Can Earth be saved in the span of a closed-ended fund?

For infrastructure investors to help avoid the worst of climate change, sustainability has to quickly move from buzzword to the mainstream of investing.

Twelve years – the span of many a closed-ended fund – is how long the scientists behind the Intergovernmental Panel on Climate Change’s recent landmark report estimate we have to keep global warming to a maximum of 1.5 degrees Celsius.

That 1.5 degree figure – the lower end of the 1.5-2-degree threshold the Paris Agreement is trying to keep humanity from crossing – is our best chance to mitigate the worst effects of climate change on our planet.

Note the word ‘mitigate’. According to the IPCC, keeping the world at 1.5 degrees would only prevent the most dramatic effects of climate change. With the planet already running about 1 degree hotter since the industrial revolution, there’s no beating around the bush: climate change is here to stay.

Reaction to the report, predictably, ranged from those who dismissed it out of hand (Australian deputy prime minister Michael McCormack said the country’s usage of coal would not change because of “some sort of report”) to those who argued it did not go far enough (the Grantham Research Institute on Climate Change’s Bob Ward called it “incredibly conservative”).

We thought the report was – pardon our French – scary as hell and that its call to global action needs to be urgently heeded.

So, what can infrastructure investors do? It strikes us that one of the most effective steps they can take is to fully embrace sustainable investment.

Sustainability – as we explore in our recently published Sustainable Investment Report – is a tricky concept to pin down. For many, it is interchangeable with ESG, though we’d argue, like Whitehelm Capital chief executive Graham Matthews does, that “ESG is part of the tool kit” to achieve sustainability, not the same as it. Sustainability goes beyond ESG, incorporating concepts of resilience, stability and long-term viability.

At the risk of oversimplifying (or playing at semantics), sustainable investments are those that fully take into account the world surrounding them and – crucially – do not have a negative impact on it. We would also argue they strive to leave the world a better place, even if sustainable investors are not required to have the fervour that drives the impact crowd.

Much like ESG – where most people can wrap their heads around the ‘E’ but struggle to various degrees with the ‘S’ and the ‘G’ – sustainable investments aren’t just about being ‘green’. For example, a wind farm that would decimate the bird population around it would not be a poster child for sustainability, no matter how much carbon-free energy it would produce.

But it is true that sustainability is indelibly tied to the environment, precisely because we live in a world where climate change is a clear and present danger. It goes without saying, then, that any infrastructure investment that actually aggravates climate change is not a sustainable one. Perhaps less obviously, though, investments that fail to prepare for the impacts of climate change also fall into the unsustainable category.

What the climate crisis and the IPCC’s report make crystal clear, then, are the dire consequences of unsustainable practices – investment and otherwise. To avoid the worst, a wholesale change in individual and collective action is now needed within a very short period of time.

In that context, a mindset that shirks responsibility or hides behind returns as the bedrock of fiduciary duty misses the point. To put it bluntly, there’s little sense in generating good returns if the beneficiaries are left with a world in which they cannot enjoy them.

Much is made of infrastructure’s long-term characteristics. Now that the longevity of the human race is at stake, asset class practitioners should lead by example and show the world they truly understand what long term means. Investing sustainably will be at the heart of that.

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