Financing the future: Unlocking private capital for global infrastructure and climate goals

The Intergovernmental Panel on Climate Change (IPCC) Sixth Assessment Report paints a dire picture of the possibility of avoiding the 1.5 degrees Celsius (°C) rise in global surface temperature. According to this report, “global warming is more likely than not to reach 1.5°C even under the very low [greenhouse gas] emission scenario” and it will be “harder to limit warming below 2°C.” The report provides strong evidence that, based on the current trends of greenhouse gas (GHG) emissions around the world, 1.5°C will be reached before 2040, which is a bit more optimistic than a 2023 article published in the journal Nature, which estimated the world will reach 1.5°C by 2029, leaving the global community with a mere five-year runway. Yet, a recent report by the European Commission warns that we already passed the 1.5°C-mark in 2024. The IPCC report also highlights the fact that there is a massive shortfall in the level of financial flows needed to achieve climate targets in different countries and sectors.

The link between social and physical infrastructure and economic growth and stability is un-disputable. However, the scale of financing required to meet the Sustainable Development Goals (SDGs) and establish climate-resilient infrastructure for the future global economy is the subject of widespread estimation and debate. These projections differ significantly based on various factors, such as the target year (2030, 2040, or 2050), the specific areas of focus (whether traditional infrastructure, SDG priorities, or the energy transition), and the underlying assumptions shaping the analyses. Despite these variations, one undeniable truth emerges: the financing gap is projected to reach trillions of dollars annually over the next ten to thirty years. This gap has been growing wider with the rising population (and, hence, growing needs for new infrastructure and maintaining the existing ones) and the increasing frequency of severe climate, destroying current critical infrastructure in many countries and negatively impacting their operations in others. Hence, the world not only needs to bridge the financing gap for building and maintaining basic infrastructure—between 1–4 billion people lack dependable access to electricity, water, internet, and sanitation—but old infrastructure must be climate proofed and new infrastructure must be built with climate resiliency in mind. Without bridging this massive and growing SDG and infrastructure financing gap, global growth will come to an eventual halt in just a few decades. 

This presents the global economy with the enormous challenge of funding its sustainable development and infrastructure needs. Given the magnitude of these gaps, it is evident that states, multilateral development banks (MDBs), and international financial institutions (IFIs) alone cannot bridge them. Therefore, there is an urgent need for innovative alternative financing solutions, namely from private sources. 

This report aims to provide a nuanced analysis on this very topic. Section 2 provides a holistic review of the investment gaps in global infrastructure, energy transition, and achieving SDGs. Section 3 highlights several challenges as they relate to de-risking, leveraging ratios, and potential sources of financing. Section 4 presents the case for making infrastructure an asset class that would attract private investment. Section 5 concludes the report. 

Amin Mohseni-Cheraghlou is a Senior Lecturer at American University and a former Senior Advisor at IMF’s Office of Executive Directors.

Nisha Narayanan is a senior fellow at the Atlantic Council’s GeoEconomics Center and is the head of country risk at a global financial institution.

Hung Tran is a nonresident senior fellow with the Atlantic Council’s GeoEconomics Center and and senior fellow at the Policy Center for the New South.

Image: A drone view shows construction on the 3.2 kilometre Kigongo–Busisi Bridge, named John Pombe Magufuli Bridge that crosses the southern end of Lake Victoria at a cost of approximately $300 million USD, in Mwanza, Tanzania October 14, 2024. REUTERS/Emmanuel Herman