​Prioritizing ESG and Impact Investments for Sustainable Public Infrastructure Projects

by | May 19, 2016 | Uncategorized

Competing for Resources

The OECD estimates USD 53 trillion in investment or the equivalent of an annual 2.5% of global GDP by the year 2030, to meet demand for infrastructure investment by 2030. [1] According to ACEC, a $3.6 trillion investment is needed by the year 2020 in the U.S., alone [2] and the Conference Board of Canada recently stated that, “Canada needs to invest at least $293.8 billion in electricity infrastructure between 2010 and 2030[3]. Those numbers are so large and intimidating that most people are tempted to ignore them with hopes they will go away. Public sector budget shortfalls and a lack of willingness to address funding through legislative measures will make the situation worse with failures looming on the horizon.

Stranded Canoes from Climate Change Induced Flooding or Under Bridge Art?

There is, however, considerable interest within the impact investing community which includes socially responsible investors and pension fund investors wishing to meet environmental, social and governance objectives that control more than $29 trillion worldwide[4]. Roughly 56 percent or $16.24 trillion of that capital is from the U.S[5], alone. Impact Investors have a growing interest in making long term commitments to infrastructure and public building projects. They are drawn toward the long term inflation linked returns, post development stability, and monopolistic advantages associated with the projects.

Yet impact capital has not made significant progress in finding its way into these projects. One of the primary reasons is the lack of transparent, objective, comparable, and affordable investment information. That information is needed to decide whether to invest, what ESG goals it meets and also to inform due diligence assumptions as to project value and risk.

The information gap is also a barrier to success in winning public sector, merit-based funding. Project sponsors are used to formula grant programs and are just now coming up to speed in articulating business cases needed to demonstrate and compare the value of merit with disparate competing projects.

The good news is that things are changing rapidly, and soon, project sponsors will be making their cases for merit funds and private impact capital. They will be basing their case on the comprehensive value of cash as well as internal/external costs and benefits that are adjusted for risk to determine overall value for money[6]. That value can be assigned across a range of stakeholder beneficiaries to address the interests of most of the entities that can make or break a project.

Aligning Interests

Comprehensive valuation is essential to equipping project sponsors with the ability to answer one critical question: What’s in it for me? There are different answers depending on the role one plays in project development:

  • Mayors facing constant pressure associated with election cycles need to be able to articulate value to a spectrum of often competing interests. Beyond understanding value that can be delivered within their election cycles, they need to address each stakeholder subset in value units that are clearly understood.
  • Service Commissioners, whose jobs depend on their ability to maintain public services at existing levels, see risks in expanding their efforts to take on new projects. They compete for capital with day-to-day needs while adding delivery risks that make their jobs more difficult.
  • Sustainability Managers are focused on long term objectives like energy consumption, the reduction of greenhouse gases, water conservation, and improved waste management. Their initiatives can rock the boat as they often involve changes to existing programs and may include investment and commitments to operations and maintenance.
  • Resiliency Officers, some of the newest players in local government, are currently focused on writing comprehensive Resiliency Plans that must address extreme events (e.g., flooding, tornadoes, etc.). These events typically feature low probabilities of occurrence but can create potentially devastating results. Their plans are all about rapid recovery from a range of disasters that can be rooted in extreme weather, economic disruptions, epidemics, and terrorist events. Any of these events can trigger critical service or system failures. Calls for increased investment in systems which would reduce the damages of these extreme events have to be balanced with the less capital intensive, responsive strategies that include taking out insurance policies for the region.
  • Budget Directors have very clear fiduciary responsibilities that call for transparency and prudent use of public resources. They are often driven by short term priorities that make funding for longer term initiatives a challenge.

In addition to these well recognized players, there are the external stakeholders that emerge whenever a community is considering new projects or programs. This is particularly true when these projects or programs require significant commitments, including construction of assets with potential environmental, social, and economic consequences.

All of the stakeholders want to know, “What’s in it for me?” They will all get a different answer. The goal should be to use valuation and risk data to balance costs and benefits across the stakeholder spectrum getting projects built involves a balancing and exchange of value and risk between parties.

For example, the participation of private capital may require a higher financial return on investment than normally considered. Given the value of public benefits at stake, it may make sense to swap financial returns for public benefit returns. Aligning, valuing, and balancing those interests requires access to credible, transparent data derived from a recognized methodology that can be used to give people confidence in to deals made and to monitor progress in project development and long term operations.

