Valuing Sustainable Infrastructure
Conventional methods of assessing the financial feasibility of infrastructure ignore a range of material environmental, social and economic risks, intangibles and externalities. When these risks and externalities are included, the business case for sustainable infrastructure become much more apparent.
IISD developed the Sustainable Asset Valuation (SAVi) tool to demonstrate to governments, investors and citizens why sustainable assets can deliver better value for money and more attractive internal rates of return.
Roads, bridges, power plants and other forms of infrastructure are critical to a functioning and sustainable economy. These assets are also complex and expensive to deploy: the global infrastructure deficit is estimated to be USD 90 trillion.
Given these costs, governments and investors often ask about the value-added of sustainable infrastructure.
- Does sustainable infrastructure systematically optimize value for money for taxpayers?
- Are internal rates of return more attractive when assets are planned and built in a more sustainable manner?
- To what extent can climate risks – as well as wider environmental, social and economic risks – be valued in financial terms?
Sustainable infrastructure can bring a host of positive externalities – including material and energy efficiency, jobs, productivity, innovation to name just a few. To what extent can these be measured and valued in financial terms? Can the additional costs needed to plan and build sustainable infrastructure be recuperated later in the asset lifecycle?
IISD built the Sustainable Asset Valuation (SAVi) to respond to these questions.
SAVi responds to discerning governments and investors that seek to know what they own. The tool can generate scenarios to quantify if sustainable assets can generate more attractive financial returns and trigger more positive economic, social and environmental multipliers.
At the moment, the tool can be applied to infrastructure assets in the energy and renewable energy, buildings, roads and water sectors. It will soon expand to cover nature-based infrastructure as well.
What is Sustainable Infrastructure?
Sustainable infrastructure includes assets that:
- Lower carbon and environmental footprints
- Provide for the stewardship of natural ecosystems
- Move beyond compliance on core labour standards and human rights
- Trigger green technological and industrial innovation
- Spur investment in education, skills building and R&D
- Increase employment and the growth of green jobs
- Are financially viable
- Crowd- in domestic investors and businesses
- Increase opportunities for foreign direct investment and domestic value-added
- Optimize value for money for taxpayers and investors across the asset life cycle.
How can governments and investors use SAVi?
The tool can be used to generate scenarios to determine the wider environmental, social and economic gains and losses of policies and help policy makers prioritize projects based on their contributions to sustainable development.
Governments can use SAVi to:
- Compare and contrast the environmental, social and economic performance of business-as-usual infrastructure with more sustainable alternatives.
- Determine the climate resilience of planned infrastructure projects.
- Assess how sustainable infrastructure projects can bring greater positive externalities including contributions to GDP and Green GDP, employment, productivity, wages, household incomes, lower carbon and green house gas emission, improve energy, water and resource efficiency, reduce effluents and wastes and much more.
- Determine trade-offs and prioritise projects and policies based on their contribution to sustainable development.
Governments can also use SAVi to assess the effectiveness of green economic and sustainable development policies. SAVi provides tangible data to address questions such as:
What are the costs, benefits and trade offs in granting fiscal incentives for renewable energy, green buildings and the production of less toxic building materials? What are the trade-offs between innovation, automation, and the creation of employment? What are the trade-offs between budget reforms that reduce spending on environmental services in favour of education and health?
Investors can use SAVi to:
- Assess whether improved sustainability performance can affect future cash flows and contribute to more attractive financial returns.
- Identify and assess the climate risk of infrastructure assets and prepare disclosure statements, as recommended by the Financial Stability Board.
- Quantify, evaluate and report on the environmental, social and economic co-benefits and avoided costs generated by infrastructure projects and, thus, contributions to sustainable development.
What makes SAVi unique?
Building SAVi took us on a most unique journey.
We sought to blend project preparation, procurement and infrastructure finance expertise with the emerging thinking on green economy and smart prosperity. The aim was to combine sound science with financial analysis.
Our goal was to build a robust methodology that would view infrastructure projects in a systemic manner. We also sought to innovate – combining best-in-class simulation with an interface that is intuitive and user friendly.
The result is the first of its kind.
SAVi incorporates the use of System Dynamics modelling and project finance modelling. The systemic relationship between the infrastructure asset, its geographical location and socio-economic context is quantified through System Dynamics simulation. We use Vensim, an industrial strength simulation software purpose-built to improve the performance of entire systems.
The financial performance of the asset, from construction to end of life, is modelled following Corality SMART financial modelling methodology.
We would value the opportunity to use SAVi on assets and project that are in the pipeline, under planning and construction or that are already in use. We will purpose build SAVi to meet the specifications of each asset and build scenarios based on the policy and performance priorities of each asset owner. Contact Oshani Perera.
For a deep dive into SAVi, please view our interactive presentation:
Sustainable Asset Valuation Tool: Water infrastructureTechnical background document for the Sustainable Asset Valuation Tool of IISD (SAVi) for water infrastructure. Read More
Sustainable Asset Valuation Tool: RoadsTechnical background document for the Sustainable Asset Valuation Tool of IISD (SAVi) for road infrastructure. Read More
Sustainable Asset Valuation Tool: Energy infrastructureTechnical background document for the Sustainable Asset Valuation Tool of IISD (SAVi) for energy infrastructure. Read More
Sustainable Asset Valuation Tool: BuildingsTechnical background document for the Sustainable Asset Valuation Tool of IISD (SAVi) for buildings. Read More
Sustainable Asset Valuation (SAVi) Tool brochureThis brochure highlights IISD's Sustainable Asset Valuation (SAVi) Tool, which helps governments assess the finanical impact of climate and other environmental, social, ecnomic and governance risks on infrastructure. Read More
How to Implement Strategic, Smart, Sustainable Public ProcurementPublic procurement is “not a back-office function anymore, but a crucial pillar for delivering government services, and a strategic one for tackling climate change.” Read More