to smart minds

Climate-friendly infrastructure — opportunities for private investors

For this 3 questions to Dr. Andreas Jobst

Alli­anz SE in Munich
Photo: Dr. Andreas Jobst
8. Decem­ber 2022

We need a stra­te­gic refo­cus on climate-friendly infra­struc­ture to ensure energy and food secu­rity. Well-plan­­ned green infra­struc­ture projects not only increase poten­tial output growth and improve resi­li­ence, but can also help reduce the carbon foot­print asso­cia­ted with econo­mic progress. 


For this 3 ques­ti­ons to Dr. Andreas Jobst, Head of Macroe­co­no­mic Rese­arch and Capi­tal Markets Alli­anz SE in Munich

1. Why are efforts to create climate-friendly infra­struc­ture only now?

Govern­ments incre­asingly reco­gnize that infra­struc­ture invest­ment is the linch­pin in estab­li­shing effec­tive green tran­si­tion pathways. Infra­struc­ture curr­ently accounts for more than two-thirds of global green­house gas emis­si­ons on average. Well-desi­gned infra­struc­ture projects with a stron­ger focus on climate change and the broa­der sustaina­bi­lity agenda ther­e­fore not only increase poten­tial output growth and improve resi­li­ence, but also help reduce the carbon foot­print. — Howe­ver, current public invest­ment plans alone will not be suffi­ci­ent to close the esti­ma­ted green invest­ment gap.

2. How and in which areas do infra­struc­tures need to become “gree­ner”?

Our inter­nal calcu­la­ti­ons allow us to iden­tify the needs of each sector to meet diffe­rent emis­si­ons targets and match them with the distri­bu­tion of new plans (Figure 1)5. The various infra­struc­ture stimu­lus plans put in place during the Covid-19 crisis appear to parti­ally reflect these chan­ges. Compa­ring actual invest­ment needs by sector with current plans, we find that the latter fall short in elec­tri­city and grids, where invest­ment needs are greatest.

We esti­mate the largest green trans­for­ma­tion invest­ment gap in U.S. public infra­struc­ture to be about 1.7% per year. In Europe, the largest invest­ment gaps are in Spain and France (1.6% and 1.3% of GDP per year, respec­tively), while the figu­res are more mode­rate in Italy (0.6%) and Germany (0.4%). Germany can only meet the esti­ma­ted invest­ment needs taking into account the boost from the Easter package — provi­ded that the funds are allo­ca­ted effi­ci­ently and the projects are imple­men­ted effectively.

3. Why do we need a more diffe­ren­tia­ted regu­la­tory treat­ment of infra­struc­ture invest­ments for private investors?

Crea­ting a favorable regu­la­tory envi­ron­ment for infra­struc­ture invest­ment can help mobi­lize long-term funding from long-term inves­tors. Seve­ral G20 count­ries — and others with signi­fi­cant insu­rance sectors — have only partial or no special treat­ment for infra­struc­ture. For exam­ple, liqui­dity rules require insu­r­ers to provide signi­fi­cant amounts of capi­tal to cover invest­ments in infra­struc­ture debt, parti­cu­larly for unra­ted tran­sac­tions. To date, the lack of data on the credit­wort­hi­ness of infra­struc­ture projects has preven­ted better compa­ra­bi­lity with corpo­rate loans and even more diffe­ren­tia­ted regu­la­tory treat­ment. Impro­ving the avai­la­bi­lity of perfor­mance data on infra­struc­ture projects to govern­ments, regu­la­tors, and inves­tors would help expand the scope for more favorable regu­la­tory treatment.

Accor­ding to our calcu­la­ti­ons, green infra­struc­ture projects actually appear to fail at half the rate of “brown” projects globally over a 10-year period, with the diffe­rence being grea­ter in emer­ging econo­mies than in advan­ced economies.

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