Policy Brief

REALISING THE POTENTIAL OF
NATIONAL DEVELOPMENT BANKSAND FOUNDATIONS IN SCALINGUP GREEN AND INCLUSIVEINFRASTRUCTURE

Task Force 8

Inclusive, Resilient, and Greener
Infrastructure Investment and Financing

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Fulvio Bersanetti (Fondazione Compagnia di San Paolo)
Nicolas Buchoud (Grand Paris Alliance for Metropolitan Development Paris)
Raffaele Della Croce (OECD)
Milindo Chakrabarti (OP Jundal University, India)
Carla Patrizia Ferrari (Fondazione Compagnia di San Paolo)
Valeria Lauria (Peking University)
Paolo Mulassano (Fondazione Compagnia di San Paolo)
Francesco Profumo (Fondazione Compagnia di San Paolo)
Jiajun Xu (Institute of New Structural Economics, Peking University)

REALISING THE POTENTIAL OF NATIONAL DEVELOPMENT
BANKS AND FOUNDATIONS IN SCALING UP GREEN AND
INCLUSIVE INFRASTUCTURE

1Abstract
This policy brief discusses the unique role that national development banks (NDBs) andfoundations could play in supporting their governments to scale up sustainableinfrastructure, including both climate-compatible economic infrastructure and social
infrastructure. The brief provides a conceptual framework that looks at the criticaldimensions that must be in place to tap into NDBs and foundations for sustainableinfrastructure building. The recommendations can be grouped under four parameters: (i)public policies and mandates, (ii) operational and financial performance, (iii) partnership,(iv) labelling and data collection.

REALISING THE POTENTIAL OF NATIONAL DEVELOPMENT
BANKS AND FOUNDATIONS IN SCALING UP GREEN AND
INCLUSIVE INFRASTUCTURE

2Challenges
As the world battles global and regional challenges such as COVID-19 and climate change, there
are huge infrastructure investment needs worldwide. While fiscal support will be substantial,
this effort will not in itself be sufficient to close the infrastructure gap. The Organisation for
Economic Co-operation and Development (OECD) estimates a gap of around US$15 trillion until
2040 for infrastructure spending (OECD, 2020). In emerging markets and developing countries,
the investment requirements are substantial, especially considering current fiscal constraints.
In advanced economies, there is an urgent demand for new funding to ensure security andupgrading of ageing infrastructure. Funding to maintain public infrastructure typically relies on
government spending, in particular for difficult to reach areas like adaptation and resilience 1.
However, as seen in OECD (2021) a lack of reliable and stable funding as a result of short-termhorizons, political priorities and pressured public budgets, are major barriers to maintenancespending and building resilient infrastructure.
In this policy brief the spotlight is on relevant flows of capital from two sets of institutional
actors, national development banks (NDBs) and foundations2, and in two sectors, low carbon
infrastructure and social infrastructure. Sitting at the nexus of public policy and the financial
sector, NDBs are uniquely positioned to support transformative action for scaling up green andinclusive infrastructure that maximising growth potential. Foundations are uniquely positioned
to advance social welfare whose financing may go beyond the ability and willingness of theprivate sector. The strong knowledge of the local contexts and the vast experience in long-term
investment and financing put these actors in a privileged position to mobilise private financing,
to address market failures and to shift capital flows towards more sustainable infrastructure
projects. They can also contribute to identifying and mitigating various risks in the project cycle
and taking the lead in the governance, leadership and monitoring of sustainable infrastructure
projects.

1

The term “financing” indicates how to meet the upfront costs of infrastructure (equity or debt financing) and“funding” indicates how
the asset is paid off over its life-cycle.
2
Philanthropic actors such as foundations can be defined as independent, non-state entities that associateprivate resources and deploy these through funding or by running their own programmes to advance social,
cultural, economic, environmental, scientific and/or international levels under a defined legal status (OECD, 2014).

other public good purposes at the local, regional and/or international levels under a defined legal
status (OECD, 2014).

