Managing Infrastructure Through Stewardship

PPPs, we would argue, are not fit for purpose for a world that is in flux. The benefit of a PPP structure is the certainty provided over a contract period. In a world that is constantly changing, we would argue that PPPs do not provide the flexibility needed to adapt to new circumstances.  This is not only the case once an asset is built. With PPPs, there is often an implicit assumption that a solution needs to be a large project. An example of this is the continued focus on electrification via building grids. The assumption that power needs to be delivered from one central place (e.g., a coal-fired power station) to another (e.g., a city) is challenged by the growth of Pay-As-You-Go (PAYGO) systems that are already delivering off-grid solar power to 420 million users.[i] A case study is MWEZI,[ii] which has delivered clean energy to 180,000 people in Kenya via PAYGO solar systems. The price tag for delivering similar access via a traditional grid would likely be in the hundreds of million dollars with a delivery date that would be many years in the future.

A shift to building infrastructure businesses requires a focus on business management. For governments wishing to ensure that an infrastructure business aligns with the long-term needs of the community, there is a benefit in applying stewardship principles.

Stewardship is not a new concept, dating back to ancient times where a council or regent would govern for an underage king. In modern times, renowned strategist Peter Senge advanced the concept of stewardship in 1990 with his book, The Fifth Discipline, which introduced the role of stewards as leaders in learning organizations. According to Senge, leaders are stewards of a company’s vision, and their task is to manage the vision for the benefit of others. In the 1990s, Peter Block reframed the concept of stewardship for a corporation. His concept of stewardship was to build companies with a focus on accountability without control or compliance.[iii] According to Block, “it is possible for us to decide that stewardship for the long run, for the community, for the earth, is a purpose more important than profit.”[iv] 

Stewardship has more recently been applied to investment. The United Kingdom’s Stewardship Code 2020[v] defines stewardship as “the responsible allocation, management and oversight of capital to create long-term value for clients and beneficiaries leading to sustainable benefits for the economy, the environment and society.”

There are a number of tools that developing country governments can use to embed stewardship principles into management practice.

Requiring Master Plans

Australia has regulations in place to ensure that privatized infrastructure is required to plan for the future. Australia’s Airports Act 1996 established a regulatory framework for privatized airports that aimed to support the delivery of infrastructure services and new capital investment. The act requires[vi] airports to establish a master plan that includes specifying the development objectives of the airport. Consultation with local communities is embedded in the requirements of the master plan. The act also specifically empowers Australia’s competition watchdog, the Australian Competition and Consumer Commission, to monitor the quality of services and facilitate the publication of quality-of-service information.

An infrastructure business should be required to submit a master plan every 3–5 years that outlines the strategic plans for the asset, how this strategic plan is relevant to the needs of tomorrow’s citizens, and how sustainability issues will be incorporated into management practices. The process of establishing a master plan provides an opportunity to engage stakeholders to understand their concerns and enables new technology to be embedded into infrastructure on an ongoing basis. A master plan also provides an opportunity to consider what an infrastructure business can achieve, even outside of its core activities. In the case of Brisbane Airport’s 2020 Master Plan,[vii] for instance, the opportunity to use the airport’s central position and networks is being leveraged to develop property that can provide a wide range of functional uses.  

Understanding and Managing Impact

Where governments are co-investors of an infrastructure business, the question is how its shareholding can be used to influence the way the infrastructure business is managed. Whether regulation or co-ownership is used as the mechanism because an organization’s business strategy determines its resource allocation, sustainability should be embedded in the organization’s purpose and strategy. If sustainability is not embedded into strategy, then it will always struggle to attract the attention of the organization’s executives.

If sustainability is not embedded into an organization's strategy, then it will always struggle to attract the attention of the organization’s executives.

