2022 Fall Issue - 110

GREEN
f FINANCINGor Transit-Oriented Development
6 strategic ways to foster and consolidate the use of green financing tools.
FÁBIO DUARTE AND JUAN HUICOCHEA MASON
The world needs more than $6 trillion
in annual infrastructure commitment
to achieve proper sustainable development
by 2050, representing a 50 to 75
percent burden over current budgetary
trends. But contrary to widespread
remarks blaming insufficient funding for
infrastructure development, the problem
seems not to reside on the capital
investment supply side, but in a lack of
bankable projects in which to invest,
according to the World Bank article
" Mind the Gap: Time to Rethink Infrastructure
Finance, " by Daniel Zelikow
and Fuat Savas, published in 2022.
Here we focus on " green " finance
tools that can leverage infrastructure
projects, particularly those of transitoriented
development (TOD). TOD has
been adopted worldwide to reduce the
use of private vehicles and promote more
sustainable and equitable cities through
mass transit, walkable city design, and
land use plans prioritizing mixed uses
and high density. By fostering transit and
active ways of getting around such as
cycling or walking, TOD is well aligned
with the environmental, social, and
governance (ESG) goals proposed by the
United Nations. (For the sake of simplicity,
ESG will also be referred to as " sustainable "
and " green " herein.)
Recently, ESG markets have experienced
soaring popularity due to three
key characteristics: improvement in corporate
reputation, market diversification,
and long-term risk mitigation. However,
despite general enthusiasm for ESG
goals, challenges remain to achieving a
sufficiently mature market that provides
reassurance and security to stakeholders.
TOD is a project type that combines
infrastructure, real estate, land use, and
urban design features. Despite the wide
acclaim for its urban, social, and ecological
benefits, rare is the fully fledged TOD
project that successfully combines all
these characteristics.
Because it involves multiple public
and private stakeholders, TOD suffers
from its complex governance and intermittent
attractiveness for financing: TOD
projects often take 10 to 15 years to be
developed and even more time to offset
capital costs. Therefore, four structures
can be broken down to help explain
how revenues and securities interact
within the complex TOD financial system:
financing, funding, de-risking,
and policies.
Financing is what leverages future revFábio
Duarte
110
URBAN LAND
FALL 2022
Juan Huicochea Mason
enues in TOD. As in other infrastructure
projects, debt usually represents the largest
share of the financing scheme; similarly,
hard infrastructure costs represent
most of its capital costs. Funding can
be broken down into direct and indirect
revenues, from which fees, taxes, and
commercialization represent the most
common means of funding. Through
financial and nonfinancial tools, policies
can also encourage or deter the inflow of
funding and finance streaming. Finally,
de-risking measures can be broken down
MIT SENSEABLE CITY LAB
JUSTIN KNIGHT PHOTOGRAPHY AT CRE, MIT
2022 Fall Issue

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