ESG-investing in sustainable mobility

In 2020, the volume of road traffic around the world dropped less than the levels of industrial production did. Why? Because people were afraid that public transport was a major vehicle of contagion of the coronavirus. So, fewer available seats on mass transit and a change in habits of many city dwellers both contributed to reigniting the “love story” between people and their cars.

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Turning to Italy, many cities shared a similar experience: as soon as red zones turned amber, the traffic exploded, forcing drivers to spend hours sitting in traffic jams or searching for parking. Today the situation is inefficient to the extreme, from an environmental perspective as well with pollution and fuel consumption at high levels.

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To break out of this vicious cycle, the solution that’s been adopted till now is to build more parking areas, which are often only partially utilized, which in turn puts more and more pressure on natural resources and uses up what little available urban space there is. Another option would be to manage urban traffic flows via technology. In fact, the same technology that leverages big data and artificial intelligence can offer real-time information to drivers on available parking and traffic conditions. What’s more, this technology fosters the integration of alternative transportation systems for going the so-called last mile, creating experiential opportunities that can enhance the quality of life for residents.

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As we show in our recent study, the cost of investing in technological solutions is relatively low with respect to the monetary, environmental and social benefits. Our research focused on a parking garage in the center of Milan which is part of a network of 62 parking garages that can be managed from a single control center. Taking the current situation as our starting point, we calculated the cost for upgrading the parking garage in terms of physical equipment, as well as the technological development of apps and devices that enable data exchange in real time among users and parking garages in the network.

The cost items for apps and devices consists of two main interventions: the first is developing software infrastructure underpinning the app in question; the second is a technological update of the infrastructures installed in the garages. The software development cost items relate to the entire set of parking garages where the structure will be implemented, in other words, the greater the number of parking garages, the greater the portfolio effect. The relative costs here are associated with the team of engineers who will need to develop and maintain the app, the cost of the database and cloud infrastructures that the entire software program will run on (which enable data collection and processing, and information sharing in real time), as well as the Google searches by users looking for the best available parking option. These costs were proportionally allocated to individual parking lots. As for the benefits of the investment, our basic hypothesis is that by upgrading the quality of each individual parking garage in the asset portfolio, users can more easily search for parking and better plan how they use their time from an experiential perspective. And introducing an app like the one described above means users get essential information which could lead them to change their plans and opt for different combinations of routes and parking (which in turn means improving integration with active means of mobility and local public transport). All this shapes users’ work activities as well as their free time. In light of this, we predicted that the use of these assets, and relative revenues, would ramp up by one-third.

As far as social and environmental benefits, advantages emerge linked to using cars less, thanks to the integration with the entire public transportation system: less travel distance (i.e. less money spent on fuel and lower fuel emissions) and less travel time.

Our findings show that infrastructure and technology investments generate economic performance that is positive for individual assets, and even more so for the network as a whole (Figure 1). If we set the value of a benchmark asset at one euro, infrastructure and technology expenditures generate an increase in that value of .38 euro (in terms of present value discounted by future revenues on a ten-year time horizon). If we also take into account the discounted present value of social and environmental benefits, this figure is even higher: an additional 1.67 euro.

Figure 1 – NPV of smart parking investments (%)

The data that emerged in our study are in line with other scientific research, for example projects such as SFpark, San Francisco’s system for monitoring parking availability.

Smart parking projects have high returns: with small investments, totaling far less than the cost of building new roadways or urban infrastructures, cities can reap sizeable benefits. In fact, these investments do not impact the overall infrastructure offering, but instead optimize how existing space is utilized. In this sense, smart parking projects can be seen as intermediaries that are capable of improving market efficiency of parking garages, thanks to the possibility of tapping into high-value information that modifies the behavioral choices of the community.

The greatest economic advantages are reflected in estimates on additional revenues and cost of capital. If we also consider the socio-environmental benefits (the network effect), the adoption rate by participants would have wide ripple effects in economic terms. The final factor is the impact of other variables (savings in terms of kilometers travelled, fuel consumption, and time behind the wheel) deriving from less cruising time for drivers and the use of active mobility tools for travelling the last mile. But all this depends on the number of people that actually use the app.

The network in question is a typical example of how to be relevant from an economic standpoint.