The Impact Management Project (IMP),[viii] a global forum that is building consensus on how to measure and manage impact, provides a framework that supports stewardship. The IMP, which is supported by 2,000 organizations, focuses on taking into account the positive and negative impacts of underlying enterprises. The IMP’s five dimensions of impact provide a useful starting point for organizations to embed sustainability impact into a strategy. While the project is still under development, IMP’s five dimensions of impact provide a framework that can be embedded in management practice. The five dimensions are:

1. What tells us what outcome the enterprise is contributing to, whether it is positive or negative, and how important the outcome is to stakeholders.
2. Who tells us which stakeholders are experiencing the outcome and how underserved they are in relation to the outcome.
3. How Much tells us how many stakeholders experienced the outcome, what degree of change they experienced, and how long they experienced the outcome for.
4. Contribution tells us whether an enterprise’s and/or investor’s efforts resulted in outcomes that were likely better than what would have occurred otherwise.
5. Risk tells us the likelihood that the impact will be different than expected.

Independence in Decision Making

The question of what infrastructure should be built by government has been the subject of much debate. A key issue for governments is the independence of decision making. While politicians can make good infrastructure decisions, their incentives can also be around other motives, including re-election, that have the potential to bias decisions or, at worst, create conditions for corruption.

An example of the importance of independence is the Bank of England, which traces its history to 1694 and has gone through different cycles, including nationalization in 1946. It was only in 1998 that the bank was given operational independence over monetary policy. It is arguable that equivalent reforms are needed today to institutionalize the independence of infrastructure decision making.

Accountability and Transparency

Government-owned assets are subject to the scrutiny of parliaments, which provide an opportunity for elected officials to question all aspects of an operation. In the case of privately owned infrastructure businesses, in many cases, they are held in unlisted vehicles where there are no reporting obligations to stakeholders.

A privately owned infrastructure business should provide a high level of transparency. The enterprise should publicly disclose its performance and ongoing strategy, incorporating best practice reporting, including where it has the capacity to report on climate change. Annual reports should be presented publicly with stakeholders invited to attend and direct questions to executives.

An accountability regime that ensures that privately owned infrastructure businesses are held accountable for their actions, as well as ongoing master plans that set the direction for the future adaptability of the asset, needs to be combined with mechanisms to ensure that the infrastructure enterprise is meeting the needs of customers on a day-to-day basis. The question is how to measure whether the infrastructure is satisfactory in delivering to its community.

Work by the Australian Government[ix] has considered the challenge of measuring performance, noting that customer surveys that measure customer satisfaction often exhibit “recency bias,” where the customer’s most recent experience influences their response to the survey and does not adequately capture gradual improvements or deterioration in performance. The Bureau of Infrastructure, Transport and Regional Economics acknowledges that the broad problem with privatized infrastructure is that performance measurements tend to reflect the priorities of infrastructure operators rather than those of customers. It proposes an “infrastructure performance and customer satisfaction framework”[x] based upon nine attributes (price, accessibility/availability, timeliness, reliability, safety, user amenity, information, activity, and capacity). 

There is merit in governments requiring infrastructure businesses to publicly produce data sets using a standardized set of service attributes to enable government regulators and stakeholders to see how performance changes over time. There is also an opportunity for infrastructure operators to open up access to data.

An example of innovation in data is the opening up of data feeds to software developers. Transport for London and Transport for NSW are transport systems that enable software developers to present customer travel information in innovative ways.[xi]  One of the benefits of infrastructure is that it creates a network that has value to other participants. By enabling the network to be used by other users on commercial terms, there is greater capacity to deliver social, environmental, and economic outcomes.

Open data is increasingly being used by cities to manage disaster risk and build resilience to support the delivery of the Sendai Framework for Disaster Risk Reduction. The United Nations Office for Disaster Risk Reduction (UNISDR) has developed a roadmap on open date infrastructure for city resilience,[xii] identifying the importance of creating a city data sharing marketplace in collaboration with infrastructure operators to access data not openly available.

Sharing data builds the capacity of a city to understand its ability to withstand shocks. According to UNISDR, “data analysis of city infrastructure systems can provide guidance for city officials to make contingency plans and to take risk informed decisions for emergency response and post disaster damage assessment.”[xiii] UNISDR argues that “climate change adaptation and risk planning should be considered appropriately in infrastructure project planning in order to reduce future risk in the design, operational and maintenance cycles of infrastructure. This is best achieved through data sharing on infrastructure systems in order to support decision making and partnerships between agencies for cohesive infrastructure resilience planning.”[xiv]

Sharing data builds the capacity of a city to understand its ability to withstand shocks.

