Nachhaltige Infrastruktur

Building bridges for sustainability

Governments are ramping up ESG-oriented infrastructure programmes

  • Public investment programmes acting as a stabilising force for the economy during the crisis

  • Infrastructure projects setting new priorities and advancing the transformation of the economy
  • Sustainable infrastructure projects offering investment opportunities in selected capital market segments

Investment as a key support mechanism in times of crisis

Keynes is alive and well. He never really went away. But in Europe, at least, austerity was the prevailing order for a number of years rather than the great economist’s theory. That has all changed in the current crisis. And not without good reason. For Keynes, aggregate demand was a key influencing factor on output and employment in an ailing economy and therefore on its short-term growth potential. In a crisis that results in an underutilisation of production capacity, expansive fiscal policies can help to put a country back on a stable economic footing. And in most countries, government demand is more expansive now than it has been for a very long time.

The coronavirus crisis is simultaneously a supply and demand shock. Governments are unable to directly compensate for private demand that has in some cases disappeared entirely due to the lockdown measures. They are instead turning to other demand levers, particularly public investment.

This is a point worth noting irrespective of the current crisis, as public investment has been in decline for several decades now. Figure 1 illustrates the trend in the US, for example.

Ratio of public investment to GDP is in decline in the US

Similar trends are evident in many other industrialised nations and in regions such as Japan and Europe. But why are governments no longer investing?

The reasons for this reluctance to invest over the past 50 years are manifold and vary from country to country. Here are some attempts to explain the situation:

  • The US is a prominent example of a country in which the government’s willingness to deliver wide-ranging public investment had previously been in decline. Government spending as well as policies and development programmes designed to bolster industry were not seen as investments in the future but merely as new borrowing. The bulk of the population took a dim view of this, particularly as they suspected the programmes would have had to be funded by raising taxes. 
  • What’s more, many countries in Europe have focused on consolidating their public finances in recent years, meaning that investment programmes were shelved in favour of a tightening of purse strings. Austerity was the order of the day.
  • Public investment projects are often complex, time-consuming and expensive. It is not always easy to persuade the wider population of the long-term economic benefit. Political economists argue that parties and policymakers are too fixated on individual legislative periods and are not sufficiently focused on long-term goals. The failure of or severe delay to investment projects in the past only serves to amplify this reluctance to commit to public investment.
  • There is a tendency to restrict spending at short notice and use the existing and in some cases very old public capital stock and infrastructure for as long as possible. Modernisation is seen as a last resort, an assumption that is borne out by the often crumbling state of public infrastructure in a large number of countries.

However, these concerns are clearly taking a back seat in the current situation. Governments have rediscovered their willingness to invest. In the fight against the coronavirus recession and the consequences of climate change, vast stimulus packages and infrastructure programmes have become a global consensus. Keynes would approve, particularly as the fiscal measures are flanked by ultra-expansionary monetary policy that appears to have further improved the chances of success.

Effectiveness of infrastructure investment verified by studies

Many recent economic studies have come to the conclusion that investment in infrastructure projects, particularly when it is government-funded, can be a boon for the economy. For example, the Economic Policy Institute (EPI), a US think tank, finds that infrastructure investments could play an important role in stabilising and growing the US economy at macro level. Its research also reveals that US$ 100 billion of infrastructure spending has the potential to create up to one million new full-time jobs.1 The organisation Global Infrastructure Hub (GIH), which specialises in infrastructure analysis and consultancy, comes to a similar conclusion in a study from 2020. The multiplier effect from public investment will boost economic growth in the future, as illustrated by figure 2.2

Public investment acts as a stimulus

Figure 2 also shows that public investment (representative here for infrastructure investment) has a bigger impact on economic growth than other public spending and produces a fiscal multiplier effect of more than 1 from only the second year. The study offers particular encouragement for the current economic situation, as infrastructure programmes can have the strongest multiplier effect in a recession.

That is the theory anyway. But for politicians and investors, the question of where exactly to channel the money remains open. The sectors where infrastructure investment is most urgently needed and where it has the greatest chance of success will be revealed later in this report. No less interesting is the question of where the money for these programmes actually comes from, but that is not covered by this report. In other words, we will be leaving aside the financing side of the equation.

