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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

Narrative

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• Where we are coming from• Johannesburg Case Study• A Summary of what GIB is doing• Strategic Overview (1-3)• Developing the GIB Rating Capability• Solar Water Heater Project Case Study• Financial Benefits of Sustainable Infrastructure• GIB Stakeholder’s Actions• The Three GIB Core Strategies• GIB Tools for Sustainable Infrastructure• Proposed Collaboration with SAAs (1-3)

Where we are coming from


This presentation is based on• 30 years of experience in Sustainable

Development Advisory and Communication• 20 years of experience in Urban Development• 20 years of experience in ESG, Impact and Socially

Responsible Investment (SRI)• 2M USD worth of research and tool development• Results 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 by• Lowering 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 Opportunity

Global Infrastructure Basel Foundation(©)www.globalinfrastructurebasel.com

SUM

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The GIB Summits 2011-2013


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Watch the Summit movie:

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

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Johannesburg Case Study


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.

Johannesburg‘s infrastructure needs by far exceed the city‘s capacity and capability to fund and manage the necessary investments from its balance sheet or by traditional borrowing methods.

Strategic Overview (1/3)


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 world’s 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)



Actors on different levels are confronted with the difficulty to• Develop 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



Addressing societal needs with Sustainable Infrastructure

Sustainable Infrastructure is the Premise of good livelihoods

Sustainable Infrastructure, as defined by GIB, potentially Is the key for securing livelihoods and economic

prosperity Allows 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.

Financial Benefits of Sustainable Infrastructure


GIB’s Sustainable Infrastructure Grading (in addition to the conventional due diligence) potentially• Reduces 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

11 Global Infrastructure Basel Foundation(©)www.globalinfrastructurebasel.com

Developing the GIB Infrastructure Rating

The GIB Early Stage Sustainable Infrastructure Assessment

E.g. the Solar Water Heater Project of Tshwane


The Mayor of Tshwane/Pretoria is planning to roll out a scheme with 800 000 solar water heaters, as he announced at the GIB Summit’s 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 leverage• He needs a feasibility study and a busniess plan• He needs to structure the deal• He needs an equity investor• He needs debt finance

Challenges for greenfield project originators

GIB serves as a transaction advisor for Sustainable Infrastructure

GIB Stakeholder Actions


• 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 programmes

Stakeholder Action Items on GIB Platform

GIB Core Strategies

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Conduct Annual Summits to Educate Stakeholders

Assess Early-Stage Projects to Improve Sustainability

Create Partnerships to Advocate for SI Investment

Provide 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.


GIB will become the leading platform for SI finance

GIB Sustainable Infrastructure Tools and Activities

GIB Sustainable Infrastructure

Grading

Online Database of Good Practices

Capacity Building for Sustainable Infrastructure

Investment

Partnerships

GIB


Daniel Wiener

should there be another word after solution


Asset Allocation of Pension Funds Today (Source: IMF Global Financial Stability Report, September 2011)

Proposed Collaboration with SAAs* (1/3)* SAAs = Strategic Asset Allocators

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


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)

... Investment Vehicles for Sustainable Infrastructure, with risk/return profiles and investment cycles similar or

equivalent 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 other project originator’s infrastructure financing needs, the solution is to create…


This HIDI would provide long-term, stable cash flows for institutional investors and private capital with manageable risk.

Strategic asset allocators are also invited to participate in equity finance of Sustainable Infrastructure in cities.

We are starting to see Sustainable Infrastructure as a distinct Asset Class of blended capital with a risk profile between equity and debt.

Proposed Collaboration with SAAs (3/3)

GIB Board Members


Daniel Wiener - President of the BoardCEO, Ecos

André Schneider - Vice President of the BoardCEO and Chairman, André Schneider Global Advisory SA, Vice President of the Ecole Polytéchnique Fédéral, Lausanne (EPFL)

Nick Beglinger - Board MemberPresident, SwisscleantechCEO, Foundation for Global Sustainability

Gino van Begin – Board MemberSecretary General, ICLEI Local Governments for Sustainability

Changhua Wu - Board MemberGreater China Director, The Climate Group

Paul Clements-Hunt - Board MemberFounder, The Blended Capital Group

Dagmar Vogel – Board MemberHead Infrastructure Financing, State Secretariat for Economic Affairs, SECO

Scott Harder – Board MemberCEO, Environmental Financial Group, Inc.

GIB Partners


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