Promoting Sustainability, One Infrastructure Investment at a Time

The Sustainable Asset Valuation (SAVi) Tool will be presented at the 5th GGKP Annual Conference on Sustainable Infrastructure by Oshani Perera from the International Institute for Sustainable Development (IISD).

The Preliminary Program for the conference is available here. 

It is now clear that in order to achieve the Sustainable Development Goals (SDGs), and match the ambition of the Paris Agreement on climate change mitigation, multi stakeholder action is required. This is because the investments required to reach development goals impact social, economic and environmental performance indicators for various sectors and actors, simultaneously. It would be a mistake to assess the outcomes of such investments in silos, with narrow boundaries. 

A first step in this direction was taken with the Millennium Development Goals(MDGs), but the discussion became mainstream after the global financial and economic crisis started in 2008, especially in the context of the Green Economy discussions. At that time the Green Economy was seen as an opportunity to more fully incorporate environmental considerations in development planning, to avoid undesirable side effects of decision making.

The understanding of Green Economy and Green Growth has evolved over time, as so have the tools that have been used over the years to support decision makers. I have started working in this field since 2008, developing customized models and tools to inform decision making, for more than 30 countries and more than a dozen international organizations. The latest addition to the portfolio of models available to decision makers is the Sustainable Asset Valuation (SAVi) facility. This is not an incremental improvement over previous work in the Green Economy field. It is instead a potential game changer for investments in sustainable infrastructure, leading to tangible and measurable outcomes on sustainable development. Let’s unpack why this approach may be better at delivering results against the SDGs than traditional policy support.

A first strong contribution to the Green Economy field was provided by UNEP’s Green Economy Report (GER), which was conceptualized in 2008 and published in 2011.  The Green Economy emerged as a concept, and for many as a goal for an economic transition that would support redirecting investments to more sustainable interventions. New, and integrated modeling work was prepared for that study (Modeling Chapter). This modeling exercise linked together ten sectors to assess the impacts of conventional and green investments on sectoral and system performance. In other words, it provided an economy-wide Cost Benefit Analysis (CBA) - capturing social, economic and environmental indicators - that could complement project-specific assessments.

Ahead of Rio+20 the attention moved from conceptualization to implementation. Many countries started creating and customizing their own Green Economy Assessments, and growing attention was put on Green Growth (a goal), rather than on Green Economy (which by this time was considered to be more of a framework for development planning than a goal). This brought the discussion of sustainability closer to investments, and the goals of ministries of finance and investors, which was partly missed at earlier stages. Various methods for assessing country performance were developed at this point (going from minor adjustments to existing models, to brand new approaches).

While the implementation at the country level can certainly be seen as a positive development, primarily because every country has a unique social, economic and environmental context (which are the foundation of any green economy analysis), it also brought fragmentation in the type of tools utilized and the analysis carried out. The need for convergence was felt by many, and the Partnership For Action on the Green Economy (PAGE) published in 2014 a Country Starter Kit to lay a common ground for those interest in preparing a green economy assessment.

As of 2017, we have several organizations that are actively using Green Economy/Green Growth concepts and tools in their work. This is remarkable. On the other hand, while progress is being made on several fronts, both governments and international organizations are still struggling with the same questions that were at the core of the Green Economy Report discussions back in 2008: how to leverage investments in green economy interventions? How to make so that development plans (national or sectoral) are effectively implemented? These are questions that come up over and over again at public events, as indicated by the World Economic Forum in their Green Investment Report, especially because data now show that Green Investments have leveled off in developed countries (see Clean Energy Investment). 

SAVi was designed to answer exactly these questions. First, following an important lesson learned from Green Economy work, SAVi is a multi-stakeholder led exercise. Specifically it tackles directly the needs of investors and governments. Emphasis is put on these two audiences because (1) governments need to define what the criteria are that tenderer have to meet for their infrastructure projects; and (2) because of investors’ leverage in promoting change through offering/denying investment support. Specifically, investors use very  simple metrics, and they decide the type of project that will go ahead depending on whether it provides the economic return they are after. As a result, differently from the discussion that has taken place in the context of Green Economy and Green Growth (or that, unfortunately, was never tackled head on), SAVi speaks to investors and project developers, highlighting the risks posed to their investments by not considering explicitly environmental, social, economic and governance indicators in the assessment of the bankability of a project.

Practically, SAVi directly involves investors in development planning. It is not easy to engage investors, particularly when it comes to assessing the impact of infrastructure projects they finance, or when we highlight that some of their investments are quite vulnerable to climate change. At IISD, with colleagues experienced in infrastructure finance, project-related bankability assessments and public procurement we complement the -often too simplistic- analysis carried out to determine the economic viability of infrastructure projects. We do so by more fully capture the complexity of the social, economic and environmental systems we live in (as I have explained in Tackling Complexity).

With SAVi we are aiming at highlighting the pros and cons of infrastructure projects, through an integrated and systemic lens. We offering a tool for assessing infrastructure investments, generating metrics both for investors and extending the analysis to societal impacts, and hence making iot relevant to public policy decision makers also. In fact, SAVi was created with investors and asset owners in mind, but it incorporates the knowledge accumulated through work on Green Economy and Green Growth. As a result, SAVi generates analyses that assess the outcomes of various infrastructure projects across social, economic and environmental indicators. For instance, it highlights the vulnerability of assets to climate change (for climate adaptation), it supports the assessment of the contribution of assets (construction and O&M) to emissions (for climate mitigation), and, most importantly, it shows how infrastructure influences various indicators of the development, including several SDGs.

In essence, SAVi brings sustainable development considerations from UN roundtables to the desk of the very actors that are investing to make development happen, through infrastructure, for the next 40-50 years. This is where knowledge on systemic risks and opportunities is needed today.