REALISING THE POTENTIAL OF NATIONAL DEVELOPMENT
BANKS AND FOUNDATIONS IN SCALING UP GREEN AND
INCLUSIVE INFRASTUCTURE

3Given that economic, political and financial circumstances are unique to each country, no single“model” exists that determines NDBs and foundations’ success in scaling up inclusive andclimate-compatible infrastructure. However, certain factors can be identified that shape the way
in which these actors can improve their performance. In this brief, the challenge of harvesting alarge enough quota of capital to channel towards low-carbon and social infrastructure assets
are discussed. The brief will also assess how far NDBs and philanthropic actors cancomplement locally or nationally driven policies and how they can benefit from collaboration
with other networks.
In particular, the brief illustrates how major bottlenecks can be removed considering a range ofmodels for the involvement of institutional actors in sustainable infrastructure and makes
proposals for how to determine which model fits best. Among these, creating a consistent policy
and regulatory framework, establishing clear mandates, enhancing internal capacity, promoting
risk-mitigation strategies, advancing labelling and certification and better data availability are allnecessary conditions to bolster the capacity of NDBs and foundations and to realise the benefitsof sustainable infrastructure more broadly.
A. FOUNDATIONSThe COVID-19 health crisis has exposed the chronic underinvestment in social infrastructure in
most developed and emerging countries repositioning the issue of social infrastructure as a corequestion. According to the Global Infrastructure Hub, over the last decade investment in social
infrastructure declined, with primary transactions falling from $19 billion globally in 2010 to lessthan $3 billion in 2019 (Infrastructure Monitor, 2020). At the same time, in the post pandemic
scenario, governments attach more importance to economic infrastructure, targeting mostly
assets in transport, energy and communications with less attention given to social infrastructure(Global Infrastructure Hub, 2020a). Yet, from a recovery perspective, social infrastructure should
be at the core of global investment efforts as better social infrastructure leads to greater
resilience, growth and wellbeing.
Global, regional and national philanthropic actors such as public and private foundations areamong the growing number of impact investors with estimated total assets of over $2.3 trillion,
just under 3 percent of the world’s total GDP (Citibank, 2021). This community has technical andanalytical expertise, well-established means for financing projects, and a vast local public andprivate sector network. Despite this positive outlook, substantial challenges remain before
philanthropic actors realise their full potential as financiers of social infrastructure.
The investment climate is affected by many factors, including government regulations, rule oflaw and property rights, government transparency and accountability. In addition to the policy
environment, other factors preventing the flow of impact investing in social infrastructure assets
REALISING THE POTENTIAL OF NATIONAL DEVELOPMENT
BANKS AND FOUNDATIONS IN SCALING UP GREEN AND
INCLUSIVE INFRASTUCTURE

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include a lack of dedicated financial instruments, the bankability of the infrastructure pipeline,
as well as high costs and high management fees. A shortage of standardised, high-quality dataon the impact of social infrastructure could also represent a challenge. Weak data, for instance,
could lead to the misallocation of resources. Investing in developing countries for manyfoundations based in OECD countries, adds a layer of challenges including knowledge barriers.
In this context, the main burden is on governments to create favourable conditions and devise
robust and innovative initiatives to leverage the role of foundations in social infrastructure
investment.
B. NATIONAL DEVELOPMENT BANKS
Climate change is one of the most pressing issues of our time and a source of risk tomacroeconomics and financial stability. Low-emission and climate-resilient infrastructure is
critical to underpin economic growth while avoiding locking societies into carbon-intensive
emissions pathways; however, current investment levels are insufficient. To avoid the worst
climate-related impacts, financing flows will need to quickly flow towards low-carbon andclimate-resilient infrastructure. In this context, it is essential to understand which financing
channel is most efficient and how existing risks and barriers can be best addressed.3
While there has been much discussion on the role of multilateral development banks (MDBs)
in catalysing investment for infrastructure financing, there has been far less attention paid to
NDBs. This oversight means there is a major gap in evidence on the role they could play as
mediator and financier of low-carbon, climate-resilient infrastructure. With 342 NDBs holding
over US$18.97 trillion in assets, NDBs greatly exceed the assets of US$ 2.30 trillion held by 46
MDBs (Xu et al., 2021a)4 or the total amount of annual official development assistance provided
by OECD donor countries, totalling $161.2 billion in 2020 (OECD, 2021). Although there are vast
diversities among NDBs in terms of official mandates, asset size, business models andgeographical scope of operations (Xu et al., 2021a), common challenges NDBs face can be
identified at the policy, financial, business and operational levels.

3

See recent events on blended finance and financing sustainable development
https://www.oecd.org/dac/financing-sustainable-development/blended-finance-principles/blended-financeimpact-week.htm
4
The data cited here is as of July 2022. For the latest dataset on development financing institutions worldwide
developed by the Institute of New Structural Economics at Peking University in collaboration with French
Development Agency, please visit the data visualization website athttps://www.nse.pku.edu.cn/dfidatabase/index.htm.
REALISING THE POTENTIAL OF NATIONAL DEVELOPMENT
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INCLUSIVE INFRASTUCTURE

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More fundamentally, the role of NDBs in long-term financing can be affected by broad
mandates, fragmented policies and regulatory disincentives, limited expertise in climate
infrastructure financing and risk management, viability issues and a lack of appropriate andquality data on infrastructure (Alliance, 2020). Insufficient capitalisation and lack of access tolarge-scale, long-term and affordable funding sources can limit the ability of NDBs to financegreen infrastructure projects (Xu et al. 2021b).

