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Sustainable Infrastructure The New Fixed Income?Strategic Asset Allocators (SAAs) and the Global Infrastructure Basel (GIB) Foundation

Daniel Wiener, Chairman GIB Foundation, 15 November 2013

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Narrative

Global Infrastructure Basel Foundation()www.globalinfrastructurebasel.com2

Where we are coming fromJohannesburg Case StudyA Summary of what GIB is doingStrategic Overview (1-3)Developing the GIB Rating CapabilitySolar Water Heater Project Case StudyFinancial Benefits of Sustainable InfrastructureGIB Stakeholders ActionsThe Three GIB Core StrategiesGIB Tools for Sustainable InfrastructureProposed Collaboration with SAAs (1-3)

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Where we are coming from

Global Infrastructure Basel Foundation()www.globalinfrastructurebasel.com3

This presentation is based on30 years of experience in Sustainable Development Advisory and Communication20 years of experience in Urban Development20 years of experience in ESG, Impact and Socially Responsible Investment (SRI)2M USD worth of research and tool developmentResults of three multi stakeholder events (GIB Summits 2011-2013)www.globalinfrastructurebasel.com

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It is a core strategy of GIB to match the needs of strategic asset allocators with the huge demand for infrastructural development.

GIB is working with cities and other partners to spur and up-scale the creation of a solid Sustainable Infrastructure project pipeline.

GIB is aiming at creating infrastructure related Liquid Trust Funds and High Impact Debt Instruments, e.g. jointly with SAAs, as a first step in mainstreaming of Sustainable Infrastructure Investing.

Innovative financing mechanisms and policies make the benefits and opportunities of sustainability accessible to investors byLowering political, resource and credit default risks;Offering competitive returns by reducing cost;Allowing for lower borrowing rates;Providing outstanding residual value.Sustainability From Obligation to OpportunityGlobal Infrastructure Basel Foundation()www.globalinfrastructurebasel.com

SUMMARY

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The GIB Summits 2011-2013

Global Infrastructure Basel Foundation()www.globalinfrastructurebasel.com5

www.globalinfrastructurebasel.com

Watch the Summit movie:

http://player.vimeo.com/video/61606645

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Johannesburg Case Study

Global Infrastructure Basel Foundation()www.globalinfrastructurebasel.com6

At the 2013 GIB Summit, Mayor Mpho Parks Tau of the City of Johannesburg, South Africa, announced a plan to invest the equivalent of 1B USD per year for 10 years in infrastructure forhis rapidly growing city of 4.4 M inhabitants.

The City of Basel, 20 times smaller and highly developed, spends 300M USD per year for the same purpose, accordingto its Mayor Dr. Guy Morin. Johannesburgs infrastructure needs by far exceed the citys capacity and capability to fund and manage the necessary investments from its balance sheet or by traditional borrowing methods.

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Strategic Overview (1/3)

Global Infrastructure Basel Foundation()www.globalinfrastructurebasel.com7

Key Facts and Figures

Infrastructure is a key component of a functioning economy and the basis of good livelihoods. (World Bank)By 2050, global cities are projected to absorb an additional three billion people: 70% of the worlds population will live in urban areas. (World Economic Forum)

75% of the infrastructure that will be in place by 2050 doesn't exist today. (GIB)

Worldwide infrastructure investment needs will reach 1,800 billion USD per year in coming decades. (OECD)

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Strategic Overview (2/3)

Global Infrastructure Basel Foundation()www.globalinfrastructurebasel.com8

Actors on different levels are confronted with the difficulty toDevelop a meaningful greenfield project pipeline;Reduce political and regulatory risk;Take a Total Cost of Ownership (TCO), long-term view;Secure energy resources;Conserve natural habitats; Protect the climate; Enhance resilience;Fight poverty, create jobs and expand social and economic capability.

Infrastructure market challenges

Sustainable Infrastructure addresses all these issues

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Strategic Overview (3/3)

Global Infrastructure Basel Foundation()www.globalinfrastructurebasel.com9

Addressing societal needs with Sustainable Infrastructure

Sustainable Infrastructure is the Premise of good livelihoodsSustainable Infrastructure, as defined by GIB, potentiallyIs the key for securing livelihoods and economic prosperityAllows households to choose products and services that protect the environment;Offers choices to business leaders willing to adhere to Corporate Social Responsibility (CSR) codes of conduct; Creates new, green jobs and secures economic growth;Empowers project owners/originators/cities to be the equal of investors and fund management services.

