Ingrid Edmund, Senior Portfolio Manager, Columbia Threadneedle | Thora Frost, Senior Manager Green Finance, Carbon Trust
Infrastructure is associated with tangible assets providing essential services, delivering stable and predictable cash flows. Covid-19 has highlighted the critical role of infrastructure to our societies and economies, but has also brought such disruption in a short period that will have longer lasting effects than ever before. For investors, it has been a lot more challenging to invest whilst taking a view for the next 20 to 40 years.
– What does the infrastructure of the future look like?
– How can we build a resilient portfolio that continues to deliver defensive, uncorrelated, predictable income and steady capital growth?
– Where can we find value?
Our conviction is the answers to these questions lies, to a great extent, in the way that ESG is integrated into the investment approach. ESG integration is a dominant theme today and there’s no doubt that infrastructure has been an asset class that recognised the interaction of social and environmental risks and impacts on the financial outcomes earlier than others. However, now is the time to take ESG integration to the next level.
Much focus to date has been explicitly on the environment and the threat of climate change. This has led to a welcome surge in renewable energy investment. Social has been the “poor” cousin in ESG. Covid-19 has proven, in a very short period, that Green should not be a trade-off vs Social & Sustainability. All can flourish going forward. Furthermore, if we are to ever meet the net zero- and 1.5-degree pledges under the Paris Agreement, more needs to be done than generate green energy. Infrastructure sectors, which deliver critical social and economic benefits, such as transportation, energy infrastructure, heating and digital are in critical need of decarbonization, thus more investment is needed. Investors have an unprecedented opportunity to make a significant social impact and decarbonize our economy, whilst generating alpha and future-proofing returns.