The EU has yet to decide whether it will include natural gas in its taxonomy. Will its decision influence your investment strategy and, if so, how?
Aware Super is strongly focused on ESG considerations including climate change and related fossil fuel energy risks. While we have some legacy but modest investments in gas-related infrastructure, our current approach is to focus on renewable energy and new technology related to a low-carbon future aligned to our commitment to net zero by 2050.
MARK HECTOR, infrastructure senior portfolio manager, Aware Super
As a long-term investor we consider a focus on sustainability as essential for investment success. Whilst taxonomy compliance is an important consideration, we do not exclude sectors which are currently not fully compliant if we can agree on a common objective and time period for a transition. Natural gas infrastructure from our perspective is not only critical for a transition period but will likely play a key role in decarbonising the economy, as it can be repurposed to transport ‘green’ molecules.
MICHAEL PFENNIG, co-head of infrastructure, Allianz Capital Partners
We have historically viewed gas as a key transition fuel on the path to decarbonisation and have invested in gas pipeline businesses where our approach is to work with management teams to drive ESG value creation strategies. Whilst the current uncertainty over gas in the EU taxonomy is unhelpful, given our long-term investment horizon and focus on positive ESG change, it is unlikely to have a huge bearing on our investment strategy.
DOMINIC HELMSLEY, head of economic infrastructure, Aberdeen Standard Investments
From our perspective, gas and nuclear are important transition fuels if the region is to realistically meet future emission targets. This is a critical decision for the EU and delay only serves to put in jeopardy important carbon reduction projects – particularly within the more eastern members states, including the Czech Republic, Poland and Hungary.
LINCOLN WEBB, executive vice-president and global head of infrastructure and renewable resources, BCI
APG will keep investing in natural gas infrastructure to the extent it indeed contributes, in the short to medium term, in reaching the Paris 2050 goals. However, APG also wants to see and help influence the medium to longer term transition of natural gas to hydrogen, biomethane and also electrification (with renewable generation). Therefore, APG acknowledges the role of natural gas in the energy transition but does not believe a blanket label as a ‘green investment’ is the right approach.
JAN-WILLEM RUISBROEK, head of global infrastructure investment strategy, APG
One of the biggest concerns for alternatives investors specifically is inflation. If forecasts prove accurate, how will this affect your infrastructure strategy, if at all?
To the extent higher inflation persists over the long run, we believe platform companies that provide the ability to develop new infrastructure opportunities, specifically with superior inflation-protection characteristics, may represent a key differentiator in such an environment.
BEN HAWKINS, senior vice-president of infrastructure and renewable resources, AIMCO
We would not anticipate changing our strategy in a higher inflation environment – in fact, the majority of our assets would likely see increased revenues. Assets in our portfolio that are not directly exposed or indexed to inflation have other offsetting factors, such as rapid organic growth, fixed revenue escalators and platform scalability. As a result, given the diversified and largely inflation-protected nature of our portfolio, we wouldn’t expect any major changes to strategy if inflation picks up.
KARIM MOURAD, global head of infrastructure, ADIA
Inflation is definitely a big concern. A vast majority of our investments have hedging attributes to inflation. However, looking forward and for future investments, this risk is often passed down to the long-term holders and the assumptions taken in the markets are often in line with governing bodies’ target inflation. For now, we need to remain careful and seek investments that continue showing inflation-hedging attributes.
GUILLAUME MORENCY, manager, infrastructure investments, Desjardins Global Asset Management
Over the mid-to-long term, we’re very comfortable that our infrastructure portfolio will adjust to and benefit from higher inflation levels. In the short term, we are cognisant of the potential impact to financing, valuations and costs to customers of essential services. In this respect, we feel diversification, cost-efficiency and an active dialogue with the regulators of our large utility assets are the most useful tools in our kit to mitigate impacts.
LINCOLN WEBB, executive vice-president and global head of infrastructure and renewable resources, BCI
How do you see the asset class evolving, in terms of new sub-sectors, post-covid?
Recognition of the importance of evaluating and managing ESG considerations in the investment process has advanced significantly in recent years. We see this trend continuing and likely evolving in sophistication in the coming years, to the point where you may see infrastructure funds increasingly acquiring companies with poor ESG profiles with the intent of repositioning those investments by applying ESG best practices as a core aspect of their investment thesis and value creation strategy.
BEN HAWKINS, senior vice-president of infrastructure and renewable resources, AIMCO
Modern society will always need to generate, move and store things. We are focusing on global infrastructure themes, including the energy transition, connections (digital infrastructure), mobility, community and natural systems, instead of looking only at traditional infrastructure sectors.
ANNESLEY WALLACE, executive vice-president and global head of infrastructure, OMERS
The generational push to reduce greenhouse gas emissions is creating investment opportunities that didn’t exist before. We are focused on sub-sectors and technologies that enable the energy transition – batteries, CCUS, EV charging, distributed and district energy – and are excited about the prospects of hydrogen. These newer sectors have smaller ticket sizes and need growth capital, playing well to our strategy as a mid-sized investor.
TIM FORMUZIEWICH, managing director of infrastructure, IMCO
The lion’s share of our infrastructure investment is in renewable energy, the expansion of which will likely continue for years to come. We also expect to see a continued focus on energy storage and power-to-X going forward.
JESPER FISCHER-NIELSEN, senior asset manager, PKA
We don’t see a dramatic shift in the asset class – though some sub-sectors in transport could move out of core – and note the strong demand for telecommunications infrastructure, as well as renewable and environmentally friendly plays across all sectors globally.
EMMANUEL JACLOT, executive vice-president and head of infrastructure, CDPQ
Are there any business practices you adopted during the pandemic that you plan to maintain post-covid?
AustralianSuper expects we will continue to work flexibly for a period of time post-covid-19. Our systems of communication and internal processes are better structured so that we are able to work more flexibly than before the pandemic. Conversely, while we have been able to undertake asset diligence and board meetings remotely, I expect that we will revert to the pre-covid ways of doing these onsite in the future.
NIK KEMP, head of infrastructure, AustralianSuper
Health and safety has always been a focus for PSP Investments and even more so during the pandemic. We will continue to build on our procedures and focus on the well-being of employees, on mental health awareness and taking care of one another. The pandemic accelerated our plans for adapting our work environment to new trends and we are reviewing and adapting our remote work/hybrid model post-pandemic. We will continue to leverage technology and collaboration tools and look at new options that become available.
PATRICK SAMSON, senior managing director and global head of infrastructure investments, PSP Investments
Our team and organisation are committed to diverse and inclusive work environments. Many team members have and will benefit from the flexibility of working from home. In the past, I think there were some people who enjoyed principal investing but struggled with having a young family, the travel and other work demands of principal investment. I believe we can offer something different to those who really enjoy the work but would also like to balance that with commitments to family.
TIM FORMUZIEWICH, managing director of infrastructure, IMCO
We’ve noticed that increased connectivity on video platforms makes for more effective group meetings across geographies. The days of groups of five to seven congregating in boardrooms in multiple locations are less optimal than having 30 ‘heads’ up close, and permits more ‘work from anywhere’. It won’t displace the benefits of being in the office and having informal collisions fostering collaboration, but certain meetings are a lot more productive with each person getting their own box and platform to speak up to the groups.
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