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*Columbia FDI Perspectives*
Perspectives on topical foreign direct investment issues
No. 305  May 17, 2021
Editor-in-Chief: Karl P. Sauvant ([log in to unmask])
Managing Editor: Riccardo Loschi ([log in to unmask])
*Mobilizing FDI for sustainable infrastructure investment*
* <#m_-219439110489528731__edn1>
Munir Akram** <#m_-219439110489528731__edn2>

Achieving the Sustainable Development Goals
(SDGs) by 2030 and net zero carbon emissions by 2050 requires a global
transformation in infrastructure—energy, transport, housing,
communications, industrial and agricultural production—to a sustainable
model. Investment of US$l00-120 trillion in sustainable infrastructure will
be needed to reach the target of zero emissions by 2050. According to UNCTAD
of the current annual funding gap of at least US$2.5 trillion, two-thirds
is in developing countries, where infrastructure investment declined by
US$50 billion in 2020.

In 2017
83% of infrastructure investment was publicly funded. China’s Belt and Road
projects and Europe’s Green Deal are funded mostly from public sources.

The vast majority of developing countries do not have the public resources
to finance infrastructure investments, nor the capacity to borrow at the
low interest rates available to the advanced economies. It is evident that,
due to the scale of the investment needed, both advanced economies and
especially developing countries will have to find ways to access private
money—and that means primarily FDI for the developing countries—to meet
these goals.

Global wealth in 2019 rose to US$399 trillion
of which US$50 trillion was held by retirement and pension funds
As Mark Carney, former BOE Governor, proposed, we need a financial system
that “turns billions of dollars of public money into trillions of private
investments.”[1] <#m_-219439110489528731__edn3>

Private asset holders have remained reluctant to invest in infrastructure
where projects are long term and complex, with lumpy up-front costs and
uncertain returns. The limited private investment has been mostly in the
downstream stages of projects, once public investment has underwritten the
early-stage risks, and mostly in the form of loans rather than equity.

Most developing countries have been unable to secure private infrastructure
investment for multiple reasons: weak capacity to identify, prepare,
structure, and negotiate complex infrastructure projects; a shortage of
public money to undertake the risky, early-stage project development; high
country and currency risk; the high costs of capital (with market interest
rates ranging from 5-15%); an insufficiently attractive and/or stable
investment environment (e.g., deficient regulatory frameworks, the absence
of bankruptcy laws and “workout” mechanisms); and little or no direct
interaction with private investors, asset managers, credit rating agencies,
and other market players.

In recent years, several mechanisms have been established to generate
sustainable infrastructure investment in developing countries. Examples are
the World Bank’s Global Infrastructure Facility and the G20’s Global
Infrastructure Forum and Hub. There is also considerable public pressure on
companies and asset managers to allocate to sustainable projects.

The results are quite modest so far. Investment in sustainable development
is a tiny fraction of total global investment. For example, only 1% of
assets under management in Europe, North America and Australia are deployed
in “sustainable” investments.[2] <#m_-219439110489528731__edn4> The Green
Bond market
is only around US$13 billion, i.e., 2.5% of sustainable development
investment since 2009.

On the one hand, private investors complain about the absence of a large
enough pipeline of sustainable investment projects and opportunities. On
the other hand, some development institutions caution against the “green
washing” of investments in the absence of clear criteria regarding

Clearly, a comprehensive and in-depth analysis and discussion, involving
all stakeholders—private asset managers, development institutions, donors,
and developing country governments—is needed to determine what it takes to
dramatically scale up private sector investment in sustainable
infrastructure. The United Nations, given its universal membership,
convening power and its country offices in almost all countries, is well
placed to lead such an effort.

A multi-stakeholder policy dialogue, under UN auspices, could, inter alia,
develop a template for national and international frameworks to incentivize
private investment in sustainable development projects, especially in
developing countries; propose and develop measures to de-risk sustainable
infrastructure investment (e.g., through blended finance, green bonds,
sovereign guarantees, insurance schemes, or “first loss” mechanisms); and
enlarge the capability of developing countries to access public finance
(e.g., from international financial institutions, the Global Environment
Facility and other existing and new facilities). It could also develop
agreed criteria to determine the sustainable nature of projects.

