Infra A Penny… Sustainable Infrastructure Set To Rebound From Pandemic Squeeze


In a yield-hungry world, the attraction of infrastructure has long been apparent. In a warming and resource-constrained world, the need to link this to sustainable goals is becoming equally so.

The connection between climate transition and infrastructure investment has recently been highlighted through US President-Elect Joe Biden’s support for the Green New Deal, and in the UK by the prime minister’s sustainable spending commitments.

Coupling infrastructure with sustainability is nothing new. In 2017, the United Nations highlighted that about USD90trn would be needed over the next 15 years for global infrastructure—more than the value of the entire existing stock. That’s a lot of supply to fill, particularly with government spending under pressure, and presents an opportunity for investors.

Ageing infrastructure in advanced economies and structural change in emerging markets underpin this imperative. Drivers include rapid urbanisation in emerging markets and the comprehensive need for a shift to a sustainable global economy.

From Grey to Green

Investors are nevertheless underexposed to the asset class, with OECD analysis earlier in the decade showing that pension funds’ allocation to direct infrastructure were less than 1%, and the ESG component considerably lower. But demand for sustainable infrastructure investment opportunities is growing. Investors see the potential for enhanced risk-adjusted returns, resulting from risk mitigation, cost reduction through better resource management, and improved sustainability.

Will this be sustained as we emerge from the pandemic? After all, there’s nothing like confronting your own mortality in one form to awaken you to other vulnerabilities. Or will it force such considerations into second place, as it did in the wake of the global financial crisis? That, at least, is the tenor of a recent Financial Times article, highlighting that “more than eight in 10 investors globally said their company has demoted ESG as an investment criteria because of Covid-19’s economic hit, according to a survey of 600 portfolio managers, analysts, chief investment officers, and stewardship teams”.

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