International agreements are driving the need for sustainable infrastructure

There is no generally accepted definition of what constitutes infrastructure investment. However, it does broadly encompass the transport sector (roads, ports, airports, etc.), parts of the utilities sector (electricity grids, water treatment, waste disposal) and projects that relate to environmental protection.

A multitude of agreements and policy decisions and the general fight against climate change have shifted investors’ focus to infrastructure projects that make a particularly significant contribution to the ESG targets and that alleviate negative impacts, for example on society and the environment. Here is a brief rundown:

  • An agenda for sustainable development was adopted by all United Nations Member States in 2015. It is based around 17 sustainable development goals (SDGs). The SDGs set out a blueprint for establishing and expanding sustainable infrastructure in areas such as health (SDG 3.8), education (SDG 4.2), water (SDG 6.1), energy (SDG 7.b) and transport (SDG 11.2). They are a form of recognition by governments around the world of the need to step up investment in these areas.
  • The equally important Paris climate agreement was signed in the same year. The treaty has a clear focus on the collective fight against climate change and its consequences. The 195 signatory countries have set a target of keeping the rise in global warming up to 2050 well below 2 degrees Celsius compared to pre-industrial levels. This will require a dramatic reduction in global greenhouse gas emissions. All sectors of the economy will have to take steps to decarbonise in order for emissions to reach net zero by 2050. Financial support from the public sector, for example in the form of the European Green Deal, is urgently needed to achieve this goal.

Vast amounts of investment are required to meet all these targets and to support the transformation efforts of entire branches of industry. A study by McKinsey from 20163 found that around US$ 2.5 trillion is already being invested annually in infrastructure around the world (e.g. in transport, power generation, water and telecommunications). According to the study, however, this sum does not go far enough to actually meet the requirements in these areas and to secure future growth. The volume of investment that would be needed is said to be up to US$ 3.3 trillion. Factor in the potential costs arising in connection with the fight against climate change and the sheer scale of the sums involved becomes clear. Figure 3, based on data from the Foundations 20 Platform, shows how the infrastructure investment ratios that are required measure up to the actual trend.4

Investment trends in sustainable infrastructure projects

The various studies may yield different figures and levels of investment but they all come to the conclusion that the ratio of investment in sustainable infrastructure relative to global economic output is – despite prevailing uncertainty surrounding the data – too low to meet key SDGs, for example. This is illustrated by figure 3, which highlights the investment gaps that may emerge in the implementation of various targets (core SDGs and the 2°C target). The area shaded in grey, meanwhile, indicates the ratio of investment (which is hard to estimate, but rising) that would be needed to achieve the SDGs while at the same time limiting the rise in temperature to only 1.5 degrees Celsius.

Coronavirus pandemic reveals further investment bottlenecks

The global coronavirus pandemic has not only resulted in great human suffering and collapsing economies, it has also revealed long-standing investment shortfalls in many areas of the economy. COVID-19 has brought to light weaknesses in healthcare systems around the world, for example. A lack of government funding and insufficient private investment are being brutally exposed. On a more positive note, coronavirus has also clearly demonstrated the value that can be added by high-speed broadband rollout and a comprehensive digital strategy. People can only work or educate their children efficiently from home or access telemedicine services if they have a fast and stable internet connection. Although access to education is already enshrined in the SDGs as a key area for investment, coronavirus has highlighted its importance, particularly in the industrialised nations. Education also plays a crucial role in a country’s economic development. Around 4.7 per cent of European GDP is currently invested in the various education formats. But particularly in light of the current situation, now would appear to be the ideal time for additional investment in education and the associated infrastructure. Quite apart from the fact that this could help to stabilise the ailing economy in the short term, in the long term it will lead to higher economic output. Figure 4 shows the positive correlation between national Pisa scores and per capita GDP.

Better education boosts economic output

No half-measures

Efforts to contain the coronavirus crisis and the fight against climate change have given rise to a multitude of support programmes around the world. What matters here is that the financial dimensions are of historic proportions and decisions are being taken at a breathtaking pace. And importantly, many of the investment and infrastructure programmes that have been initiated focus on strengthening future growth potential and pursue wide-ranging sustainability goals. The following overview gives an idea of the financial magnitude of key publicly-funded support programmes:

