Private capital must be leveraged to close the looming massive infrastructure gap.

Infrastructure plays a central role in supporting economies and public services. Yet, a large mismatch remains between investment needs and actual capital flows. Estimates suggest a global infrastructure investment gap of $15 trillion by 2040.

At the same time, infrastructure assets account for less than 1% of global assets under management and institutional investors allocate, on average, just 5% of their portfolios to the sector.

Private capital could play a much larger role in closing the gap – particularly through sustainable infrastructure, offering long-term, stable returns and aligning with climate and sustainability goals. The current under-allocation points to a missed opportunity, especially as infrastructure expands beyond traditional sectors into clean energy, health systems and resilient urban development.

Infrastructure systems are increasingly exposed to climate hazards, from extreme weather to chronic risks such as sea-level rise. According to Aon, in 2024, natural disasters caused $368 billion in losses, yet only 40% of these damages were insured. As climate risks grow, so do insurance costs, especially for assets that lack adaptation measures.

Resilience is becoming an important factor in asset valuation. Proactive measures, such as flood defences or reinforced design standards, can reduce losses and improve insurability. Integrating these features early – during planning, design or refurbishment – offers the most benefits. Resilience also supports service continuity, revenue stability and long-term value retention.

Investment in resilience is not only a response to future climate risk – it is also a way to address growing losses linked to population growth in hazard-prone areas, ageing infrastructure and poor siting decisions. These factors highlight the need to integrate a risk perspective throughout the asset lifecycle.

In addition to physical risks, infrastructure is exposed to transition risks – especially as demand for fossil fuels declines and climate policy tightens. These risks include stranded assets and market revaluations. A recent publication by Global Infrastructure Basel Foundation and Ortec Finance presents a climate scenario analysis comparing conventional and sustainable infrastructure under two distinct futures:

The figure below shows the relative impact on expected returns for sustainable infrastructure over conventional infrastructure. Lower exposure of sustainable infrastructure to both transition and physical risk leads to higher expected returns compared to conventional infrastructure under both modelled scenarios.

In both cases, sustainable infrastructure showed stronger performance than conventional infrastructure. Cumulative returns were over 20% higher under the net zero scenario and around 10% higher in the limited climate action case. These outcomes reflect reduced exposure to fossil fuel sectors and the benefits of including resilience measures that help manage physical risk.

Despite the growing case for sustainable infrastructure, a critical challenge remains: what exactly qualifies as sustainable infrastructure and how can investors ensure they are allocating capital to assets that deliver these benefits?

Standardized frameworks, such as the Finance to Accelerate the Sustainable Transition-Infrastructure (FAST-Infra) Label, play a crucial role in increasing market confidence by establishing transparent sustainability metrics, reducing due diligence costs and ensuring that infrastructure investments align with clear sustainability benchmarks.

They play a pivotal role in driving sustainable investment by fostering transparency, credibility and alignment of interests across all levels of the investment chain, from asset owners to fund managers and portfolio assets.

In addition, the data collected through the labelling process generates further quantitative evidence of the superior financial performance of sustainable infrastructure. Over time, this improves the liquidity of sustainable infrastructure assets and reinforces the case for higher allocations to this asset class.

Several global trends are additionally driving long-term demand for sustainable infrastructure investment through 2050. The clean energy transition is accelerating. Renewables are becoming increasingly cost-competitive – 81% of new capacity added in 2023 was cheaper than fossil fuels. In addition, we are observing a rapid growth in electric vehicles and battery storage alongside falling technology costs.

Second, with 70% of the world’s population projected to live in cities by 2050, urbanization is creating an unprecedented need for climate-resilient infrastructure. Towns and industries are integrating sustainability to reduce costs and increase resilience through clean public transport, green buildings, circularity and more.

Finally, enhanced alignment with sustainability metrics, clear labelling standards, better climate risk tools, and lower insurance costs all help reduce capital costs. Investors in sustainable infrastructure can tap into a broader range of finance sources and instruments, such as impact funds or the growing green bond market.

Infrastructure investors have a unique opportunity to accelerate the transition toward a more sustainable global economy while enhancing their long-term portfolio performance. Increasing allocations to sustainable infrastructure allows investors to safeguard assets against systemic climate risks, benefit from transition-driven market shifts, and ensure more stable returns in the face of growing uncertainty.

With proper risk assessment, resilience integration and standardization, sustainable infrastructure has the potential to evolve into a highly investable and more liquid asset class. Scaling capital into this space is a responsible investment decision and a way to preserve long-term value and stabilize global markets in the decades ahead.

The following individuals also contributed to this article:

Ania Porucznik, Senior Project Manager, Global Infrastructure Basel Foundation; Sophie Heald, Climate Risk Specialist, Ortec Finance; Koen De Reus, Client Servicing Lead, Climate Scenarios and Sustainability, Ortec Finance; Tijmen Janssen, Climate Risk Analyst, Ortec Finance; Christian Déséglise, Group Head of Sustainable Infrastructure and Innovation, HSBC Holdings plc; Natalia Moudrak, Managing Director, Climate Risk Advisory, Aon; Pierre Cardon; Cherie Gray, Global Lead Sustainability & Market Development, Public Sector Solutions, Swiss Re; and Marie Lam-Frendo, Partner, Chief Strategy Officer, Meridiam.

https://www.weforum.org/stories/2025/04/why-investment-in-sustainable-infrastructure-is-key-to-financial-resilience-in-a-changing-climate/