We have seen a broader global acceptance of ESG principles in investing and investors are actively adjusting positions to take account of this. We believe the market has been too focused on the environmental component and not focused enough on social issues.
This imbalance is creating opportunities, particularly in the infrastructure sector, where companies operating “dirty” infrastructure are out of favour. For most of these companies, regulators have approved the original expenditure and building (for example, of coal-fired generation), which will continue to provide appropriate returns on investment.
The pressure placed on household bills from the increasing speed of the transition from fossil fuels to renewables is, however, an upcoming challenge.
Infrastructure will likely remain in the headlines for all the right (and wrong) reasons. Global initiatives to reduce carbon emissions are resulting in local actions to support the further development of renewable energy and the drive toward greater electrification. Governments are setting targets for electricity sourced from renewable energy (EU 32% by 2030, California 60% by 2030, Virginia 0% carbon by 2050) and the Bloomberg New Energy Finance researchers expect 80% of new capacity growth through 2050 will come from renewables.
Meanwhile, significant capital is being spent to mitigate the effects of climate change and adapt networks and infrastructure to cope with more volatile climatic events (such as ice storms and wildfires), increase the efficiency of infrastructure (e.g., through the development of electricity storage) and reduce wastage (such as from leaking pipes in water networks). This is driving near-record rate base growth across the sector.
We expect infrastructure to be the centrepiece of several governments’ efforts to stimulate their economies through the building of infrastructure using local labour and materials and through improving the efficiency of local economies. The U.S. election campaign will likely see “green” infrastructure programmes gain momentum.
Broader global acceptance of ESG principles is leading investors to adjust positions, which can create some market inefficiencies and thus some opportunities, particularly in the infrastructure sector.
Significant capital is being spent to mitigate the effects of climate change, increase efficiency and reduce wastage, and this is driving record rate base growth across the infrastructure sector.
We expect infrastructure to be the centrepiece of several governments’ efforts to stimulate their economies.
Portfolio Manager Nick Langley discusses how global infrastructure will play a key role in the world meeting ambitious net-zero carbon emissions targets. He highlights how, given the high levels of government spending underway to cope with the pandemic, economies around the world will rely on the private sector to fund many emission-lowering initiatives, both for regulated infrastructure such as utilities and for user-pays assets such as rail and airports.View full article