A key issue, indeed the most important issue, for G20 leaders at their annual summit in Osaka is how to generate sustainable and inclusive economic development and growth across the world over the coming decades.

The G20 account for about 80 percent of the world’s gross domestic product today, and their policies largely determine the health of the global economy.

Ten years ago, the world was facing a huge financial crisis and economic downturn, the impact of which is still being felt today. G20 leaders met in London to agree an emergency package of measures to stop the world from plunging from crisis into economic depression.

That crash was driven by unsustainable investments by financial institutions, regulatory and cultural, particularly in the housing market in the United States, together with inadequate structures which allowed systemic risk to develop and which managed it badly.

The G20 nations can safeguard against one potential important element in future financial crises by prioritizing wise investments in the transition to zero-carbon and climate-resilient growth and development. An inadequate, slow or badly managed transition can destabilize our economies, slow or reverse growth and severely damage our environment.

Critical to creating sustainable economies is the quantity and quality of infrastructure. The Global Commission on the Economy and Climate, of which I am co-chair, pointed out in its landmark 2014 report “Better Growth Better Climate" that $90 trillion would be spent on new infrastructure between 2015 and 2030, mostly in developing countries.

This investment will double the amount of infrastructure in the world. If it is similar to our existing infrastructure, it could lock in pollution, waste, inefficiency and climate vulnerability. It could prevent the world from realizing its collective international ambitions, including the Sustainable Development Goals and the Paris Agreement.

Infrastructure that facilitates more local air pollution and rises in greenhouse gas emissions is unsustainable. Infrastructure that is exposed and vulnerable to the impacts of climate change is unsustainable.

So it is absolutely crucial that the infrastructure we are now building around the world is sustainable.

A report published by the World Bank in early 2019 highlighted the huge need for infrastructure to eliminate poverty and raise living standards, with 940 million people living without electricity, 663 million lacking adequate sources of drinking water, 2.4 billion lacking decent sanitation facilities, 1 billion live more than 2 kilometers from an all-season road, and 4 billion people lack internet access.

It found that the spending of developing countries on infrastructure was mostly 3.5-5 percent of gross domestic product.

The report concluded that developing countries should be able to build the infrastructure necessary to realize the Sustainable Development Goals through investments equivalent to about 4.5 percent of their gross domestic product.

Such investments will be of profound importance in our cities, where more than half of the world’s population now lives and 70 percent of GDP is created, to ensure they are places where we can live, breathe, move safely and be productive.

The G20 nations must lead by example on this imperative, and especially the two world’s biggest economies, the United States and China.

US President Donald Trump has recognized the need for better infrastructure, and that it would be hugely damaging to the US economy if this is outdated, dirty, inefficient and vulnerable, instead of modern, clean, smart and resilient.

China is demonstrating leadership through its significant investments in zero-carbon energy, particularly renewable power. China’s support for solar power has directly contributed to the astonishingly rapid fall in the production costs of panel units, making it now the cheapest source of electricity in many parts of the world.

China can provide even greater leadership through the Belt and Road Initiative if it encourages the application of robust sustainability tests to investments in new infrastructure in partner countries.

It is not in the interests of China or its partners to waste money on infrastructure that is incompatible with the development of a zero-carbon and climate-resilient economy.

All across the world, short-sighted investors are already losing money on coal-fired power stations which are no longer viable in economies where the real costs of local air pollution and climate change from greenhouse gas emissions are properly taken into account.

The G20 nations should be wise with their investments within their own countries and abroad. They should promote the role of international financial institutions, and multilateral development banks in particular, in lowering the cost of capital for sustainable infrastructure. Indeed, the necessary pace and scale of transition requires a substantial expansion of that role.

In many countries, zero-carbon and climate-resilient infrastructure is often considered by private investors to be risky, partly because the associated financial returns depend on strong, clear and consistent policy.

Multilateral development banks have a vital role to partner investments in sustainable infrastructure, reducing the risks for other investors, by fostering and supporting good policy, by using their convening power to assemble good financing, partnerships, and deploying their range of risk management and sharing financial instruments effectively.

In October 2018, the G20 Eminent Persons Group on Global Financial Governance, of which I was a member, published a major report "Making the Global Financial System Work for All", highlighting the important role of multilateral development banks in promoting sustainable infrastructure and crowding in private investment.

Many of the multilateral development banks have already started to re-direct their support toward sustainable infrastructure.

The New Development Bank has already funded 30 projects, with a combined contract value amounting to $8 billion, most of which have been “green”, including renewable energy. These investments are likely to reach $30 billion to $40 billion by the end of 2021.

I am a member of the International Advisory Panel for the Asian Infrastructure Investment Bank (AIIB), which earlier this year, on the basis of good management, a strong portfolio and a clear strategy achieved a very successful first global bond to raise $2.5 billion to support sustainable infrastructure, cross-border connectivity, and environmental, social and governance investment practices in emerging economies in Asia.

But there simply is not yet the scale of the investment required.

In earlier 2019, the AIIB published its inaugural report on Asian infrastructure finance. It concluded that there has been no significant breakthrough in Asia in mobilizing private capital for infrastructure.

The leadership of the AIIB recognizes the urgent need to increase efforts to attract private capital to sustainable infrastructure, and that multilateral development banks need to further contribute toward improving project preparation, improving country policy frameworks and maintaining the supporting conditions by, for instance, providing better information for market players.

The Leaders’ Declaration from the G20 Summit in Buenos Aires in 2018 recognized that “infrastructure is a key driver of economic prosperity, sustainable development and inclusive growth”. It endorsed the Roadmap to Infrastructure as an Asset Class, and the G20 Principles for the Infrastructure Project Preparation Phase.

The roadmap pointed out that private savings in the hands of institutional investors are currently at an all-time high of $80 trillion in assets under management. Yet the infrastructure investment gap remains significant in both developed and emerging economies.

The aim of the roadmap is to address common barriers to the emergence of infrastructure as an asset class, including the heterogeneous nature of infrastructure assets, the lack of a critical mass of bankable projects and insufficient data to track asset performance.

Through such leadership, the G20 nations can promote sustainable economic growth and development, reduce poverty and improve living standards across the world. They can lay the foundations for a sustainable future. But they must move quickly and on scale. The climate crisis is real and now; delay will be profoundly dangerous.

The author is the chair of the Grantham Research Institute on Climate Change and the Environment at the London School of Economics and Political Science, and co-chair of the Global Commission on the Economy and Climate.

The author contributed this article to China Watch exclusively. The views expressed do not necessarily reflect those of China Watch.

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