As this year's host of the Group of 20 countries, Japan is taking the opportunity to push a novel idea: quality infrastructure investment, or QII.
Under Tokyo's leadership, the G-20 will for the first time take on infrastructure quality rather than quantity, the traditional measure that has been applied to everything from roads to digital networks for decades.
It is high time. Quality matters to all stakeholders. It matters to governments that must procure infrastructure consistent with national development aspirations, economic efficiency, transparency, and accountability. It matters to the public who deserves infrastructure that maximizes the public benefits while minimizing environmental damage or violation of human rights. And it also matters to the investors, who will take comfort from the prospect of projects that are well designed and structured consistent with sustainable development.
There is much infrastructure to build -- up to $1.7 trillion worth annually in Asia alone. There is no overall shortage of funds, with $90 trillion of institutional investors' long-term money looking for returns. Developing countries eagerly wait for even a tiny fraction of investors' money.
Sadly, supply and demand have yet to bridge the gap. Too many risk factors scare the investors while too few bankable projects move through the pipeline. To ramp up the volume in infrastructure investments, a succession of G-20 summits has proposed everything from good regulatory framework and incentives for foreign direct investment to public-private partnerships to the simplification and standardization of investments, all tending to emphasize quantity over quality. But now Japan, holding the G-20 presidency for the first time, has a different point of view.
It is an open secret that economic and geopolitical competition with China is the real driver behind Japan's QII vision. Japan hopes a new focus on quality will help shine a favorable light on its own national infrastructure capabilities and lead to more Japanese infrastructure exports, especially to Asia. Beyond Japan's economic ambitions lies its geostrategic intent. For instance, Japan is a member of the so-called Quad -- the emerging quadrilateral partnership with the U.S., Australia and India designed as a counterweight to China. The Quad promotes an Open Indo-Pacific Strategy and its own investment plan as a counterweight to the ambitious Belt and Road Initiative, or BRI, China's huge infrastructure program with a global reach.
An earlier manifestation of QII can be found in the 2016 Ise-Shima Principles of the G-7, when Japan held the presidency. These principles included important concepts, such as climate resilience, environmental and social considerations, and governance.
But more recently, Japan has identified openness to all participants, transparency, and protection against over-indebtedness, in other words debt sustainability, as its central QII considerations. In all these aspects, Japan and other G-7 states have concerns about Beijing's BRI.
Setting geopolitics aside for a moment, Japan should focus on what lies at the heart of high-quality infrastructure: economic, environmental and social sustainability.
Since 2015, the United Nation's Sustainable Development Goals, or SDGs, have made the idea of sustainable development much more tangible. These goals make clear that infrastructure with economic, environmental and social sustainability -- sustainable infrastructure -- is a worthy goal in and of itself. They also recognize that sustainable infrastructure can enhance just about all the SDGs, whereas poor infrastructure stands to hinder countries' achievement of these goals.
Most investors are aware of the SDGs and the need for due diligence on the sustainability dimensions of infrastructure but are confused about the meaning and modalities. Demystifying the environmental, social and governance, or ESG, dimensions of investment and their relationship to sustainable infrastructure will help promote quality investment.
Yet we lack an authoritative set of sustainability standards for infrastructure. This is in part due to the complexity of the sector and the competing initiatives on sustainable infrastructure. One study counted more than 30 initiatives in this area, while another found that the initiatives vary because they are designed to do different things, such as upfront screening and measuring sustainability performance. Investors' impulse to devise proprietary screens and systems only leads to further fragmentation.
Although the environmental and social safeguard policies of multilateral developments banks are well known, they were designed for risk management, not benefits enhancement. A succession of environmentally catastrophic investments prompted the World Bank to adopt the safeguards as a risk management measure, whereas they maintained confidence in development projects producing benefits. By now, we know that benefits shortfall is the rule and not the exception.
Many sustainable infrastructure initiatives focus on renewables and climate resilient infrastructure, while shying away from the people dimensions. Yet infrastructure's central purpose must be to serve the needs of people, enabling access to affordable services, while paying special attention to those who are unserved or underserved. Infrastructure design should incorporate the views of users, particularly women, who have different requirements and preferences from men. Similarly, older people, minorities, and indigenous peoples, as well as small and medium-sized enterprises may have specific use patterns and expectations. People with disabilities should have safe access to infrastructure through barrier-free design. Dual-use of industrial and trade infrastructure should be considered to fill the unmet needs of people. Needless to say, infrastructure should not harm people and the environment they depend on.
Other expected benefits of infrastructure development, such as growth in employment, markets, and communities, as well as the provision of schools and health care should also be planned in advance with contributions from all stakeholders. Transparent, participatory decision-making is a key component of quality infrastructure that Japan must not omit.
The Japanese presidency of the G-20 presents a once-in-a-generation opportunity to lead the world in standard setting in quality infrastructure. Tokyo should aim high to set out authoritative and comprehensive principles based on sustainability considerations, placing people at the center.
To this end, Japan must set aside geopolitical differences and facilitate a broad coalition with all G-20 countries, including China. Given Beijing's huge role in infrastructure, including in the BRI, any global push for sustainable infrastructure can succeed only with China's involvement.
Tokyo should also weigh carefully advice from other governments, international organizations, multilateral banks, business, and civil society.
There is still time to transform business-as-usual infrastructure development into one that makes long-term contributions to the economic, environmental and social dimensions of sustainable development.
Successfully setting standards in QII will benefit all, including the investment community that is sitting on the edge of the infrastructure gap, looking for guidance on how to ensure investment is both responsible and profitable. Investing in good-quality sustainable infrastructure can help bridge this gap. And, if these standards can manage to bring in quality private investment, they might just help boost the quantity of investment as well. Quality is quantity. Japan should not waste this rare opportunity to take the lead.
Motoko Aizawa is president of the Observatory for Sustainable Infrastructure, a research organization. She is a former Sustainability Advisor at the World Bank Group and a project finance lawyer.