  • Launched in 2020, the NextGenerationEU recovery fund is offering €750 billion in support and investment aid to mitigate the economic effects of the coronavirus crisis. The funds are intended to flow into areas such as healthcare infrastructure and digital infrastructure and to facilitate the shift towards a more sustainable economy. Not only is help being provided to the sectors that are particularly important and relevant in the coronavirus era, but the advancement of several SDGs also forms part of the package.
  • The plans for the European Green Deal, which is set to mobilise around €1 trillion in investment, will support various sustainability projects and is intended to help achieve the Paris climate targets. The funding for the expansion of renewable energy generation alone amounts to just over €240 billion.
  • In the US, the election of the new president has heralded a reversal in climate policy. Not only has the US rejoined the Paris climate agreement but Washington is also planning to spend vast sums on sustainable infrastructure. The US$ 2.25 trillion in fiscal stimulus envisaged by the American Jobs Plan, for example, features key green components and has the potential to play an important part in climate change mitigation.
  • For China, too, despite all its ambitions for growth, the need to make sustained progress with decarbonisation is becoming ever more urgent if the country is to achieve its target of becoming carbon neutral by 2060. According to a study by the Bank of America, China was already the global leader in energy transition over the past decade with a volume of investment totalling US$ 1.2 trillion. Previous investment programmes in conjunction with the new economic and climate targets suggest that China is planning to continue channelling vast sums into sustainable infrastructure. US bank Goldman Sachs estimates that the total volume of this investment could reach up to US$ 16 trillion.

These relief programmes and stimulus packages clearly show that the global fight against climate change and investment in sustainable infrastructure have taken on a whole new dimension. For investors, the question is: how can I participate in this?

Infrastructure as an asset class becoming broader and more accessible

In addition to fund-based products, investment in infrastructure in the past has often been in the form of closed-end models or direct investments in individual projects. However, the spending programmes described above and the huge need for investment in infrastructure means that the capital markets are now shifting their focus back onto sustainable investment opportunities in the more traditional asset classes.

The bond market has seen a sharp rise in the placement of social bonds, due in part to the coronavirus pandemic. The aforementioned NextGenerationEU programme will also use social bonds to finance its relief programmes. The stated aim of these bonds is to promote sustainable projects in areas such as drinking water supply, healthcare, education and transport, thus supporting selected SDGs while at the same time obtaining funding for key infrastructure projects through private investors. Figure 5 shows the sharp rise in the volume of social bond issues, which are in ever greater demand in the capital markets. Together with green bonds, whose focus is more environmental, they represent a key source of finance for sustainable infrastructure projects.

Placement of social bonds rose sharply in the crisis

Opportunities to benefit from these long-term infrastructure programmes are also presenting themselves in the global equity markets. These support programmes are, of course, increasing the demand for sustainable products and services. In certain industries, they may drive up revenue and profits as well. Investors also stand to gain from these fundamental improvements at company level. Digital infrastructure, transport and logistics would be the main hunting grounds in this scenario, but attractive investment opportunities are likely to emerge in several other sectors too.

Greater use of renewable energy will be a key factor in meeting the targets of the Paris climate agreement. A transition to low-carbon power generation is the only way that the utility sector will succeed in reducing its own emissions while at the same time supporting other areas of the economy in their efforts to decarbonise production. The American Jobs Plan in the US, for example, envisages tax breaks of US$ 400 billion over a period of eight years to promote clean energy. The objective is to reduce the burden on companies during this transitional phase and in doing so drive forward the deployment of renewable energies.

But if universal use of green power is the goal, additional grids will be needed to transport the electricity from the places where it is generated to the often faraway places where it is used. According to analysis by Bloomberg, around US$ 14 trillion in investment will be needed in the period up to 2050 to expand, modernise or replace electricity grids. This presents opportunities not just to the providers of grid infrastructure but also to the established grid operators, who should benefit from their facilities being used more intensively in the future.

Attractive investment opportunities in the utilities sector can also be found in waste disposal and water treatment. Investments in infrastructure that help to establish the concept of a circular economy are particularly worthy of support when viewed through the prism of sustainability. The EU estimates that the adoption of a comprehensive circular economy could save around €600 billion in costs every year. In the waste segment, for example, greater efficiency in recycling would lead to greater reuse of vital resources. This is important as the UN estimates that consumption of finite resources could double by 2050, resulting in a significantly higher volume of waste that would need to be processed and recycled. Investment in new technologies and processes is therefore likely to pay for itself in the medium term, particularly as regulators are ramping up the pressure for compliance with ever stricter environmental standards.

