Infrastructure Development in the Post-Pandemic Economic Recovery

Panellists saw a unique opportunity to build back better through infrastructure investment that maximised environmental and social benefits. A post-Covid recovery driven by investment in infrastructure could close a global US$10 trillion investment gap between now and 2025. But while governments have previously looked to infrastructure to drive recovery, this approach is not without risk, especially in the unique circumstances of the pandemic.

These risks include the heavy indebtedness of national economies incurred during the pandemic, and the multiple demands across all sectors for further support. Infrastructure investment will face steep competition both for funding and policy-makers’ attention. Added to this, political leaders concerned by rising unemployment will inevitably be drawn towards “shovel ready” projects, even if these are not the best choices for long term benefit

The panel highlighted the need for a long-term vision for infrastructure, with a time horizon of thirty years or more. Long timescales will lead to more reliable income streams, encouraging more private sector investment. The private sector could support the public sector by helping to shape a long-term vision for more investible projects. However, the panel also noted that large infrastructure projects generally have a poor record in terms of cost and time overruns, and this needs to be addressed.

The private sector could also educate policy makers on investment risk. Additional Covid-19 related health and safety equipment and protocols will have implications for cost, productivity and project timelines. Policy makers will need to understand how their decisions impact investibility, and how these new risks should be allocated.

The panel agreed on the rising importance of ESG investing, and expected projects with strong ESG credentials to attract more backing.  There are a number of historic examples of infrastructure failing to take account of social considerations; some transport systems have divided and isolated people of colour – a form of systemic, if unintended, racism.

The panel highlighted emerging practices to address past mistakes. In the US, the I-270 corridor project in St Louis has involved thorough analysis of the demographics of residents to ensure that the scheme would be socially equitable.

The Republic of Ireland has reviewed its transport investment policies and allocated 20% of the 2020 capital budget to walking and cycling. Most of the remaining budget will go to public transit. This will re-balance past policies that have disproportionately benefited prosperous communities.

In Canada, new transit projects and upgrades are being designed to take account of social needs, addressing inadequate connectivity to poorer neighbourhoods and indigenous communities. Beyond transport, inequalities are also amplified by design of state-run buildings, such as correctional facilities, which have wider social consequences.

The private sector could contribute to a more ESG-focused approach through new technology, such as digital analysis of crowd sourced data to understand behaviours for better infrastructure design. Technology offers an unprecedented opportunity to engage all stakeholders using virtual and augmented reality, with interfaces in multiple languages. The private sector is also developing tools to capture wider value beyond financial returns, such as quality of life, heritage protection, noise abatement, public amenity, civic pride and connectedness. 

Private firms could guide decision makers and project sponsors in the better understanding of risk. This will need to be founded in a very clear common understanding of the project’s purpose, its benefits and effective risk management tools. While tools such as BIM, digital twins and ICMS are valuable, a culture of transparency is also important, in order to address and intervene early where problems arise. Skills and experience are fundamental to success, in particular the ability to really understand the insights that could be derived from data, enabling the best interrogation of a project’s progress.   

Canada’s experience highlights the benefits of building social value into the public sector planning lifecycle at an earlier stage. The United Kingdom’s National Infrastructure Commission is a good example of embedding social value into infrastructure design principles through stakeholder engagement.

A key principle to maximising ESG benefits across the asset lifecycle will be the circular economy approach. Reduced resource intensity and waste could also help close the investment gap. Recent work by Arup and the Ellen MacArthur Foundation, with support from RICS has highlighted what can be achieved and how.

Panellists argued that the UN Sustainable Development Goals are a good framework for ensuring the balance of all ESG dimensions. The UN has published guidance on what this means across the lifecycle for all actors in real estate development.

Other key developments such as the Task Force on Climate Related Disclosures and the European Union’s “Taxonomy” defining what qualifies as a sustainable investment will have a significant impact.