REALISING THE POTENTIAL OF NATIONAL DEVELOPMENT
BANKS AND FOUNDATIONS IN SCALING UP GREEN AND
INCLUSIVE INFRASTUCTURE

6Proposals for G20
To reverse the decade-long decline in investment in social infrastructure and to develop a model
capable of attracting public and private philanthropy into these investments, the brief identifies
several strategies and solutions for Group of 20 (G20) members:
1. Facilitate a clear policy, legal and regulatory regime and an efficient and independent
dispute-resolution mechanism to safeguard investor rights
Uncertainty related to policy and regulatory risks is feared by foundations. To foster
greater capital expenditure in social infrastructure, a stable and efficient regulatory
framework is required. Policymakers need to develop a model able to attract long-term
finance, by establishing national infrastructure plans and removing barriers in the way ofphilanthropic actors seeking to invest more in social infrastructure. We identify four
objectives: political and legislative stability; fast administrative procedures; light
regulatory and soft bureaucratic constraints; and a reliable judicial system.

2. Support the development of innovative financial instruments and well-designed
guarantees for social infrastructure
Social impact bonds (SIBs) represent innovative financing mechanisms where
governments enter into agreements with social service providers such as foundations to
directly support the delivery of social services. The main rationale for introducing SIBs is
the need to improve the outcome delivery, through innovation in social service provision.
In many cases, private investors do not bear the risk of achieving the social outcomes,
since the public sector or, more frequently, philanthropic investors, such as foundations,provide guarantees to cover up to 95 percent of capital losses (Casalini, 2018). In thiscontext, developing well-designed guarantees are necessary to mitigate the risk forphilanthropic actors and attract private investments, in particular in the developingcountry context.
3. Implement de-risking mechanisms to make social infrastructure investment more
attractive to philanthropic actors

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BANKS AND FOUNDATIONS IN SCALING UP GREEN AND
INCLUSIVE INFRASTUCTURE

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Risks and the perception of risk, impact the actions of all stakeholders involved in thedevelopment, construction and management of social infrastructure. To improve thebankability of a social infrastructure project, governments could promote blended financeschemes that would ultimately contribute to lowering credit risk and enabling private
finance flows into the project. Given their characteristics, social infrastructure assets are
particularly well-suited for blending: a mix of grants, subsidies and guarantees.
4. Enable the bundling of projects that could give foundations access to portfolios ofsmaller sized social infrastructure
Social infrastructure projects often have a small-medium average capital investment size.
This means that infrastructure investments tend to become unattractive to large longterm investors as they face high costs and high management fees for low levels ofinvestment (EU, 2018). On the contrary, bundling has the potential to lower the risk profile
for foundations and philanthropic bodies. Unique procurement provided by the bundlingof similar assets allows investors to reduce costs and make significant savings on thedesign and construction phases (a larger volume of materials can be used) and on
maintenance activities (raw materials can be bought in bulk).

5. Promote labelling and certification targeting social infrastructure investments
The current lack of alignment around performance and standards related to thesustainability characteristics of infrastructure contributes to the generation of
inefficiency. It is also crucial to ensure that infrastructure projects supported by public
and private foundations are well-planned and well-managed, implemented in atransparent manner, consistent with best practices in terms of environmental and social
impacts. It is thus essential to promote labelling and certification that will enable the takeup of social investments. The label certification is useful for all the actors involved: it canincrease financing potential, it can be an incentive to design projects with sustainability
criteria at their core and it can encourage developers to pursue high environmental, socialand resiliency standards at all stages of the infrastructure lifecycle. GRESB is a good
example of this endeavour.5

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GRESB provides a consistent framework to measure the ESG performance of individual assets and portfolios
based on self-reported data.

