Aligning G20 Infrastructure Investment with Climate Goals & the 2030 Agenda



Amar Bhattacharya and Minji Jeong | Brookings Institution


Article 2 of the Paris Agreement states that the world aims to ‘strengthen the global response to the threat of climate change, in the context of sustainable development and efforts to eradicate poverty, including by . . . [m]aking financial flows consistent with a pathway towards low greenhouse gas emissions and climate resilient development.’ In many emerging markets and developing countries (EMDCs), new capital investments are needed in sustainable infrastructures, including in renewable energy, zero-carbon transport, resilience and other sectors. In advanced economies and certain segments of EMDCs, in addition to new capital investments, investments are also needed to decommission unsustainable infrastructures, such as coal-fired power plants and inefficient transport networks, and replace them with newer, carbonneutral infrastructures. To meet the Paris Agreement, all new capital investments should be de-carbonized and made more resilient at an accelerated pace. At its current rate, the global community will not even be able to meet the 2 °C Paris scenario, let alone the 1.5 °C target. In this report we show that:

  • Sustainable infrastructure investments are falling short of investment needs by USD 3.2 trillion per year. To achieve baseline SDGs and the upper bound of the Paris Agreement targets of 2 °C, the global community will need to invest upwards of 7.6 percent of GDP, —USD 7.6 trillion each year from 2015-2030. Current trends in infrastructure investments are 5.5 percent of global GDP. We thus face a gap of 2.1 percent of global GDP.
  • Multilateral development banks are not mobilizing adequate levels of financing. Multilateral development banks (MDBs) are currently providing around USD 50 billion per year in financing for sustainable infrastructure, or just 1.5 percent of the prospective needs of EMDCs. Moreover, MDBs are not sufficiently crowding in private participation in infrastructure financing.
  • National development banks and other development finance institutions play a larger role in sustainable infrastructure, at roughly USD 88 billion per year, but are dominated by major players in Brazil, China, and Germany and only amount to 1.2 percent of the global need.
  • Private capital flows from G20 countries into sustainable infrastructure are also very small, just 0.5 percent of the total global need.

The G20 plays a central role in pushing for greater ambition and bringing about the decisive shift towards a carbon-neutral, climate-resilient economy. Strong and decisive actions can enable countries to capitalise on opportunities offered by decarbonization, including boosting jobs, enhancing competition and growth and avoiding economic vulnerability.

There is an immediate need to build a powerful coalition of G20 countries that are strongly committed to the scale and urgency of action needed. To this end, the G20 should:

  • Commit to align the infrastructure agenda with the 1.5 °C target and the SDGs. G20 can exercise leadership by implementing ongoing Nationally Determined Contributions (NDCs) and preparing more ambitious NDCs for the subsequent five years in the run up to COP26. These NDCs should be anchored in growth and development strategies geared to deliver the SDGs and the 1.5 °C goal implying a reduction in emissions by advanced G20 members of 50 percent by 2030 and a pathway to net zero emissions by all G20 members by 2050. The G20 Climate and Energy Action Plan should also be revamped to meet these objectives with well-specified benchmarks and timelines. G20 countries should urge their finance ministers and central banks to join the Coalition of Finance Ministers for Climate Action and the Network of Central Banks and Supervisors for Greening the Financial System (NGFS). Trade ministers should not only introduce reforms to trade and investment treaties, but also incentivize acceleration of trade and investment in renewable energy and carbon-neutral technologies and reduce existing incentives for trade and investment in sectors that need to be phased out.
  • Unlock investments at scale in sustainable infrastructure. Towards this end, G20 countries should pursue an integrated agenda to deliver on quality infrastructure geared to meet the SDGs and the 1.5 °C goal. The G20 Principles on Quality Infrastructure provide an important opportunity to set out this agenda. Many elements being discussed —such as cost efficiency over the life cycle of the project, resilience, accessibility and debt sustainability— are important for sound investments. But a central focus must be on climate impact and resilience, and the preservation of natural capital, with agreed targets including the 1.5 °C goal. The G20 should make systematic efforts to bolster upstream foundations and set common principles and standards to fully incorporate environmental risks including the climate.
  • Eliminate fossil fuel subsidies and mainstream carbon pricing. G20 governments play a leading role in establishing credible carbon policies and prices within their own jurisdictions, and acting coherently across jurisdictions. Implementation trajectories will vary accounting to specific national conditions, including distributional and transitional impacts. It is important to phase out fossil fuel subsidies as they are tantamount to negative carbon pricing. Both carbon pricing and eliminating fossil fuel subsidies can generate substantial revenues that can be used to finance an increase of sustainable investments and to help facilitate a just transition.
  • Phase out coal and set timelines for phasing out all fossil fuels not only in G20 countries but also adjusting polices to overseas trade, investments and financial flows. As policies align, and as prices for coal and other fossil fuels are already higher in certain areas and are projected to be higher than renewable energy over the next decade globally, current investments in coal will prove to be stranded assets involving significant economic and social costs. Estimates suggest that mixed signals could lead to USD 12 trillion of stranded fossil fuel assets by 2035.
  • Mobilising finance at scale with a strong alignment to sustainability and to the 1.5 °C target. G20 countries should create viable revenue models by tapping into spill-over effects that can boost long-term returns and, together with improved credit enhancement mechanisms, can attract private capital, pension funds and sovereign wealth funds worth trillions of dollars, reduce costs of capital returns and improve debt sustainability. The G20 should commit to mobilising an additional USD 100 billion for climate funds to meet priority needs and anchor the ‘billions to trillions’ agenda. The G20 should re-engage in the sustainable financing agenda to shift the financial system to align with sustainability. Reporting based on the recommendations of the Task Force on Climate-Related Financial Disclosure should be made mandatory across the G20 and, as proposed by the NGFS, climate risk should be systematically incorporated into the framework of prudential and risk assessment.
G20 Investment


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