Investor Forum – “Scaling Institutional Investments for Sustainable Development

 

Remarks by Angel Gurría

OECD Secretary-General

Buenos Aires, Argentina - 29 November 2018

(As prepared for delivery)

 

 

Ministers, Ladies and Gentlemen,

I’m delighted to be here to participate in today’s Forum and let me sincerely thank and congratulate our hosts, the Argentinian Government and the World Bank Group. The OECD welcomes the G20 priority placed on accelerating infrastructure development and financing.

 

The recent OECD Business and Finance Outlook confirms the large global infrastructure gaps, with estimates of annual investment required of up to USD 6.3 trillion. This figure takes into account the need to deliver quality, environmentally friendly and climate resilient infrastructure to eradicate poverty and transition towards a clean and low-emissions global economy. Scaling up private financing in sustainable infrastructure is key to closing this gap, especially in developing countries where public funding of infrastructure may be more constrained.

 

Lack of data still a major barrier to institutional investors in infrastructure

Institutional investors, with their trillion dollars under management, could potentially make an important contribution to the financing of infrastructure but they don’t. Our 2018 Annual Survey of Large Pension Funds and Public Pension Reserve Funds highlights this again, and especially in developing countries.

Yet, the potential is there! In our Survey, many funds reported that they were below their investment targets for infrastructure – pointing to capacity to increase those investments, including in unlisted infrastructure equity.

One major reason for the very limited involvement of private operators in the financing of infrastructure development is the lack of high quality data on infrastructure performance.

Infrastructure investments are typically long-term, involve high upfront costs, differ from project to project and involve non-standardised financing structures. Thus, they cannot reach economies of scale. For these reasons, infrastructure investment is different from other asset classes and involves specific risks: investors face difficulties assessing the risk attached to these investments – all the more that they lack high-quality data to perform due diligence on infrastructure assets. This is specifically problematic for institutional investors who have fiduciary duties and need to abide by stringent compliance rules.

That is why investors’ access to granular data on infrastructure projects, including on their financial and ESG performance, and more broadly their economic and social impact, is essential – notably to evaluating risk-adjusted performance on infrastructure projects. Developing the access to high quality infrastructure data is a central objective of the Infrastructure Data Initiative (IDI) being developed under the aegis of G20 - with the OECD acting as Secretariat.

Tacking stock of existing initiatives, the OECD and the Global Infrastructure Hub are going further and have developed a template for data collection from institutional investors, which is already supported by several investors’ associations . I invite investors to consider the proposed template and to participate in an exercise that needs to be truly global in scope.

The OECD is also looking at digital technologies, such as Blockchain and more broadly to distributed ledger technologies that have the potential to ease access to finance, reduce costs, improve data quality and transparency and enhance standardisation.

 

Next Steps: moving towards “Quality Infrastructure”

But the challenge is not only to build more but also better - much better! – infrastructure. The latter need to be made:

• cleaner: current energy, transport, buildings and water infrastructure make up more than 60% of greenhouse gas emissions.
   
• safer: their quality has been declining for decades, as illustrated by the recent Genoa bridge tragedy. 
  
  
• and more resilient: The 2011 flooding in eastern China illustrated the major damage that can be caused by extreme weather events, affecting 28 rail links, 21 961 roads, and 49 airports, as well as cutting power to millions of households.

 

Let’s build on the momentum generated through the G20 agenda on infrastructure as an asset class to include quality, resilience and sustainability aspects in infrastructure design and financing.

We indeed need a holistic, multidisciplinary approach to the delivery of quality infrastructure – across many dimensions such as governance, safety, efficiency, affordability, accessibility, responsible financing as well as environmental, social and economic sustainability.

Sustainability is for instance a keystone of blended finance, the mix of public and private funds to achieve sustainable development. The OECD’s blended finance principles, which aim to unblock commercial finance for the SDGs, help to ensure that blended finance meets accepted quality standards, including for infrastructure. We are now working on delivering the Tri Hita Karana Blended Finance Roadmap to scale up the contribution of development finance to the SDGs.

A new ambitious OECD horizontal project on sustainable infrastructure is looking at those issues, a project that can make a useful contribution to Japan’s G20 infrastructure agenda next year.
Please count on the OECD to continue supporting the G20 to design, develop and deliver policies for more and better infrastructure. Thank you.

 

 

See also:

OECD work with G20