An infrastructure business can utilize stakeholders to support transparency. Where infrastructure is considering making new investments that involve new construction, there may be an opportunity to apply principles from the Infrastructure Transparency Initiative (CoST), which is a leading global initiative for improving transparency and accountability in public infrastructure.[xv]

A case study demonstrating the value of CoST comes from Afghanistan, where infrastructure projects have often lacked feasibility studies and have included inaccurate designs, quantities, and costs. “These problems encouraged collusion between contractors and site managers and ultimately facilitated corruption.”[xvi] To address these challenges, a team of independent engineering experts was established as a second pair of eyes on project designs, ensuring that projected costs, estimated schedules, and technical details were in order before the contract was signed. In 2018/19, 101 infrastructure projects showed a cumulative savings of USD 8.3 million as a result of this review process. 

Finally, infrastructure businesses can be asked to sign up for the GRESB Infrastructure Asset Assessment, which provides the basis for systematic reporting, objective scoring, and peer benchmarking of environmental, social and governance (ESG) management and performance of infrastructure assets around the world. GRESB provides an opportunity for governments to be able to benchmark the performance of an asset according to global environmental, social, and governance standards against other infrastructure assets. Governments can use benchmarks reports to identify areas of improvement for an infrastructure asset.

Conclusion

Embedding stewardship principles into the management practice of an infrastructure business offers a mechanism for governments to deliver long-term social, environmental, and economic outcomes. Four areas have been specifically considered that collectively provide a mechanism through which governments can embed stewardship principles into management practices:

1. Requiring master plans
2. Understanding and managing impact
3. Independence of decision making
4. Accountability and transparency.

The long life of an infrastructure asset means that governments must think beyond the construction phase of a project. Managing infrastructure according to stewardship principles provides the opportunity for infrastructure to adapt to an uncertain future.

[i] International Finance Corporation. (2020, February). Off-grid solar, market trends report 2020: Report summary. https://www.lightingglobal.org/wp-content/uploads/2020/02/14005VIV_OFF-GRID-SOLAR-REPORT-V13-Exec-Sum-AW4vis.pdf

[ii] https://mwezi.org/

[iii] Block, P. (1993). Stewardship: Choosing service over self-interest. Berrett-Koehler Publishers.

[iv] Ibid.

[v] Financial Reporting Council.  (2020). The UK Stewardship Code 2020. https://www.frc.org.uk/getattachment/5aae591d-d9d3-4cf4-814a-d14e156a1d87/Stewardship-Code_Dec-19-Final-Corrected.pdf

[vi] Section 71 of the Airports Act 1996

[vii] Brisbane Airport Corporation. (2020). Airport Master Plan. https://www.bne.com.au/corporate/projects/airport-master-plan

[viii] Impact Management Project. (n.d.). About. https://impactmanagementproject.com/about/

[ix] Department of Infrastructure and Regional Development, Bureau of Infrastructure, Transport and Regional Economics. (2017, September 2). Measuring infrastructure asset performance and customer satisfaction: A review of existing frameworks (Research Report 147). https://www.bitre.gov.au/sites/default/files/rr_147.pdf

[x] Ibid.

[xi] Transport for London. (n.d.). Open data users. https://tfl.gov.uk/info-for/open-data-users/       

[xii] Harvey, M., Eltinay, N., Barnes, S., Guerriero, R., & Caffa, M. (n.d.). Open data infrastructure for city resilience: A roadmap showcase and guide. United Nations Office for Disaster Risk Reduction & Resurgence.  

[xiii] Ibid.

[xiv] Ibid.

[xv] Infrastructure Transparency Initiative. (n.d.). The CoST Covid-19 response. http://infrastructuretransparency.org/

[xvi] Infrastructure Transparency Initiative. (2020, March 19). CoST Afghanistan saves millions through independent, pre-contract oversight body. http://infrastructuretransparency.org/news/cost-afghanistan-saves-millions-through-independent-pre-contract-oversight-body/