Our current work focuses on the regulatory capital treatment of infrastructure investments and how this treatment affects private sector financing of infrastructure. We are consulting with governments, banks, and investors to advance reforms to regulatory capital charges that are prudent for infrastructure as an asset class.
As an independent organisation, free of commercial objectives, the GI Hub is trusted to facilitate collaboration and dialogue between the private and public sectors, and our preliminary consultations show a path and readiness among stakeholders to consider reform.
Learn more about our work in this area below.
Investors group financial instruments that have similar characteristics (e.g. similar risk) and performance (e.g. similar returns on investment) into asset classes, and then build portfolios of asset classes that are diversified and optimised to meet their objectives or the objectives of their clients. A group of individual assets that can’t be placed into a defined asset class is more difficult for investors to assess, and thus is viewed as more risky, and is less likely to attract investment.
In 2018, the G20 Eminent Persons Group recognised that several factors were blocking the establishment of infrastructure as a distinct asset class: the heterogeneous nature of infrastructure assets, insufficient data on the investment performance of these assets, and lack of a strong pipeline of continuous projects. Under the Argentinian Presidency in 2018, the G20 endorsed a Roadmap to Infrastructure as an Asset Class.
In our role supporting the G20’s infrastructure agenda, the GI Hub is acting on the Eminent Persons Group recommendation of a case for infrastructure as an asset class, distinct from generic corporate exposures with its own differentiated risk profile, in order to increase private investment in infrastructure and help fill the infrastructure gap with sustainable, resilient, and inclusive infrastructure.
If you work in commercial or investment banking, and have knowledge of regulatory capital treatments of infrastructure investment, you may be interested in providing input about this topic and/or joining our coalition of bank stakeholders. The findings and recommendations of this coalition will be presented to the G20 Presidency, Financial Stability Board (FSB), and Basel Committee on Banking Supervision (BCBS) Secretariat. To learn more, register your interest.
Banks financed 63% of private investment in infrastructure projects in primary markets in 2020. Recent Basel III reforms that curtail this participation can have significant effects, particularly because alternative private sources are not stepping up to finance greenfield infrastructure.
The GI Hub began examining the regulatory capital treatment of infrastructure investments in 2019, as part of our initiative to address barriers to the establishment and advancement of infrastructure as an asset class. Essential to this was an examination of infrastructure investment performance, which we now address in detail in our annual flagship Infrastructure Monitor report. But, we also honed in on how regulatory capital treatments affect private financing of infrastructure. Our preliminary assessment of regulatory capital charges, using aggregated data, suggested that the Basel III regulatory framework requires banks to put aside more capital for infrastructure projects than is warranted by actual infrastructure credit performance. Read more.
Stakeholders interested in our work on regulatory capital treatment of infrastructure investments may also be interested in these relevant references and other related work: