Bridging the investment gap: Infrastructuring tomorrow

Over the past year, Dark Matter Labs has been reimagining infrastructures with stakeholders throughout Europe, including the EIT Climate-KIC Healthy, Clean Cities Deep Demonstration. This article is a lightly edited extract from a full-length version, first published on Dark Matter Labs’ blog.

It has often been stated that societies, civilisations and cities live or die by the infrastructure they build. Many of the current infrastructures across our cities and wider society are no longer fit for purpose. In some cases, they are on the brink of collapse. Furthermore, we are at risk of building the wrong infrastructures for the civilisation of the 21st and 22nd centuries. What are the social, ecological, cultural, economic, physical, and institutional infrastructures that are necessary for this new age of long emergencies?

Over the past twelve months, Dark Matter Labs has been working on this challenge with various stakeholders throughout Europe, including Viable Cities, Scottish National Investment Bank, NatureScot, and other parts of the Scottish government, the EIT Climate-KIC Healthy, Clean Cities programme, as well as with partners through The Long Alliance.

This work has made it apparent that the dimensional context and the scale of investments required for initiatives such as the Green New Deal are at an order of magnitude our societies and institutions have not yet grasped. We don’t yet have the tools, frameworks, and mechanisms necessary to bridge the capabilities, capacity, and capital gaps, enabling us to address this transition. We need to ‘re-code’ capital to enable the transformations we need.

In this series of blogs, we seek to articulate an urgent need for bridging the gap between the capital clearly aggregated at a macro scale and the investment needed for implementation of transition infrastructures on the ground.

The first blog outlines the five key intervention areas that present unique opportunities for macro capital to address directly the health, climate, economic, and social crises of our time. 

1. Nature-based assets

These include trees, wetlands, and pools of biodiversity. This future is being demonstrated by Deep Demonstration work across European cities, from Milan to Vienna and from Glasgow to Madrid, where municipalities are looking for whole-population-scale nature-based solutions. Examples include the planting of millions of street trees and the transformation of canopy cover across a city through the creation of a ring of urban forests. These solutions and future asset classes have some of the highest potential for capturable spillover values, whether that relates to the ‘heat island’ reduction effects of tree canopies, improvements to water drainage systems, or an array of health benefits such as the reduction of asthma rates in children. The need and value of these city-scale interventions are obvious but the viable operational, contractual, and governance means to execute and capitalise this vision are in urgent need of development. For more details, see some of our work at https://treesasinfrastructure.com.

2. Deep retrofitting of our cities

Many municipalities, including Malmö, Sweden, and Sofia, Bulgaria, have announced radical missions to retrofit what amounts to millions of homes across Europe by 2030. Some are exploring pathways for the physical retrofit of their entire cities. Increasingly, our work shows the need to move beyond house-by-house energy retrofits to whole-street and whole-district approaches and whole-city investment cases and business models. This needs to be integrated with parallel vertical-supply-chain innovation and collective strategic procurement across utilities, insurers, governments, and landowners. In these societal-scale aggregative models, the deployment of capital needs to be directly linked to the spillover value of a street-wide or district-wide retrofit strategy, with new mechanisms that allow for the capture of both direct and indirect benefits. By establishing community wealth models at the heart of this approach, we emphasise community-driven outcomes as a key de-risking factor for what is inevitably disruptive work in neighbourhoods.

This approach generates returns on a longitudinal and macro-investment scale, which may not always be captured through more traditional project measures such as internal rates of return (IRR). This is because the spillover effects go far beyond the direct energy savings or even the indirect health implications. They affect a city’s unemployment rates, the local velocity of spending, community wealth and GDP, and drive direct positive benefits with direct as well as more indirect beneficiaries. The contractual integration of this whole value case is vital to creating a sustainable financial proposition, and the community/street-driven transition is the key to growing distributed community wealth, moving us away from the disaster capital concentration of resources, innovation, and new monopolies.

