When we decided to focus our latest Deep Dive on the intersection of impact and infrastructure investment, we knew infrastructure, as an asset class, was inherently impactful. The key question, then, was whether this would automatically (or with minimal tweaking) turn many an infrastructure strategy into an impact investment strategy.
Unsurprisingly, it’s not that simple, and our Deep Dive does a good job of outlining the degree of intentionality, data collection and measurement needed for infrastructure strategies wishing to brandish the impact label. That’s useful knowledge for LPs being increasingly bombarded by infrastructure GPs waving that label around.
But aside from the important question of what infrastructure strategies need to do to ‘earn’ their impact credentials, there’s the equally pertinent question of how to maximise the asset class’s inherent impact characteristics. The latter, when properly harnessed, can create a tremendous amount of positive impact – almost regardless of the intentionality of private infrastructure actors.
The catch? That impact can only be fully unleashed through public-private co-operation.
Take renewable energy. Renewables’ enormous success is, in many ways, the most impactful public-private partnership ever. That accomplishment was the result of governments initially willing to put in place the frameworks – feed-in tariffs, tax credits, etc – needed to attract capital that wasn’t necessarily looking to create impact, but rather earn a good return.
Out of that marriage, an enormous amount of positive impact was generated. That included the scaling up of renewables generation needed to meet the decarbonisation targets that were the originally intended goals of those government policies. But also the change in the investment conversation that impact creation has led to.
In the early days of renewables, mainstream investors made it a point of pride to underline they were investing in the sector because of its financial characteristics, with any positive impacts classed as a welcome extra. You’d have difficulty today finding anyone intentionally playing down those positive outcomes.
The reverse is true, in fact, with renewables and the energy transition leading to an awakening to infrastructure’s impact characteristics, as well as an increasing willingness by the industry to inject the intentionality needed to maximise the asset class’s impact potential.
That brings us full circle to where we are today: a market increasingly alive to and willing to capitalise on the characteristics of an asset class that, with the right kind of public-private co-operation, can generate tremendous impact.
Last year, Mathias Burghardt, Ardian’s head of infrastructure, argued that “the historic opportunity of the PPP [model] will be to contribute massively to carbon emissions reduction”, articulating precisely the kind of high-impact public-private partnership we’ve been alluding to throughout this article.
But that kind of impactful PPP need not be limited to fighting climate change. You need only think of the asset class’s other ‘it’ sector – digital infrastructure – to realise how the right mix of public-private co-operation can help unlock universal access to high-speed internet, a highly impactful goal.
Equilibrium Capital chairman Dave Chen told us in 2017 that the most interesting conversation in impact investment was: “How is the market used … to create intentional impact?”
That’s still true today.
The beauty of infrastructure is that, when the right alignment of interests is created between the public and the private sectors, you will be hard pressed to find a better asset class to generate positive impact at scale.