REALISING THE POTENTIAL OF NATIONAL DEVELOPMENT
BANKS AND FOUNDATIONS IN SCALING UP GREEN AND
INCLUSIVE INFRASTUCTURE

8For NDBs to scale up green infrastructure more effectively there is a need to:
1. Enhance coordination between national policymakers and NDBs to promote a proactiverole for NDBs in setting a mission-driven vision to mobilise intermediate resources
towards the implementation of green infrastructure.
National governments should facilitate NDBs with a mandate that includes a climate
focus for infrastructure alongside their other social and economic objectives andassigning NDBs with a clear role in national climate policy discussions. This allows for
greater alignment of policy priorities and transformative climate actions and enables
NDBs to promote climate-smart infrastructure that aligns with the Paris Agreement goals
as well as broader development objectives.
2. Providing NDBs with sufficient funding sources and capital to leverage their role andexecute their mandate.
NDBs must be sufficiently capitalised to be able to operate on the scale required andsupport the transition to a low-carbon economy. In addition to strengthening mandates
for climate action, the government should ensure that NDBs are well funded to execute
their mandate. Besides government fiscal resources, NDBs should rely on sovereign
creditworthiness to issue bonds to scale up their investments or rely on government
guarantees to receive on-lending from MDBs. Access to international climate finance –for example, through the Green Climate Fund – is also an additional source of funding.
3. Review the legal and regulatory framework to overcome barriers for NDBs in scaling up
low-carbon and climate-compatible infrastructure.
Creating a positive enabling environment and ensuring that NDBs are included in relevant
policy and planning efforts is a necessary condition to tap into NDBs. Given the complex
nature of infrastructure investments, it is crucial to find effective means to strengthen
NDBs’ risk-management framework. National governments can facilitate thedevelopment of suitable financial instruments that allow NDBs the flexibility to takehigher risks to attract private investments and build private sector confidence (GriffithJones et al., 2022). Additionally, regulatory frameworks should be tailored toaccommodate high-risk innovations related to technologies and climate change while
ensuring financial stability (Gottschalk, Castro and Xu, 2022).

REALISING THE POTENTIAL OF NATIONAL DEVELOPMENT
BANKS AND FOUNDATIONS IN SCALING UP GREEN AND
INCLUSIVE INFRASTUCTURE

94. Improving NDBs internal capacity to plan, measure, report and verify the impact ofinterventions, including the measurements of social and environmental benefits.
Good governance and effective management of NDBs are critical. To access international
climate finance, the effectiveness of programmes and the achievement of environmental
results of investments need to be verified, requiring considerable internal capacity. A
particular capacity that NDBs will have to strengthen to become credible, reliableintermediaries in climate finance is related to the monitoring, reporting and verification ofsocial, environmental and climate impacts. Training and awareness raising of staff
members are also needed to build capacity and knowledge about best practices in green
infrastructure projects and climate finance.
5. Fostering the collaboration between NDBs and MDBs to tap into their comparativeadvantages to achieve the goal of scaling up green infrastructure.
To become successfully involved in climate change mitigation, NDBs’ collaboration with
MDBs should be promoted. To take advantage of the local knowledge and networks of
NDBs, MDBs can increase their on-lending to NDBs. If the on-lending denominated in hardcurrencies from MDBs cannot increase the supply of foreign exchange in borrowing
countries, MDBs should allow more time to pay back the loans while reducing the interest
rate charged (Schclarek and Xu, 2022). Additionally, MDBs are well fitted to foster peer
learning with NDBs and to support their ambitions to become accredited to accessinternational climate finance. These entities can also provide technical assistance to
NDBs to build internal capacity in both identifying bankable projects and preparing themfor investment. The D20 is a mechanism to foster collaboration between NDBs and MDBs
that can support further collaboration in the G20 context.
6. Strengthen data collection to ensure that green infrastructure is recognised globally as
an investment asset class through better measurement of how these type of
infrastructure investments perform.
Robust data availability and analysis andenabling credible outcomes measurement in areasonable timeframe are necessary for the planning of infrastructure investments andenhanced resilience, and longer asset life. Information technology systems such as
digital twins, earth observation, remote sensing, and artificial intelligence used inconjunction with distributed ledger technology, can potentially facilitate the collection,
sharing and analysis of data, and improve both time and cost efficiency in green
infrastructure planning and development
REALISING THE POTENTIAL OF NATIONAL DEVELOPMENT
BANKS AND FOUNDATIONS IN SCALING UP GREEN AND
INCLUSIVE INFRASTUCTURE

10RELEVANCE TO G20
The G20 has provided efforts for scaling-up infrastructure investment but needs better
leadership to crowd in more capital, set up a more actionable blueprint and agenda for the longterm global infrastructure landscape and for achieving a climate friendly and more socially
inclusive economy.
Considering the COVID-19 pandemic’s multidimensional impacts, implementing sustainableinfrastructure will require concerted efforts, additional resources and a proper normative
framework unfolded both at the international and country level. Gathering the most important
shareholders, the G20 is particularly well positioned to promote a dialogue to alleviate the
obstacles and find suitable solutions with regards to the more active role of NDBs andfoundations to scale up resilient, green and social infrastructure.

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BANKS AND FOUNDATIONS IN SCALING UP GREEN AND
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BANKS AND FOUNDATIONS IN SCALING UP GREEN AND
INCLUSIVE INFRASTUCTURE

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https://www.nse.pku.edu.cn/docs/20210617175213545696.pdf.

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