12 May 2021
Jerome Hägeli, Swiss Re's group chief economist, has advocated making infrastructure debt tradeable, to help increase institutional involvement in the illiquid asset class.
Speaking in his capacity as outgoing co-chair of the World Bank-sponsored Global Infrastructure Facility (GIF), Hägeli said: "It is absolutely clear we need to focus on sustainable infrastructure debt and...on [it] becoming a tradeable asset class."
He added that an investor's ability to invest and divest at will might, in effect, make for more "disciplined" creditors, and better rights from them, as an investor.
Hägeli also advocated creating "a gold standard" for defining sustainable infrastructure, "with everything that comes with it – standardisation, contract terms and more harmonisation on disclosure".
He said: "All the work that can be done to create a gold standard in contract terms, to mobilise private capital...would help open up the floodgates, because what is still true from yesterday - that we need to improve creditor rights - remains even more true today."
At present, Hägeli added, less than 1% of emerging market infrastructure investing comes from private financiers.
He described the investment sense in backing green, not polluting infrastructure. "The fiscal multiplier for green versus non-green investing speaks for itself. If you look at the research by the IMF, up to seven times more return [comes] with green infrastructure investments."
However, Hägeli added governments now spend only 4% of their means on public infrastructure, barely one-quarter the level in 2008 – "so more can be done".
Hägeli expressed hope that, while the threat exists of losing about 20% of global GDP in some climate change scenarios, "the good news is 75% of the infrastructure [that will exist] in 2050 is not yet built today, so the opportunity to build better and more sustainable infrastructure is clearly here. Increasing by only...10% the current $6.3trn of annual global infrastructure investment would go a long way to move us towards the net zero world we all want."
The 'Fast-Infra' project, launched in December 2020 and backed by GIF among others, is consulting on creating a label and standardising terms for sustainable infrastructure, with plans for a release at the 26th session of the Conference of the Parties (COP 26) to the UN Framework Convention on Climate Change, in Glasgow in November.
Insurers' investment in infrastructure will be the topic of a panel session during Insurance Asset Risk's conference on investing in real asset, held virtually on 27 May. In particular, the panel will explore the paradoxical shift between old and new infrastructure.