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Financial Benefits of Sustainable Infrastructure

Global Infrastructure Basel Foundation()www.globalinfrastructurebasel.com10

GIBs Sustainable Infrastructure Grading (in addition to the conventional due diligence) potentiallyReduces political and related default risks;Lowers borrowing rates;Lowers transaction and running costs;Improves and smoothens cash flows;Thus improves credit quality and investor confidence;Spurs engagement/involvement/placement of investors;Mitigates inflation risk;Provides outstanding residual value.

Unlocking Sustainable Infrastructure benefits for investors

GIB is a market maker for Sustainable Infrastructure Finance

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Global Infrastructure Basel Foundation()www.globalinfrastructurebasel.com

Developing the GIB Infrastructure RatingThe GIB Early Stage Sustainable Infrastructure Assessment

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E.g. the Solar Water Heater Project of Tshwane

Global Infrastructure Basel Foundation()www.globalinfrastructurebasel.com12

The Mayor of Tshwane/Pretoria is planning to roll out a scheme with 800000 solar water heaters, as he announced at the GIB Summits Investment Forum in January 2013.

This is a long term business proposal, which GIB supports:He needs to create a proper team and assets for leverageHe needs a feasibility study and a busniess planHe needs to structure the dealHe needs an equity investorHe needs debt finance

Challenges for greenfield project originators

GIB serves as a transaction advisor for Sustainable Infrastructure

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GIB Stakeholder Actions

Global Infrastructure Basel Foundation()www.globalinfrastructurebasel.com13

Local Governments will offer SI projects to investors;Governments will enact laws and standards that favour SI;Contractors will deploy high quality infrastructure;Financial Service Providers will offer structured investment opportunities for SI investors;Investors will secure higher returns at lower risk;Development Agencies, Foundations, International Organisations will support these actions.

GIB works with these stakeholders on specific programmesStakeholder Action Items on GIB Platform

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GIB Core Strategies

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Conduct Annual Summits to Educate StakeholdersAssess Early-Stage Projects to Improve SustainabilityCreate Partnerships to Advocate for SI InvestmentProvide SI investment subject-matter expertise and guidance tools to educate project owners and the capital markets. Develop this capability to become a credit rating tool.Lead a policy dialogue and mobilise capital markets for SI Investment, e.g. through the matchmaking process of the investment forum.Share knowledge and promote SI project development and finance.Global Infrastructure Basel Foundation()www.globalinfrastructurebasel.com

GIB will become the leading platform for SI finance

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GIB Sustainable Infrastructure Tools and Activities

GIB Sustainable Infrastructure GradingOnline Database of Good PracticesCapacity Building for Sustainable Infrastructure InvestmentPartnershipsGIB

Global Infrastructure Basel Foundation()www.globalinfrastructurebasel.com15

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Daniel Wiener (DW) - should there be another word after solution

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Global Infrastructure Basel Foundation()www.globalinfrastructurebasel.com

Asset Allocation of Pension Funds Today (Source: IMF Global Financial Stability Report, September 2011) Proposed Collaboration with SAAs* (1/3)* SAAs = Strategic Asset Allocators

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Long term cash flows from infrastructure investment correlate with the liabilities of pension funds and of other institutional as well as private capital investors.Long-term investors naturally require investments with a predictable risk profile similar to fixed income investments, a preferred source of revenue for pension funds.

An integration of GIB Graded Sustainable Infrastructure can make the difference by creating new opportunities, e.g. A LIQUID SUSTAINABLE INFRASTRUCTURE FIXED INCOME VEHICLE

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Global Infrastructure Basel Foundation()www.globalinfrastructurebasel.com

Findings of the GIB Infrastructure for a Changing World Series Roundtables of Investors and Capital Markets Facilitators (2012/13 in London, New York, Cape Town and Hong Kong):Proposed Collaboration with SAAs (2/3)

Changed along to in line with the model of bonds17

... Investment Vehicles for Sustainable Infrastructure, with risk/return profiles and investment cycles similar orequivalent to fixed income GIB invites SAAs to jointly develop and launch such a first facility.

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Today, just 2 % of the assets of an average pension fund are allocated directly to infrastructure. To meet rapidly growing cities and ot