Providing people with clean drinking water is also playing an increasingly important role around the world. Nevertheless, too little has been spent on treatment plants and water mains in recent decades even in many industrialised nations, resulting in an investment backlog. Government stimulus packages such as the American Jobs Plan have, however, in conjunction with the calls for action set out in the SDGs, led to a rethink and a ramping up of investment. The water losses were becoming too great, the lawsuits in cases of pollution too expensive, and the general shift in people’s awareness too pronounced to do anything else but take water more seriously as a resource.

Indeed, sustainable investments in previously somewhat neglected segments of the utilities sector are now making investors sit up and take notice. New solutions and services in this area are helping to modernise often crumbling infrastructure and in doing so are bringing about improvements that will be beneficial to the environment. From an investor’s perspective, the specially structured contracts in these business segments are attractive because they offer the prospect of stable long-term revenue streams and relatively predictable profit growth and thus also the potential for distributions.

As already outlined above, education is not just of importance in the context of the SDGs. Education is in fact essential if countries are to continue growing their economies and remaining competitive. And the way in which schoolchildren, students and even workers are educated or trained has been undergoing a process of transformation for a number of years now. The growing trend towards using digital learning resources looks like it is here to stay. But this is predicated on having stable and sufficiently large network capacities in the communications segment. Companies that continually invest in the expansion of these networks are likely to reap the rewards in the medium to long term. After all, stable networks will in the future become an increasingly important way for companies to distinguish themselves from their competitors and win new customers.

The education system itself is, as suggested above, also in transition. There appears to be particular promise in innovative new concepts that are making the comprehensive online offerings of schools and universities available to a much wider group of people, and not just to those able to live in large and expensive cities.

Even before coronavirus, retirement homes and care homes, as well as healthcare facilities in the broadest sense, were receiving greater attention from society, and also from investors. Populations in the industrialised nations are aging as a result of demographic change. This, coupled with the fact that older people can now rarely be looked after by their own family, means that there is an ever greater need for accommodation and care in later years. Financial support from the public sector as well as private investment in this specific segment of the healthcare industry are therefore urgently needed. Most of the facilities have until recently been run by churches and local authorities. However, many of these institutions now find themselves in a perilous financial situation. Hence the need for private enterprises to step into this market and in doing so perform a valuable service for society. There are opportunities here for businesses and also for investors. Not only is demand for places in these facilities high and growing, but the operators receive reliable rent payments that in some countries are also guaranteed by the state. Yet another example of how investment in infrastructure projects of a long-term nature can yield an attractive and stable payment profile.


Investment in sustainable infrastructure pays off and it does so on numerous levels. In the short-term, as various studies have shown, it can revive an ailing economy. In the medium to long term, it delivers the measures that are needed to fight climate change and achieve the sustainable development goals of the United Nations. Sustainable infrastructure projects can also lay the foundations for changes that will strengthen long-term economic potential.

The government stimulus packages around the world, including those introduced to mitigate the impact of coronavirus, are growing in number and are increasingly aligned to sustainable principles and agreements. Unlike in the past, this means that many countries around the world are now pursuing the same goals through their economic programmes. Put together, the infrastructure spending is of a vast magnitude. And that gives the individual programmes a greater chance of success.

In the capital markets too, there are increasing opportunities to benefit from sustainable infrastructure. Investments can be made directly in the relevant projects or via green and social bonds, or in the stocks of the industries and companies that are deriving particular benefit from the nascent boom in investment. As this investment in infrastructure increases, businesses operating in the healthcare sector, the broader utilities sector, telecommunications and education are among those in contention to be the winners.

  1. 1 Economic Policy Institute: The potential macroeconomic benefits from increasing infrastructure investment (2017).
  2. 2 The fiscal multiplier is the factor by which GDP will rise if an input factor (in this case public investment) increases by one unit.
  3. 3 McKinsey Global Institute: Bridging Global Infrastructure Gaps (2016).
  4. 4 Bhattacharya, A., Gallagher, K.P., Muñoz Cabré, M., Jeong, M., & Ma, X. (2019) Aligning G20 Infrastructure Investment with Climate Goals and the 2030 Agenda, Foundations 20 Platform, a report to the G20.


Jonas Weisbach, Florian Sommer, Andreas Mark, Vinay Sharma, Mathias Christmann

All information, illustrations and explanations are presented as at 16 April 2021 unless otherwise stated.