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How civil engineers can turn all finance into ‘green’ finance

16 January 2023

A three-way conversation between engineers, governments and financiers is essential if low-carbon infrastructure is to benefit from investment. 

How civil engineers can turn all finance into ‘green’ finance
The ICE is establishing a new Knowledge Network to bring financiers and engineers together. Image credit: Cohenbaum

Investors have plenty of capital available for green infrastructure projects but not enough opportunities to spend it.

This is in part because there’s a gap between the people providing capital for projects, the people with the technical solutions, and the local or national governments that have the strategic overview of what gets built and may also fund investors’ payback through tax revenue.

This is what attendees learned at the launch event for the ICE’s new report on Financing Low-Carbon Infrastructure.

The report aims to close the gap by equipping engineers with more knowledge about the way projects are financed.

It offers practical guidance and marks the start of a drive to create a network of people who share a passion for making low-carbon infrastructure a reality.

A better understanding of risk will help projects get financed

Building new low-carbon infrastructure involves two of the biggest risks that worry investors:

  • risks around new and/or complex technology
  • market risk – how will the investor be paid back?
Mark Hansford at Financing Low Carbon Infrastructure event
Left to right: Darryl Murphy, managing director, infrastructure at Aviva Investors, Mark Hansford, director of engineering knowledge at ICE, and Lisa Kelvey, global infrastructure sustainability lead at KPMG.

Finance will only be unlocked if the risk profile is right and there’s a secure path to a revenue stream.

Engineers can do a lot to reduce technical, cost, and programme risks and provide more certainty.

All too often, even the most conventional projects overrun or cost more than the initial budget.

The thought of adding ‘first of a kind’ technology or materials creates a lot of uncertainty, which is something investors worry about.

All finance is green finance

As awareness of climate change and its impacts has increased, the private financial sector and governments have created products to finance low-carbon projects.

These include government-issued ‘green’ gilts and bonds, and loans from pension funds and insurance companies (some of which offer better rates than traditional finance products) to incentivise decarbonisation.

To qualify for these products, project sponsors must demonstrate that their projects really do contribute to carbon reduction.

Tim Chapman at Financing Low Carbon Infrastructure event
Left to right: Mark Hansford, Tim Chapman, director of infrastructure at Arup, and Heleni Pantelidou, associate director at Arup.

Thinking ahead

Institutional investors like pension funds and insurance companies take a very long-term approach to investments.

In 20 years’ time, they don’t want to be stuck with assets in their books that are contributing to global warming and climate change.

So, they are already taking the view that ‘all finance is green finance’ and will only finance low-carbon projects going forward.

To unlock finance, engineers must calculate the carbon impact of different solutions and identify those that genuinely support the transition to a lower carbon society.

Low-carbon solutions should be standard. Engineers should be able to provide transparent data to help potential financiers assess the climate impact, risk transfer and payback.

What got us here won’t get us there

A three-way conversation between engineers, the finance community and government will encourage innovation in infrastructure project finance.

Projects could be ‘clustered’ to make them more financially viable. For example:

  • Creating a portfolio of projects with similar characteristics to distribute the risk of ‘first of a kind’ technologies.
  • Clustering low-return retrofit projects with new-build projects that have a more obvious funding stream.
  • Providing funds at the feasibility and early design stages of a project to pay for de-risking, so that only the more investable projects are taken forward.

What is the ICE doing?

Attendees discussing at Financing Low Carbon Infrastructure event
Left to right: Lisa Kelvey and Adrian Fielden-Gray, co-founder of Iduna.

The ICE is establishing a new Knowledge Network to bring financiers and engineers together and increase knowledge exchange between these two communities.

The aim is to help engineers understand what financial institutions need to make a project financially viable and promote the role of engineers in de-risking investments and boosting investor confidence.

The Financing Low-Carbon Infrastructure report also emphasises that all engineers should be aware of and develop knowledge around the mechanisms used to finance projects.

“There is an absolute need for decarbonisation. All of our infrastructure needs to be ‘green’ infrastructure – whether that’s new infrastructure or the transformation of existing infrastructure,” says Andy Milner, executive chairman of Matrix Networks Group, who led the ICE’s project team for the report.

Milner adds: “Governments around the world are not in a position to finance everything that’s required so, as engineers, we should not only be thinking about the new technologies that are required, but also the way these projects will be financed.”

The fishbowl format

The launch event for the Financing Low-Carbon Infrastructure report was run in a moderated ‘fishbowl’ format, in which seats were set up in concentric circles.

The speakers opened the discussions from the central circle, and then attendees were invited to join the central seats, the speakers swapping seats with them.

The format encouraged a conversation in a way that rarely occurs with a traditional panel format. The speakers and audience members responded and engaged with each other’s ideas.

  • James Crumly, knowledge manager at ICE