Infrastructure — not unlike other asset classes — faces increased scrutiny from asset owners aiming to limit adverse impacts on the environment, including through investments that specifically target the United Nations' Sustainable Development Goals.
The race to meet the 2015 Paris Agreement objective of keeping temperature increases below 2 degrees Celsius has found global investors intensifying efforts to actively manage their assets' environmental, social and governance risks, despite President Donald Trump withdrawing the United States' support for the accords.
And the palette of environmentally and socially crucial factors that are now considered by investors range from an asset's water usage and waste management efficiency to transport networks' energy output, all part of the U.N.'s Sustainable Development Goals.
ESG-related infrastructure investments can take many forms when addressing various environmental, social and governance issues, including:
- Waste management
One asset owner, PenSam, Farum, Denmark, has committed a combined 750 million Danish kroner ($112 million) to date to support projects that include a solar plant in California, a wind park in Sweden and an energy distribution utility in Norway. In total, PenSam will invest 8 billion Danish kroner by 2025 in infrastructure assets that are supporting decarbonization, said Carsten Grohn, head of private capital and real assets at the 140 billion Danish kroner multiemployer plan for elder care, technical service and education workers.
"Looking at different types of infrastructure assets, decarbonization is high on the agenda, meaning that we do prioritize renewable energy or energy distribution networks to drive efficiency in terms of usage of energy," Mr. Grohn said. "Also, investments for improving transport networks to enhance carbon reduction are considered important."
Managers are seeking investments in markets that are going to benefit from the increasing penetration of renewables.
Simon Ellis, London-based head of origination Europe at AMP Capital Investors Ltd., Europe, said: "The challenge is making returns from a pure renewable play in these mature markets, so we are now looking at ways we can support renewables being brought onto the grid, given renewable energy brings problems around intermittency," when it is captured and delivered irregularly.
"We are therefore looking at small, flexible sources of power that will meet the demand when, for example, the wind is not blowing," he added. "So, we look at solutions such as battery storage and small gas-reciprocating power plants, which support the buildout of more renewables."
AMP Capital had $14.3 billion in infrastructure assets under management.