The global transition to a low-carbon economy, which aligns with Paris Agreement outcomes, is estimated to require developed countries to invest $2.6 trillion each year for the next decade.69 Much of this transitionary capital can be funded or financed by the private sector.
Australian and international investors have a strong appetite for low-emissions-intensity assets. This capital is available to support and accelerate a low-emissions COVID-19 pandemic economic recovery.70 Private sector appetite stems from the long-term financial security of investing with sustainability in mind.
There are also concerns about climate change's potential to cause structural shocks to capital markets that would spread across economic systems and potentially damage companies' social licence to operate.71 Worldwide, there are currently an estimated $17.5 trillion of assets at risk of becoming stranded (stranded assets are those that used to have value but no longer do).72
In this environment, the private sector is increasingly demanding visibility of low-carbon production and supply chain sustainability for their purchases. Many investors are reducing their exposure to commodities, assets and services that contribute to the impact of climate change.73
In a globally competitive investment market, maintaining private sector confidence and minimising risk is critical to support investment.74 For example, to encourage more investment and a durable market, California has set a maximum level of greenhouse gas emissions per unit for several building materials.75
To help with decision-making, investors also expect higher levels of transparency and reporting on the risks and opportunities associated with climate change so they can reduce their risk exposure.
" As the infrastructure sector influences about 70% of Australia's emissions, it must be a leading enabler and adopter of low-emissions technology. "
To continue attracting private sector investment for their projects, governments at all levels must respond to these demands by increasing their focus on:
• delivering sustainability through planning and procurement
• enabling sustainability by adopting new technologies
• supporting investment in new and emerging low-emissions technologies
• adopting higher standards of evidence of, and reporting on, sustainability in operations and outcomes.
Governments can drive change through effective plans, policies and incentives, and set rules that minimise the burden on developers while optimising quadruple-bottom-line outcomes for the way assets and networks are designed, built and operated.
Governments should also set standards and targets for the assets they own, including procurement targets for sustainable materials and technologies.76 Strengthening these settings will provide infrastructure owners and operators, investors and suppliers with certainty regarding the supply, maintenance and warranty of these materials.
Acting to reassure investors will benefit users and taxpayers. A stable, transparent and properly regulated environment will attract cheaper capital. This will lead to lower costs for users and taxpayers.