By coherently utilizing the nearly 200 country offices of the UN system,
the World Bank Group and regional development banks, a multi-stakeholder
mechanism (e.g., the Financing for Development Forum’s Investment Fair)
could help developing countries to acquire the capacity to identify,
prepare and structure sustainable infrastructure projects, thus building a
sizable pipeline of such projects; build the regulatory and equitable
incentive structures to attract private and public investment; and
accelerate the early-stage preparation of projects. Such a multi
stakeholder mechanism could also develop a database of sustainable
infrastructure projects and connect existing platforms (e.g., World Bank,
G20, Africa) with each other, to ensure the real-time exchange of
information among stakeholders, to accelerate decisions.

Such an inclusive global approach offers the best prospect of mobilizing
sizable private sector investment to realize the SDGs and transition to a
global green economy.

* <#m_-219439110489528731__ednref1> *The Columbia FDI Perspectives are a
forum for public debate. The views expressed by the author(s) do not
reflect the opinions of CCSI or Columbia University or our partners and
supporters. Columbia FDI Perspectives (ISSN 2158-3579) is a peer-reviewed
** <#m_-219439110489528731__ednref2> Munir Akram ([log in to unmask]) is
Permanent Representative of Pakistan to the United Nations. The author
wishes to thank Michael Likosky, Justin Lin and Lou T. Wells for their
helpful peer reviews.
[1] <#m_-219439110489528731__ednref3> Mark Carney, “A chance to reboot
globalisation”, *Financial Times*, March 19, 2021
[2] <#m_-219439110489528731__ednref4> WRI, UNEP-FI and 2nd Investing
Initiative, “Climate strategies and metrics: Exploring options for
institutional Investors,” Discussion Paper, (2020)
p. 13.
*The material in this Perspective may be reprinted if accompanied by the
following acknowledgment: “Munir Akram, ‘Mobilizing FDI for sustainable
infrastructure investment,’ Columbia FDI Perspectives No. 305, May 17,
2021. Reprinted with permission from the Columbia Center on Sustainable
Investment (***
A copy should kindly be sent to the Columbia Center on Sustainable
Investment at **[log in to unmask]* <[log in to unmask]>*.*

For further information, including information regarding submission to the
*Perspectives*, please contact: Columbia Center on Sustainable Investment,
Riccardo Loschi, [log in to unmask]

*Most recent Columbia FDI Perspectives*

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*All previous FDI Perspectives are available at *
*. *

*Other relevant CCSI news and announcements*

   - *On May 26*, 11am-12pm ET, CCSI will host Investment Treaties and a
   New Legal Imagination
   the recently published book, *Investment Treaties and the Legal
   Imagination*, Nicolás M. Perrone excavates the origins and evolution of
   the legal thinking underpinning the investment treaty regime and ISDS
   practice. Three distinguished speakers will discuss with the author the
   implications of these findings for the future of international investment
   law. *Please see our website
   for more details and to register for this online event.*

   *CCSI is seeking a consultant* to support research, organization and
   delivery of capacity building programs, and advisory work related to CCSI’s
   work on investment law and policy. The project has a regional focus on
   investment laws and policies applicable in African countries, Regional
   Economic Communities (RECs), and at the continental level. Applicants
   should be familiar with the African Continental Free Trade Area (AfCFTA)
   and ongoing negotiations of protocols to the AfCFTA, including on
   investment. Further information about the project, consultancy
   requirements, and information on how to apply can be found here
   *The deadline to express interest is May 28, 2021*.

Karl P. Sauvant, Ph.D.
Resident Senior Fellow
Columbia Center on Sustainable Investment
Columbia Law School - Earth Institute
Ph: (212) 854-0689
Fax: (212) 854-7946
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*Karl P. Sauvant, PhD*

*Resident Senior Fellow*
*Columbia Center on Sustainable Investment*
Columbia Law School - The Earth Institute, Columbia University
435 West 116th St., Rm. JGH 825, New York, NY 10027
| p: (212) 854 0689 | cell: (646) 724 5600 e: [log in to unmask]
| w: | t: @CCSI_Columbia

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