Information Needs

During times of scarce resources, there is intense competition. Value and risk information is needed to answer stakeholder questions. Credible input data is essential to building support and moving up the prioritization list. Capturing that data will require the use of existing, standardized tools that can be afford-ably harnessed and then applied early and often throughout a project’s life to provide relevant decision support information.

The universally recognized Cost Benefit Analysis (CBA) is the best starting point. CBA is a standard approach to economic valuation used frequently in custom assessments associated with infrastructure projects. Custom studies are often commissioned via consulting economists who reinvent the wheel as they assess specific projects. Custom studies are expensive, and using different data, methodologies, and metrics make them difficult to compare. As a result, they are done early in the project development process to sell a project during concept stage. Once the project is sold, they are generally placed on a shelf and ignored as decisions are made that actually define and deliver final projects.

CBA has been a proven tool in the quest for merit funding. Work has been done to create sector specific metrics (i.e., energy, transportation, water, social infrastructure including healthcare, military and educational facilities) that run in conjunction with an analytic engine that is “powered” by CBA and probabilistic analysis. Together, the metrics and engine have been run to translate tangible and intangible costs and benefits to risk adjusted monetary units that assign value by specific groups of stakeholder beneficiaries.

Tapping Impact Capital

Professionals charged with overseeing investments of impact capital have long shown an interest in infrastructure and public building projects but have been discouraged by the effort required to complete the due diligence process. In simple terms, they have struggled with quantifying the value and risk associated with specific projects. In addition, they have found the average project size well under the dollar amount needed to efficiently finance in the marketplace. By using standard CBA and probabilistic analysis tools, sector specific metrics, and recognized building information modelling (BIM) software, project sponsors can reveal impact value while supplying information that reduces the due diligence burden. At the same time, they can increase project comparability that can aid in bundling disparate projects. These three benefits will go a long way to making infrastructure projects attractive investments for impact capital.

Further, by answering the “What’s in it” questions, they can reduce the risk of project delay through deal balancing and the allocation of financial and sustainable returns on investment. Also, for Resiliency Officers, they can assess and balance cash flows associated with preventative infrastructure investments with those required to fund responsive insurance policies to find the fiduciary “sweet spot” between strategies.

Making the Case

Transparent, objective, credible and comparable value and risk assessments are key to making the case for merit-based funding as well as to attract impact capital. Assessments should begin as early in the project development process as possible and continue through each stage of planning, design, construction, and operations in order to benefit from increasing levels of detail as decisions are made and implemented. The assessments should use consistent metrics and analysis to capture a comprehensive case including risk adjusted values including financial, social, environmental, and economic costs and benefits of given projects and systems. Baseline data and the resulting decision support information from the business case should be used to adjust and monitor project expectations throughout the entire life cycle. Those project sponsors who understand and articulate the full value and risk associated with their projects will realize an advantage in the competition for merit funding and impact capital. Overtime, as comprehensive business cases become more common, users will realize additional benefits as projects are bundled and systems are managed on a basis of value for money as compared to other investment options.


Aspiring Resilient Cities will want to maximize the bottom line benefits in order to stretch local resources and attract external funds. Business Case Evaluation that utilizes standard CBA, risk assessment, and Building Information Modelling tools will enable project sponsors, their planners, and designers to consider returns from the earliest point of development. Automated tools will give them the ability to apply these concepts frequently throughout the development process, making the data more and more valuable when it is time for funding, financing, and performance monitoring. They will prove to be essential tools for prioritizing and attracting investments in sustainable public infrastructure projects.


[1] OECD Newsroom, Massive infrastructure investment needed to meet future demand says OECD, 05.03.2012

[2] ACEC 2013 Report Card for America’s Future

[3] The Foundations of a Competitive Canada: The Need for Strategic Infrastructure Investment, December 2013

[4] Global Pension Asset Study 2013 Towers Watson

[5] Ibid

[6] A distinction should be made between public private partnership (P3) or alternative procurement “Value for Money” (VfM) and overall value for money. VfM is a narrow concept that compares alternative procurement with traditional public sector build, own and operate. Overall value for money looks not just at the procurement but at the value of the project to the sponsors, the public, the environment, investors, etc. Rather than answering the VfM question of “Is this the best procurement method for the project?” The overall value for money analysis answers the questions “is this the right project?”, “is it done right”, and “what’s in it for me?”


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