
CEE-Led Interdisciplinary Team Investigates Equitable and Sustainable Infrastructure Finance
CEE Professors, will use smart infrastructure data to develop equitable and sustainable financing models for underserved communities
CEE Professors, will use smart infrastructure data to develop equitable and sustainable financing models for underserved communities
After being selected by the 2024 Bold Challenges Initiative, an interdisciplinary cohort of University of Michigan faculty will launch a research project centered around linking data from smart infrastructure to more equitable and sustainable infrastructure finance. The project, “Data Markets for Resilient Infrastructure: Equitable Financing and Resilience under Climate Transitioning,” will be led by CEE’s Professor Peter Adriaens along with SangHyun Lee, Sabine Loos, Ravi Anupindi of the Ross School of Business, Jon Allan of the School of Environment and Sustainability (SEAS), and Darren Wolfberg from Triangle Digital, a blockchain company in the sustainability and resilience space.
The team will develop actionable solutions, in collaboration with insurance providers, private financiers, carbon brokers, and development finance institutions such as the UN Capital Development Fund and the World Bank.
Within the world of natural and built infrastructure, there is a measurable gap where available funding and financing mechanisms do not meet societal needs. Both within and outside the United States, this gap is fraught with inequality, particularly impacting poor and rural communities; poorer communities can’t easily access the bond market to finance new or upgrade existing infrastructure, and if they do, they face high costs. Furthermore, low-lying communities tend to not receive any reinvestments to rebuild their infrastructure after floods and other disasters. The team will seek to address inequalities in infrastructure such as these by designing an equitable and accessible system for communities that does not rely on restrictive factors like limited subsidies or high-cost financing options.
Throughout the progression of their research efforts, the team will seek to employ a variety of different methods to address these kinds of gaps in distributive equity.
“The approaches differ depending on what type of infrastructure is considered, the socio-economic conditions of the community and region, and the situation of build and rebuild,” Adriaens explains. “But, a common thread is that performance-based financing models are cheaper and thus potentially more accessible to underserved communities. Other innovative approaches include the structuring of new data-driven public-private partnerships, leveraging of new insurance mechanisms to undergird risk of financing pre- and post-disaster, integration of digital carbon offsets in supply chains to receive discounts on loans and bonds under the Task Force for Climate-Related Financial Disclosures market mechanism and others that my colleagues will bring to the table.”
By linking infrastructure performance and sustainability data to financing mechanisms, communities will be able to borrow at a lower cost all while retaining more value along with greater access to sustainable financing results.
“These models will lead to equity by lowering both the cost of debt and the administrative costs of infrastructure finance, which typically amounts to 1.5-2% on top of the interest rate,” Adriaens explains. “This will also shift the ‘ownership stake’ and control in infrastructure from large institutional finance entities to retail investors.”
Along with the importance of equitable and accessible infrastructure systems, and the ability to finance post-disaster, the team “will emphasize the importance of risk communication and collaboration with external entities like governments or financial institutions to ensure the project’s success”, according to Professor Loos.
“Creating new financing models requires holistic efforts from multiple parties like governments, financial institutions, engineers and contractors,” says CEE Professor SangHyun Lee. “It requires a new perspective on the lifecycle of our smart infrastructure with new data from IoTs, its tokenization, and a streamlined but accountable data flow across multiple stakeholders.”
As a part of their selection by the Bold Challenges Initiative, the team will receive personalized skill-building and facilitation training from research development experts and up to $75,000 to support activities that further their research and team growth. The program will support teams in the early stages of research with substantial potential for future large-scale funding.
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