The expert insight in this report makes it crystal clear how top of mind ESG is for managers and investors in the infrastructure space. Improving sustainability performance is absolutely their priority.
That is underlined by this year’s GRESB scores, which indicate that the asset class has taken another big leap forward in the past year. The average GRESB scores for all assets and funds increased by 10 and 12 points respectively, while the average by sector increased by 18 percent. “Investors and funds know how to report on [ESG] and report well,” says GRESB’s chief of standards and innovation Rick Walters.
Race to net-zero
Carbon reduction is the world’s single biggest ESG agenda item as the target date of 2050 creeps ever closer. But getting to the magic zero is also the biggest challenge. It is highlighted more than once in the report that governments cannot deliver net-zero through the public purse alone. The infrastructure overhaul needed to provide greener energy and transport, for example – and, let’s face it, in a relatively short timeframe – is simply too big and too expensive an exercise.
Private capital therefore has an important role and governments must do more to court it through partnerships, more incentivisations to invest, subsidies and regulatory support. “Private capital will serve to leverage public funds,” predicts Stéphanie Passet, investment director at BNP Paribas.
Sustainability is, of course, multifaceted – it’s not all about climate resilience. More and more investors and asset managers are acknowledging their duty to make a wider social impact.
That comes in many guises – from protecting natural habitats, supporting equality, diversity and inclusion at the firm level and across portfolio companies, and committing to job creation and training in local areas where assets are being developed, through to ensuring infrastructure assets operate in ways that protect labour and human rights.
Furthermore, there is growing recognition that the ‘E’, ‘S’ and ‘G’ are closely interwoven. For capitalising new, greener infrastructure should come with commitments to create stronger, healthier and wealthier local economies.
It is all well and good talking a good talk on ESG, but all managers across the private markets’ spectrum are under ever-growing LP pressure to provide evidence that they are following through on those good intentions with meaningful actions and that their sustainability programmes are delivering performance. KPIs and metrics are mission-critical now. And getting to the data under the bonnet of assets is the key.
Happily, advances in technology are making it easier to track ESG performance and improve transparency. “Digital transformation enables managers to collect and process large volumes of data [to] optimise assets,” says BNP Paribas’ Passet.
Make it pay
Private fund managers wax lyrical about their collective commitment to sustainability and playing a part in reversing the looming climate catastrophe via the investments they make. But another route to demonstrating loyalty to the cause is by incentivising positive change through directly linking ESG performance to compensation.
The idea is gaining traction. And those brave enough to make the first move could well make themselves more attractive both to capital and to the best talent in the market.
“Now is the time to adopt a new mindset around compensation,” says Nicholas Sehmer, director infrastructure at Sheffield Haworth.