How investing in sustainable infrastructure can help mitigate the effects of climate change and urban growth

The need for food, water and energy sustainability is higher than ever as urban populations grow and the effects of climate change play out across the world

Marcella Chow

Published: 12:30pm, 15 Jul, 2022

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The world is facing unprecedented challenges. Climate change and the resulting extreme weather affect the way we live, work and interact with our environment. Meanwhile, urbanisation is driving demand for increased connectivity and putting more pressure on services in cities, including transport and communication.

But these structural trends also present opportunities. Investing in essential assets that help build a more sustainable and inclusive economy will be key to addressing these issues.

According to the Organisation for Economic Cooperation and Development, infrastructure sits at the very centre of development pathways and underpins economic growth, productivity and well-being. Most importantly, infrastructure plays an important role in addressing real-world problems.

Russia’s invasion of Ukraine has escalated the importance of energy security. Potential cuts to Russian gas supplies could lead to energy rationing in different European countries and sectors in the next few months. Most worryingly, there may not be enough gas to heat homes in Europe this winter.

While renewable energy is not a quick fix for the potential energy shortage, reducing dependence on Russian energy imports should be a priority. This also underscores the urgency in accelerating the shift to renewable energy, as well as investing in the means to store and transport renewable energy.

These technologies exist, but more time, resources and policy support are required to scale up further. In the 14th five-year plan’s renewable energy development strategy, Chinese authorities released their first proposal to pivot towards a modern energy system, with an emphasis on energy transition.

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This should lead to a significant policy shift towards building the renewable energy sector. Most importantly, the impact is likely to go beyond the domestic market as China will play a critical role in the global energy transition, given the need for renewable energy technology and equipment across the world to reach net zero targets. Infrastructure will continue to be a central policy lever in sustainable energy, construction and transport.

The supply disruptions as a result of the Ukraine war have also raised global awareness about the importance of food and water sustainability. Climate change is exacerbating the issue as it contributes to depressed crop yields while extreme weather damages food production.

As more resources are devoted to developing infrastructure solutions for more efficient agricultural technologies, better waste and water management, sustainable fertilisers and improved supply chain practices, this should help strengthen the global food system.

At the same time, intensive urban growth has an adverse impact on the environment. According to the United Nations, about 55 per cent of the world’s population lived in urban areas in 2018. That figure is expected to rise to 68 per cent by 2050, with Asia and Africa contributing most of the growth.

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While the main driver is continued economic development in urban areas – which contribute more than 80 per cent of global GDP, according to the World Bank – these areas also account for more than 70 per cent of greenhouse gas emissions.

Growing urban populations have also created greater demand for better connectivity and increased traffic flows in cities, which can lead to more congestion and pollution. However, the development of a more sustainable transport system could help alleviate some of these problems.

For example, companies are developing intelligent transport corridors to improve road conditions and safety. There are also increasing numbers of electric vehicles on the road, along with related facilities such as charging stations.

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There is greater demand for better services. Some governments and companies are embracing digital infrastructure to help deliver services more efficiently. For example, smart networks and innovative telecommunication technologies are driving a cloud-first world or even enabling companies to deliver metaverse capabilities.

People are increasingly going online for goods and services, from grocery shopping to telehealth and e-learning. This drives the need for more sustainable logistics and warehouses to help reduce waste and improve supply-chain efficiency.

As the world continues to urbanise, sustainable development depends on how governments and companies manage urban growth, especially in low-income and lower-middle-income countries, where the pace of urbanisation is expected to be the fastest.

To ensure the benefits of urbanisation are fully shared and inclusive, a combination of governance and regulation are needed to ensure equal access to infrastructure and social services for all groups, to ensure safety, resiliency and equality.

Marcella Chow is a global market strategist at J.P. Morgan Asset Management