New report: Unlocking Private Capital to Finance Sustainable Infrastructure

When two large storms knocked out an estimated $200 billion in economic value within a week, critical gaps in our infrastructure preparedness were laid bare. The 2016 “Hell or High Water” series from ProPublica and The Texas Tribune predicted a scenario that “visualizes the full spectrum of what awaits Houston” if it were hit by a large-scale hurricane. Experts consulted for the series cite Houston’s unimpeded development as a principal factor contributing to the region’s high exposure to flood risks.

According to Rice University engineering professor Phil Bedient, there is no way to design a system to handle the volume of water that Hurricane Harvey dumped on the greater Houston area. That said, if Houston hopes to arrive at a cost effective solution for mitigating future flood damage, Bedient recommends targeted, balanced investments in green and gray infrastructure.

In essence, this is also the message of EDF’s new report Unlocking Private Capital to Finance Sustainable Infrastructure. The report acknowledges the US’ $1.4 trillion funding gap to meet its infrastructure needs and provides a two-pronged path forward for the public sector to fill this gap.

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On one side, the report provides case studies that examine innovative infrastructure solutions, like DC Water and Sewer Authority’s green infrastructure approach to solving its stormwater management issues, to right-size the scale of the need. On the other side, the report provides a new Investment Design Framework to facilitate the development of investment-ready sustainable infrastructure projects. Informed by extensive research and interviews with industry experts, the framework identifies four key elements for attracting private investment in sustainable infrastructure:

  • Suitable investment models: The values associated with the economic, environment and social outcomes of a project should be monetized and captured as a stable revenue stream. This revenue stream will help determine appropriate investment models and potential partners.
  • Standardized performance measurement: Determining revenue streams requires meaningful and standardized environmental and financial metrics. Standardization of performance outcomes across technologies and within sub-sectors are needed to scale the market.
  • Transparent risk management: Many sustainable infrastructure approaches and technologies are new and have limited performance data. This can make it difficult to assess risks. However, governments and investors can work together to identify and assess risks, take mitigating approaches, and distribute risks across multiple parties that align risk with potential reward.
  • Facilitating effective stakeholder engagement: Sustainable infrastructure projects that utilize innovative financing methods are often complex and require technical, financial, and legal expertise. Additionally, strong leadership and project champions are needed to drive innovative solutions and engage stakeholders to deliver successful outcomes.

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As our focus shifts from storm tracking and mandatory evacuations to rebuilding and recovery, it is imperative that we seize the opportunity to do so in a way that will improve the resilience of our communities. The case studies and the Investment Design Framework included in the report are helpful tools to help make this happen. Embedding principles of sustainability into our infrastructure investment decisions is critical to achieving long-term economic, social, and environmental goals in the most cost-effective way possible. Success hinges on the public sector engaging broadly with the private, non-profit, and philanthropic sectors. We hope these stakeholders view this report as an invitation to engage with us and each other to overcome key investment barriers and unlock the flow of capital needed to deploy the infrastructure of the future – sustainable infrastructure.

Namrita Kapur, Managing Director of EDF+Business

Dakota Gangi, Sustainable Finance and Impact Investing Manager and William K. Bowes, Jr. Fellow, EDF+Business

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