Financing sustainable infrastructures in a smart cities’ context -innovative concepts, solutions and instruments

Abstract

Metropolitan regions are currently undergoing major transformational processes, driven by a number of different, partly conflicting trends, such as-among others-urbanisation, climate change and digital transformation. In order to convert metropolitan areas into smart cities that can serve as ecosystems for innovation, a sustainable urban infrastructure simultaneously offers both the basis and an enabler, contributing to meeting economic growth targets and global sustainability agendas (e.g. SDG 9, Paris Climate Agreement, Japan G20 “Quality Infrastructure” agenda etc.). Considering that 75% of the infrastructure needed in 2050 has not yet been built (“lock-in-effect”), the world faces an unprecedented infrastructure-funding gap of USD 90 trillion by 2030 alone (McKinsey&Co.). This stands in sharp contrast to the public debt levels that have significantly increased over the last decade, following the financial crisis of 2008. At the same time, sustainable investments have represented one of the fastest growing asset classes on financial markets since 2002. In addition, there is an increasing awareness of institutional investors realising new opportunities in the area of sustainable investments (e.g. access to new markets like renewable energy, e-mobility, etc.). This article illustrates the funding gaps facing sustainable infrastructure and how these can be bridged using innovative concepts, solutions and instruments (e.g. green bonds, social impact bonds) in the still young sub-discipline of sustainable finance. After outlining the theoretical framework (including regulatory issues such as the EU’s Action Plan on Financing Sustainable Growth), this article also discusses several related case studies analysing smart cities as well as innovative sustainable infrastructure projects.