CIM Group: Investing holistically in sustainability

Energy systems are just one aspect of infrastructure in need of transformation, says Michael Hoverman, principal at CIM Group.

This article is sponsored by CIM Group

How do you conceptualise sustainability right now? 

Sustainability has broadened to encompass more sectors and criteria. Going back 10 years, the focus was on investing in renewable energy. I think sustainability is more about how businesses are operated, who is operating them, and how you go about developing projects and creating resilience within infrastructure businesses. It is also about building those elements for the long term, where they can continue to operate in a changing world. 

CIM Group takes a holistic approach to investing in sustainable infrastructure. The industry is currently talking about the energy transition, but the energy markets are just one aspect of the infrastructure landscape. CIM is exploring how to make all forms of real assets more sustainable – including digital infrastructure, waste and water management, real estate and construction – not just how we electrify our grid. 

The US market is very much dominated by organisations that have built their reputations and success by investing, for the most part, in oil and gas supplies and transmission infrastructure. Those firms that have been investing in sustainable forms of infrastructure have been focused on renewable energy generation, but there are many different aspects of our infrastructure systems that need to be made more resilient. That is why it is critical for us at CIM Group to take a more holistic view. Our approach to investing in sustainable infrastructure includes renewable energy but is not limited to it. 

How can organisations distinguish themselves in their approach to infrastructure investing? 

Michael Hoverman
Michael Hoverman

We take a very local approach to investing in real assets. This is to ensure that we are addressing stakeholder concerns and demands that impact the communities where we are investing or that our businesses are supporting to enable the communities to thrive over the long term. Having a large local team in the US market and being Americas-focused rather than global is what differentiates us as an organisation, not just in infrastructure. 

A community-based investing approach is key: thinking about what a community needs in order to grow – whether that is access to water, renewable power, or a better way of managing waste – rather than superimposing what has been done successfully in other markets. That does not always apply elsewhere, because so many local communities are different in the US. 

Everything for us starts with identifying the communities where we want to be investing and being responsive to the needs and demands of the residents and stakeholders within each community. Anyone who has been in infrastructure long enough knows that is where unforeseen risks tend to come about – when the community is not well-aligned with what a manager is trying to achieve.

Water and power are key considerations for investing in data centres. How does CIM incorporate those considerations in its approach, and how can that conservation approach be applied outside of digital infrastructure? 

There is a lot of focus on data centres because they are highly energy intensive, so there is significant attention on where they get their power. Increasingly, CIM (and the industry at large) is focused on sourcing more from renewables and designing more energy efficient data centres.  

The use of water in the industry has been somewhat overlooked, but is becoming more of a public issue. Tech companies and municipalities have come under scrutiny because of the water demands of large-scale data centres; the average data centre uses around ~300,000 gallons per day. In certain markets where water has become scarcer and supply more volatile, the heightened awareness around usage has led us to focus on more efficient technology.  

By investing in data centres that use waterless cooling, we can create a solution that is helpful for the cities themselves. Ambient air cooling alleviates concerns and allows more water to go to residents, while also being a more sustainable long-term solution for the technology companies that are the largest data centre tenants who have significant ambitions for their own sustainability goals. 

There is a similar theme in solar. We have invested in places where, because of ongoing drought conditions, groundwater depletion was becoming a serious problem. In certain agricultural areas in California, we were able to take land that was previously used for farming and repurpose it for solar, which is less water intensive. Reusing land in a way that is environmentally conscious, and ultimately reserves water for both agriculture and residents, is an important consideration across the entire western US, that likely has applications in other communities with similar weather patterns. 

What are the areas outside of infrastructure where you see sustainability playing a key role? 

Making infrastructure more sustainable was a natural starting point for CIM Group, but we see sustainability extending far beyond that, because the opportunities to decarbonise real assets are much broader. This can include agriculture and food supply, heating and cooling systems, construction materials, and green hydrogen to name a few. Infrastructure and real estate are both significant contributors to greenhouse gas emissions, so they are areas of industry focus, but there are other sectors that are extremely important for decarbonising our everyday lives. 

What themes in infrastructure do you predict causing a ripple effect across broader industries? 

We are hearing a lot about decarbonising our energy systems within infrastructure, and I see that also being a very important theme for other industries. At CIM Group, we are focused on exploring carbon reduction as an extension of our sustainable focus in infrastructure from energy to sectors such as agriculture and land use. In the case of the built world, that means finding ways to decarbonise not only commercial but residential real estate, given construction and manufacturing are large contributors to greenhouse gas emissions. 

Arguably, taking a very focused approach to decarbonisation is well-aligned with the oil and gas industry because these efforts – in real estate, for example – will seek to offset the impact of other emissions and enable a more sustainable level of carbon on an ongoing basis. That is somewhat counterintuitive, but it could be an exciting opportunity for alignment of decarbonisation goals across different economies.  

How does the Inflation Reduction Act bolster the potential for investments outside of renewable energy?  

Wind and solar have always received the most attention, both in terms of actual investment dollars, and in federal subsidies in the form of production and investment tax credits. The Inflation Reduction Act contained incremental benefits and credit extensions for wind and solar, but I would argue that the largest beneficiaries were other forms of renewables, such as biogas, carbon capture and sequestration, and green hydrogen.  

These areas have historically not received any major federal production or investment tax credits. There were brand new subsidies in the case of renewable natural gas, which went from no investment tax credit to 30 percent – even up to 40 percent in certain circumstances.  

The Inflation Reduction Act has had a very significant, market-moving impact potential for sectors that, despite having been longstanding and economically viable, hadn’t previously received the attention and support from a federal perspective that wind and solar have.  

California has been leading the way in advocacy around the energy transition. California is very much a first mover toward sustainable infrastructure in the US market, and is the fourth-largest economy in the world. It has a 100 percent renewable energy mandate at the state level, and is also home to some of the largest power users – the major tech companies. For all those reasons, California may possibly be one of the most important markets in the US for anything involving the energy transition and sustainability. Being a California-based and headquartered firm for nearly 30 years puts us at the forefront of many trends in the industry. 

Light bulb idea

Outside of renewables, what are some key areas within sustainable infrastructure? 

There are key areas across sustainable infrastructure that are attracting investors. Waste management, energy transition and battery storage to name a few. Along with these sectors, we have also invested in electrification of transportation, digital infrastructure including waterless data centres, and groundwater management and storage.

Recently we executed a large transaction in the landfill gas to renewable natural gas sector through investing in a company that converts methane-rich landfill gas to pipeline-quality natural gas. It has the double benefit of not only capturing methane, which is a very potent greenhouse gas, but also displacing a fossil fuel on the output side. From a community standpoint, it is positioned to solve multiple issues: helping to better manage waste, producing a renewable fuel source, and ultimately helping to decarbonise the transportation system. We have seen a lot of momentum and tailwind in the market behind that strategy.