Setting higher standards for the G-7 infrastructure (re)launch

For the second year in a row, the Group of Seven (G-7) nations are poised to launch a major global infrastructure partnership. But if this year’s initiative is to avoid the fate of last year’s stalled effort, the sponsoring governments must take the important step of setting globally recognized standards — like a Good Housekeeping Seal of Approval for multi-million-dollar investments — to get this important initiative off the ground. The G-7 includes the U.S., Canada, the U.K., France, Germany, Italy and Japan.

Indeed, to achieve the lofty goals of using infrastructure investment to counter China’s soft power, promoting clean energy, and building the foundations for global economic recovery, the G-7 must use all tools at its disposal to promote globally recognized standards. 

Last year at the G-7 Summit, member nations endorsed President Joe Biden’s Build Back Better World (B3W) partnership plan. The U.S. and its allies pledged to deliver infrastructure investments to low- and middle-income countries to enhance their resilience and recover economically from the pandemic while also cutting greenhouse gas emissions. Soon thereafter, the European Union introduced its infrastructure initiative, Global Gateway, followed by the United Kingdom’s Clean Green Initiative. All promoted themselves as alternatives to China’s overseas infrastructure initiative, the Belt and Road Initiative (BRI).

At the G-7 Summit next week, the U.S. plans to announce a global infrastructure partnership — essentially B3W version 2.0 — which is being billed by national security adviser Jake Sullivan as “one of the hallmarks of the Biden administration’s foreign policy” going forward. The administration is not requesting a large budget allocation to fund it. With Biden’s domestic Build Back Better legislation moribund and midterm elections rapidly approaching, that would not be feasible.

Instead, the U.S. (and E.U.) are literally banking on the private sector to pick up the slack.

Their approach is to use modest government investments to leverage significant private sector financing. Institutional investors such as pension and insurance funds are increasingly seeking sustainable, low-risk investments for their rapidly expanding environmental, social and governance (ESG) funds. However, these investors have been reluctant to invest in developing country infrastructure because they perceive the investment risk to be high. As a result, potentially hundreds of billions of dollars are left sitting on the sidelines.

A critical barrier to tapping into these financial resources is the lack of a trusted global standard for identifying “bankable” infrastructure projects with low ESG risks, high debt transparency, and reliable economic returns.

If G-7 nations make good on their upcoming pledge to make hundreds of billions of dollars in public- and private-sector infrastructure loans available to low- and middle-income countries, and to do it with quality, sustainable infrastructure, that could truly set a pathway toward global sustainable development. It might even level the playing field with China’s BRI and offer a critical infusion of soft power for Western governments at a time when authoritarianism is on the rise.

And yet skeptics are already questioning whether this upcoming announcement will result in real investments. Despite the hype at the G-7 Summit in June 2021, little has been heard from B3W since then (and Global Gateway and Clean Green Initiative have not fared much better). Why should this announcement be any different?

One important distinction is that a potential global infrastructure standard is now within reach. Two new standard-setting initiatives — Blue Dot Network and FAST-Infra — are being rolled out to help unlock private capital that can be mobilized to invest in sustainable, quality infrastructure. Blue Dot Network is led by the governments of the United States, Australia and Japan. FAST-Infra is led primarily by financial institutions, mostly from the private sector. It might seem counterintuitive that two or more initiatives could generate “a global standard” — the simultaneous introduction of two divergent standards risks adding confusion, not clarity, for investors. However, we have just issued a new report and policy brief that map out how these initiatives can be coordinated and implemented.

Addressing the world’s infrastructure gap is even more urgent today due to the events of the past year. The West wants more than ever to counter China’s soft power expansion in developing nations. Clean energy investments are urgently needed to reduce greenhouse gases and provide stable energy sources that are buffered from global price shocks. Digital infrastructure investments are required to help address dramatic supply chain disruptions. With debt distress at levels not seen in a half century, transparency in new loan agreements is indispensable for negotiating terms that avoid unreasonable debt burdens.

The success of the global infrastructure partnership (re)launch depends on having trusted standards investors can rely on. The G-7 should take the lead on establishing and promoting global infrastructure standards based on the Blue Dot Network and FAST-Infra initiatives. Doing so is critical to promote post-pandemic reconstruction and rebuild western soft power in developing nations.

Elizabeth Losos is a senior fellow at the Nicholas Institute for Environmental Policy at Duke University.

Robert Fetter is a senior fellow at the Duke Center for International Development at Duke University and principal consultant at Environmental Resources Management.