Again, the need and value of city-scale and societal-scale intervention is clear. It enables enormous savings in yearly carbon emissions from existing residential properties — one of the key emissions sources in our cities. Yet, our capacity to institutionally structure and organise the spillover values inherent in these societally entangled interventions is still missing. Without this capacity, residential retrofits will continue to be perceived, wrongly, as unpopular, capital-intensive, revenue-ineffective, and subsidy-dependent interventions, even if they are the only genuinely smart option.

3. Social infrastructures

The social and civic fabric in our cities has suffered significant and chronic under-investement. While new financing commitments are announced regularly, the fundamental challenge lies in the funding side of the business case, specifically targeting mechanisms to recognise and capture spillover values. A good example of a strategic social infrastructure investment is the $7-a-day universal childcare scheme in Quebec, Canada. The programme started in 1997, and over a period of twenty years led to a tripling of the number of mothers with children under the age of five who participate in the Quebec workforce. The impact has been particularly significant for middle-to-low-income women. The resulting economic benefits are vast: $5-billion added to Quebec’s GDP and a 64% reduction in the number households who received social assistance. The spillover effects over the past twenty years of every parent being in a position to choose when or whether they return to work has spread well beyond tax dollars and touched on almost every aspect of Quebec’s society. Empowered women make decisions on what level and quality of schooling their children receive, what local businesses they support, where they invest their education and retirement funds, and what types of communities they want to live in. Strategically investing in public childcare, supporting minority women and first-time immigrants by guaranteeing them a basic universal income, are all examples of social infrastructures that produce returns beyond IRR. Our ability to finance such civic goods is critical for any meaningful transition.

4. New, large-scale, urban developments

Even as the pandemic is undoubtedly impacting on cities’ fundamental economic and residential geography, many cities are (re)developing land for growth and economic adaptation. In this new age, large-scale developments cannot be justified by land value alone. Increasingly, they also need to be structured via a systems value lens — considering their impact across other, connected parts of the system such as on collective well-being and prosperity, human and ecological health, etc. — which is critical if they are to be sustainable, including both net-zero carbon in operational terms and from an embodied carbon perspective. As illustrated by our collaboration with the City of Edinburgh (and, more specifically, Granton’s Sustainability and Strategy initiative), they need to reconfigure a city’s housing offer, making it fit for a post-carbon, post-Covid economy. In addition, these developments need to be viewed in the context of how they can drive whole-value-chain innovations, how they support the seeding of new circular material and maintenance economies, and how they support the regeneration and adaptation of adjacent settlements. Equally important is how they can create the new regulatory innovations necessary to drive the wider transition of the city, and how they drive alternative tenures to rent and ownership, with an emphasis on the value of neighbourhoods rather than houses. Large-scale projects need to account for, drive, and value these system impacts if they are to manifest the societal outcomes necessary to support transition, and to justify the real estate sector’s social licence to operate in this age of long emergencies.

5. Agricultural land and our food systems as a whole

Our soil holds the key to both our health, as a source of food, and to carbon sequestration and restoring biodiversity. Any meaningful transition will require us to reconfigure our food and nutrition systems toward regenerative practices. At present, it is more expensive to purchase an organically grown local apple than one cultivated far away, on an industrial scale using environmentally harmful pesticides and chemicals. The latter also accumulates largely underpriced water waste and associated carbon emissions during its transportation to market. A systemic shift in the economy of land and agriculture is vital for the transition. It involves the redesign of incentives, repricing of externalities, the valuing of soil quality maintenance and regeneration, and the inclusion of carbon sequestration potential into the value of land. The system value of the asset is strategically understood, and the case, evidence, and values are increasingly validated. But we now need to build the funding, financing, contractual, and governance structures to manifest this fundamental value.

Read the full version of Dark Matter Labs’ “Bridging the Investment Gap: Infrastructuring Tomorrow.