In light of the desire – and need, even – to “rebuild the world”, there is one factor that cannot be ignored. It has to do with the parameters of sustainability in the construction of infrastructure. Although they might not be new, the influence of these parameters today and the coming years will be felt on the cost of public works.
The cost of this influence has been calculated by McKinsey & Co in a recent report entitled “Financing Change: How to mobilize private-sector financing for sustainable infrastructure”. What emerges is a figure that puts the matter in perspective: from 2015 to 2030, demand for new infrastructure will have an economic value of $90 trillion, nearly double the value of existing infrastructure at $50 trillion. In this figure McKinsey takes into account the $14 trillion that must be spent to meet what is called the “sustainability premium” or the respect of sustainability principles imposed by many governments and even more international organizations.
According to international consulting firms, the budget of each project – even at the initial stages – must take into account an additional 6% of the final value in order to adhere to sustainability standards. And this, according to analysts, is already being done for projects like road works in Colombia or wind-power projects at Lake Turkana in Kenya.
Respecting the principles of sustainability in the construction of public works is no longer an ambition of a single company or contractor that is more sensitive than most. In 2015, reads the report, was the year when notion of sustainable development in the infrastructure sector came into its own.
The foundations for these new rules was established by the United Nations on two occasions. The first was the Development Agenda that came out of the summit in Addis Abeba in July. The second was the formal adoption of the Sustainable Development Goals. Everything culminated in the 2015 Paris Conference at which 190 countries responsible for 98% of the world’s emissions agreed to a common strategy and set goals on climate change.
The Paris Conference should bring about its first results between 2018 and 2020 but it is certain that the industrial production model is already changing and this change will inevitably influence the sector of public works.
Until recently, about $3 trillion were being spent each year on infrastructure projects throughout the world. It is a figure that is destined to rise this year to touch $7.7 trillion in light of the rise in demand for more infrastructure, according to McKinsey. Part of this additional spending depends on respecting the sustainability principles in the construction of big, ambitious projects.
A big part of this “sustainability gap” is concentrated in what the United Nations defines as “middle-income countries”, which have average annual salaries between $1,045 and $12,745. It is in these markets where construction of new works is at its most frenetic, and where 60% of the additional spending in infrastructure is concentrated for the coming 15 years.
When looking at the kind of infrastructure, McKinsey says the energy sector is the most swept up in this important change. Half of the new funds sought for sustainable projects will be dedicated to this sector, and the projects that respect these new goals the most are those of hydroelectricity, which allow for the production of energy by using the power of water.
The economic effort made to accommodate the existing stock of infrastructure to the socio-economic changes occurring throughout the world is shared among various players. Amid the $3 trillion spent every year, the amount linked to private investors varies between $1.0 trillion and $1.5 trillion.
The remainder is covered by governments via infrastructure development plans, and institutional institutions, from the International Financial Corp of the World Bank. And it is these very institutions that are pushing for the respect of these sustainability parameters. The European Bank for Reconstruction and Development, for instance, has assigned a lot of resources to projects geared to the development of sustainable energy.
It is a role similar to the one being done by many governments that are more sensitive to the issue. One case in particular is that of Australia where the government has asked business that are doing the North West Rail Link to respect the most advanced sustainability criteria for materials, energy supply and water use, transportation and waste management.
A sustainable infrastructure is not just a project that respects a set parameters to protect the environment. It is something more. The concept behind sustainability involves socio-economic aspects.
On the social side, respect for human and collective rights during the project’s construction as well as awareness of the impact that it has the lives of the local population are imperative. The same for the economic side where the sustainability of a public work means its ability to favor development and produce wealth. All of these are ambitious challenges that must be embraced in the next 15 years.
BETWEEN 2015 AND 2030 DEMAND FOR NEW INFRASTRUCTURE WILL CARRY AN ECONOMIC VALUE OF $90 TRILLION
IN THE NEXT 15 YEARS, $14 TRILLION MUST BE SPENT TO HAVE PUBLIC WORKS RESPECT THE PRINCIPLES OF SUSTAINABILITY
EVERY PROJECT MUST TAKE INTO ACCOUNT AN EXTRA 6% ON TOP OF THE BUDGET TO COVER THE COST OF ADHERING TO SUSTAINABILITY STANDARDS
ABOUT 60% OF INFRASTRUCTURE SPENDING IN THE NEXT 15 YEARS WILL BE DONE BY MIDDLE-INCOME COUNTRIES
ABOUT HALF OF THE NEW FUNDS REQUESTED FOR SUSTAINABLE PROJECTS IS DEDICATED TO THE ENERGY SECTOR