Judith Rodin is the past president of the Rockefeller Foundation and the University of Pennsylvania and has served on nine boards of public companies. She is the author of The resilience dividend: being strong in a world where things go wrong.
New federal dollars for infrastructure will go to projects “worth putting in, not ready to shovel,” Transportation Secretary Pete Buttigieg recently told an audience.
This is a key distinction, as the law passed in November brings federal infrastructure spending to their highest share of GDP since the early 1980s. Will the money help make the country more resilient on the market? environmental plan and more competitive on the industrial level, as the legislation promises? And how should financial markets and policymakers determine what makes an investment worthy of the name? The choices investors and policymakers make now will determine the effectiveness of this once-in-a-generation investment.
Investors crowded into infrastructure stocks after the bill was passed in the House. But three factors suggest that a critical and significant change in strategy is needed.
First, following the UN climate summit COP26, investors say they want to increase blended finance, with public funds stimulating private investment. Much of the infrastructure funding provided for by law provides great leverage for investor capital focused on sustainability. But there has to be significant innovation in the way government and the private sector work together to create the desired multiplier effect.
Second, as federal money flows into state and local governments over the next five years, there are significant risks. Our ports are blocked, our roads need fixing and our bridges are breaking down. Our regional public transport is largely overtaken by other countries. All of these act like a tax on business and our economy, like the New York Times Put the.
Government investment can launch solutions. But we’ve seen how local infrastructure projects experience huge delays and huge cost overruns. Good government partners who have shown they can deliver, along with careful project selection and management oversight, will be essential for investors. On the other hand, mayors and city commissioners have often taken the lead in innovation. To cite just one example, in Tallahassee, Florida, several hundred acres of undeveloped land at the airport were turned into a solar farm the power supply to the town hall, the airport terminal, a wastewater treatment plant, etc. Miami-based Origis Energy owns and operates the system after installing it on the airport property. The infrastructure bill allocated $ 25 billion to airports, promising many other similar innovative partnerships.
Third, COP26 and the infrastructure law focus on climate adaptation and resilience. Yet a new report of Wellington Management notes that the investment community has been slow to focus on adaptation, as it has traditionally focused on short-term profits at the expense of long-term survival. But the climate crisis is no longer a distant threat. To cite one of the many growing vulnerabilities, McKinsey predicted that businesses could face supply chain disruptions for at least one month every 3.7 years. It is essential to focus more on both transparent risk disclosure standards for investors and on strong resilience planning for policymakers and asset owners.
Measuring a full range of resilience variables is essential in determining the ability to withstand climate impacts or, indeed, any crisis. For example, many business continuity plans fall short when location makes infrastructure, such as local power lines or transit options, vulnerable to high winds, flooding, or forest fires. Few of the environmental assessments in the âEâ of the ESG capture these challenges. That’s why I advocated adding an “R”, resilience, to this metric.
New resilience measurement frameworks and new industry practices are emerging. For example, the Boston Consulting Group has developed a âsource, manufacture, deliverâ framework to help companies build resilience in global supply chains. This approach requires defining more options for diversifying and regionalizing manufacturing and supply networks, adding more production and emergency distribution capacities and re-optimizing inventories.
When I was at the Rockefeller Foundation, we supported the development of resilience tools such as the City Resilience Index, which identifies 52 metrics that contribute to urban resilience. It could be easily adapted for businesses and investors. Our work with the World Bank Group has resulted in the creation of a âresilience screenâ that helps investors assess infrastructure projects. Excellent AI-powered data mining tools, such as those developed by One Concern, are also emerging to measure resilience.
How we invest and build new types of infrastructure to withstand more extreme weather conditions, more failing systems and more aggravating shocks will determine whether this infrastructure law and all the private capital to be spent will strengthen the economy. both the resilience and economic growth of our future. . The status quo is a risk we cannot afford.
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