Harnessing Private Sector Expertise For Better Sustainable Infrastructure

The development of sustainable and resilient infrastructure is necessary to achieve the development outcomes envisaged by the Sustainable Development Goals, such as access to clean water and energy for all. Developing countries, in particular, face large gaps in both their ability to finance the necessary infrastructure, and also in the expertise available to plan, design and implement large infrastructure projects. In the private sector, in international institutions, and in development partners, however, there are extensive resources that developing countries can draw on to enable their infrastructure strategies.

The ESCAP Sustainable Business Network (ESBN) has inaugurated a task force to consider how to better enable and develop the sustainable and resilient infrastructure that will be necessary for a green transformation of Asia-Pacific economies. The task force is currently seeking to expand its membership of private companies in the region that can contribute to a dialogue on building greener transport networks, urban development, energy, and water systems. A meeting report from a roundtable event associated with this task force lays out recommendations for countries that are seeking better public-private partnerships (PPPs) to scale up and improve their infrastructure.

Once generally considered to be the domain of public investment, infrastructure development now increasingly relies on private companies, or partnerships between private companies and the public sector. Sustainability is well and truly now a part of the public consciousness, and companies that are involved in the building and maintenance of infrastructure have embedded sustainability mandates into their governance. At an ESBN event held in Vientiane, Lao PDR, in November 2023 the transportation company MTR noted that while it is good for companies to commit to sustainability, it is further necessary for companies to publicly commit to specific targets. This keeps companies accountable and prevents greenwashing. Such public commitments, particularly to widely known standards like Science Based Targets or GRI, can enable developing countries to identify suitable private partners for investment in necessary infrastructure projects.

For developing countries, and those in special situations such as small island developing states (SIDS) and landlocked developing countries (LLDCs), additional sources of finance and expertise are available through multilateral finance institutions like the International Finance Corporation and the Asian Development Bank. These institutions have a long history of advising countries on the deployment of public-private partnerships. As well as being directly available to provide expertise on developing a project pipeline and specific project proposals, these institutions have a variety of training programs and materials available to help countries build internal expertise. Noting that this expertise takes a considerable length of time to develop, countries may note that it is possible to initiate smaller, lower risk projects to build capacity, rather than immediately pursuing large-scale, complex projects. This approach has been used to some success by the Kyrgyz Republic, for example.

In addition to the multilateral development banks, private capital providers are also interested in green and sustainability-focused infrastructure. These private providers are actively seeking to invest in projects that fully align with a country’s sustainability targets, understanding that projects that are in accordance with such targets are more secure from adverse developments due to policy changes. To broaden the range of projects that will present a viable return for private capital, governments may consider taking advantage of blended finance. This approach requires catalytic investments from governments that can bring the financial return of otherwise non-viable projects up to a threshold that becomes acceptable for private capital providers.

In partnerships between the public sector and the private sector, the allocation of risks is one of the fundamental areas that can distinguish successful and efficient use of public funds, as contrasted with spending that is inefficient, or that could be perceived as overly generous to private partners. Fundamentally, in PPPs, the risks inherent in a project should be managed by those best placed to do so. There is generally a push from private providers to require governments to accept any risks related to climate change or climate disaster, however, participants at the roundtable discussion in Vientiane generally agreed that it is not always necessary for the government to bear climate or disaster related risks. While still a complex and challenging area, the growing familiarity of private companies and their insurers with climate and disaster risks means that governments can negotiate more freely to apportion some of these risks to be managed by private partners.

Progress on the Sustainable Development Goals in the region is seriously off track, and reversing the negative trends will not be possible without a sustained effort on improving infrastructure, among other things. For developing countries seeking to involve private sector expertise and finance in building better, greener projects, the recommendations arising from the ESBN’s discussions of infrastructure are vital reading.

Benjamin McCarthy
Associate Economic Affairs Officer, Trade, Investment and Innovation Division

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