Yes I admit, this is a bombastic title to catch your attention and I am not an historian so my answer will not be authoritative. But there are indicators.
For over a decade there has been a growing trend in the financial sector to actively address and manage sustainability of investments, not only on the financial side, but also the social and the environmental dimensions of sustainability. Some milestones along this way:
- The launching of the Dow Jones Sustainability Indices in 1999 and their continuous evolution.
- The Carbon Disclosure Project of 2000 and its growing importance.
- The Equator Principles of 2003 and their dissemination.
- The Principles for Responsible Investment that were launched by the U.N. Secretary-General in April 2006.
The creation and implementation of these sustainability assessments, transparency initiatives, and business standards show that financial institutions value the systematic monitoring and assessment of sustainability, as it increases transparency and mitigates risk in investment decisions.
As an indication of this trend, more than 1,300 investors, representing approximately US$45 trillion in assets under management, have signed the UN Principles for Responsible Investment. The recent trends in responsible investment are also supported by a growing number of impact investors. According to the Global Impact Investment Network’s recent survey, 157 asset owners and asset managers have a combined US$77.4 billion under management and committed US$ 15.2 billion of new impact investments alone in 2015.
This movement of the investors and fund managers is impressive, but regulators play a pivotal role in allowing and stimulating the financial sector to finance the transition to sustainable infrastructure investments. In the last two decades, risks originating from neglecting environmental, climate change and social topics have come to the fore. Many financial market regulators, financing institutions and financial industry federations are therefore giving more attention to these issues and perceive them as risks that have to be taken into account when doing business.
Some national regulators are already addressing these risks with voluntary or mandatory sustainability reporting requirements. Here are some examples.
- Many countries have moved forward in establishing green bond and green credit guidelines. The Sustainable Banking Network for Regulators of the International Finance Corporation promotes this dialogue of regulators on green bonds and sustainability practices. It has members from Bangladesh, Brazil, China, Indonesia, Lao PDR, Mongolia, Nigeria, Peru, Thailand, and Vietnam.
- China has been one of the frontrunners in this process; The People’s Bank of China’s launch of its green bond directive in December 2015 is a first important step for promoting sustainability criteria and practices in the Chinese financial sector.
- In 2014, the Central Bank of Brazil implemented a regulation that establishes guidelines for financial institutions to consider the bank’s “degree of exposure to the social and environmental risk of the activities and transactions of the institution.” This regulation also requires the bank to publicly disclose its environmental and social risks as part of the market discipline disclosure rules of Pillar 3 of Basel III.
- The Prudential Regulation Authority (PRA) of the Bank of England is responsible for the supervision of the insurance sector and focuses on environmental risks. Climate change is analyzed as part of systemic environmental risks, especially as insurance regulation is an area that needs to consider a long-term horizon. Thus, PRA published the results of an analysis on the exposure of insurance companies to climate change–related risks in September 2015.
- The Australian Prudential Regulation Authority (APRA) supervises individual financial institutions by establishing and enforcing standards for a stable, efficient, and competitive financial systems. Under the Financial Sector (Collection of Data) Act 2001, investment banks must provide statistical information to APRA. Although APRA has not made reporting mandatory yet on environmental, social, and governance (ESG) issues, under November 2013 guidelines, pension funds are expected “to demonstrate appropriate analysis to support the formulation of an investment strategy that has an ESG focus.”
Seeing these trends, the question remains: Is sustainable infrastructure a historic trend, or not? The most recent New Climate Economy Report says “We have a historic opportunity to deliver inclusive economic growth, eliminate poverty and reduce the risk of climate change by changing to sustainable infrastructure.”
And there are other positive signals, especially from China, the world’s undisputable infrastructure superpower. The China International Contractor Associations (CHINCA) took up the issue of sustainable infrastructure and worked together with the Inter-American Development Bank (IDB) on a technical note on Sustainable Infrastructure to promote China-LAC Infrastructure Cooperation. Moreover in the preface of their recent draft version of guidelines for sustainable infrastructure, they come to the conclusion that “sustainable infrastructure will obviously become a new trend in international infrastructure market.” – I would happily agree.