The world’s climate change decision-makers descended on Glasgow this month in an urgent attempt to push for a more concerted effort to achieve the Paris Climate Agreement targets and meet the UN’s Sustainable Development Goals.

The summit leaders had already made clear the prominent part that the infrastructure sector plays in achieving these aims. The preamble to the COP26 summit called on stakeholders to “rise to the challenges of the climate crisis by working together”.

Nicholas Stern, professor of economics and government at the London School of Economics and chairman of the Grantham Research Institute on Climate Change and the Environment, made the importance of this clear back in 2016 during the signing ceremony for the Paris agreement: “The infrastructure decisions we make in the next few years could cement our ability to meet the Paris goals, or condemn us to a future in which global temperatures rise well above two degrees Celcius. In the latter scenario, environmental conditions could be so hostile that development goes into reverse, leading to rising poverty and social conflict.”

In response, there has been a flurry of activity from infrastructure managers, industry bodies and regulators to find more commonality in the sector’s ESG impacts.

However, there remain significant gaps in suitable metrics to help investors to choose sustainable infrastructure projects. And even where tools and data do exist, there is a lack of standardisation.

A report by consultancy KPMG published in October 2020 stated that although many ESG standards and tools are already available for infrastructure investors, with more being developed each year, “few have been developed specifically for investor needs”.

Fernando Faria, adviser to public and private sector clients on major infrastructure projects at KPMG, says: “What we have today are several metrics and different frameworks which do not address all the needs of investors, and they produce different results.”


Regulators, particularly in the EU, have been leading the charge in driving harmonised ESG reporting standards.

Last year, the EU announced its proposed taxonomy, promising a classification system that “would provide companies, investors and policymakers with appropriate definitions for which economic activities can be considered environmentally sustainable”.

The EU says the taxonomy will “create security for investors, protect private investors from greenwashing, help companies to become more climate-friendly, mitigate market fragmentation and help shift investments where they are most needed”.

Infrastructure investors have widely welcomed the initiative.

Sabine Chalopin, ESG and impact director with Denham Capital’s sustainable infrastructure team, says: “The EU recognises there is commitment to the Paris agreement and to get capital moving to the right places.”

However, she adds that “all the players are slightly scrambling with it and trying to figure it out” and notes that while the EU is writing its taxonomy, policymakers in Canada are working on their own classifications, which could undermine efforts to converge at a global level.

In March, the Sustainable Finance Disclosure Regulations came into force. These require asset managers and advisers in the EU to provide “prescriptive and standardised disclosures” on how ESG factors are integrated at both an entity and product level.

Like the taxonomy, the SFDR is designed to eliminate greenwashing of financial products and financial advice by ensuring investors have the disclosures they need to make investment choices in line with their sustainability goals.

“We now have a dominant methodology for carbon accounting in unlisted assets”

Edward Dixon

The SFDR appears to tackle issues like under-reporting and fragmented information in traditional markets. However, Edward Dixon, head of ESG for Aviva Investors’ real assets business, says the regulation is less well suited to infrastructure and other real assets.
“SFDR does tackle conventional private markets like real estate,” he says. “But when it comes to the others, like infrastructure and venture capital, it’s not quite where it needs to be.

“SFDR creates a level playing field in terms of product, but it does not provide the level of detail in private markets that we need to disclose the same set of metrics. The metrics in the legislation are good, but not detailed enough for large infrastructure investors to make common disclosures.”

Dominant framework

On a more global level, the Taskforce for Climate-related Financial Disclosures has made notable progress in providing a common framework for reporting sustainability metrics, and these will be mandatory for UK companies across the economy by 2025.

The TCFD says asset managers should provide the weighted average carbon intensity, where data is available or can be reasonably estimated, for each product or investment strategy. Furthermore, they should provide other metrics they believe are useful for decision making along with a description of the methodology used.

Dixon says: “TCFD has become the dominant framework between asset owners, managers and the markets. This is very welcome because they provide client-side pressure to include commitment to sustainability in their mandates to managers. TCFD is finding its way into investment management agreements and requests for proposals, and that has never been there before.”

He notes that one of the most important advances in sustainability reporting for infrastructure investors is the development of greenhouse gas emissions accounting standards. Developed by the Partnership for Carbon Accounting Financials and published in September, the standards cover the accounting and reporting of the six greenhouse gases covered by the Kyoto protocol, including carbon dioxide, methane and nitrous oxide.

The standards, which feed into the TCFD’s work, were designed to help companies prepare a greenhouse gas inventory that “represents a true and fair account of their emissions using standardised approaches and principles”.

They are also critical in helping provide businesses with information that can be used to build an “effective strategy to manage and reduce GHG emissions, and increase consistency and transparency in GHG accounting and reporting”.

On the launch of the standard, Mark Carney, finance adviser to the UK prime minister and UN special envoy for climate action and finance, said: “The PCAF’s industry-led process demonstrates the sector’s recognition that climate change and the transition to net-zero is a risk that needs to be managed as well as an enormous commercial opportunity to grasp.

For this to happen, the sector requires robust, clear and harmonised disclosure of financed emissions; it needs to embed climate risk management into business decisions; and direct capital to economic activities that enable the transition to net-zero no later than 2050.”

For Aviva’s Dixon, the PCAF standard brings an end to any claim from infrastructure managers that it is too difficult to measure greenhouse gas emissions, or that the information does not exist: “We now have a dominant methodology for carbon accounting in unlisted assets. I still hear the industry say, ‘Well if we only we had the data and methodology we could get on with it’. I say, ‘We’ve got one. It has arrived’.”

Aviva Investors this year joined the PCAF, which has provided the manager with the necessary metrics to support its clients in reducing greenhouse gas emissions from their directly owned and financed real asset investments by 2040. This extends to clients’ assets across its total real assets platform, comprised of real estate, infrastructure and private debt.

Dixon says: “We have literally set to map the entire back book of commissions and integrate a close understanding of carbon accounting in our investment committee process for infrastructure debt and private debt asset classes.”

He adds that achieving the 2040 target will only be possible if the company sets short-term goals, and Aviva has laid out a set of detailed targets with a 2025 deadline. These include investing £2.5 billion ($3.4 billion; €2.9 billion) in low-carbon and renewable energy infrastructure and buildings, delivering £1 billion of climate transition-focused loans, and reducing real estate carbon intensity by 30 percent and energy intensity by 10 percent by 2025.

“Aviva’s long-term goals mean nothing without short-term targets”, says Dixon. “While it matters who is in control of the company in 2040, they are less relevant than the management of Aviva today. They are the ones that have to get us to the 2040 goal.”

Other successful sustainability collaborations for infrastructure stakeholders include GRESB, which assesses and benchmarks the ESG performance of real assets, providing standardised and validated data to the capital markets. GRESB says the assessments are guided by “what investors and the industry consider to be material issues in the sustainability performance of real asset investments”, and that they are aligned with international reporting frameworks including TCFD recommendations, the Paris Climate Agreement and the UN SDGs.

Denham’s Chalopin is a big fan of GRESB as a reliable way to report the sustainability of the firm’s infrastructure projects. For example, the Denham International Power Fund has been reporting against the GRESB Infrastructure Benchmark Assessment for the past three years. “We need to get asset owners and funds to report against material ESG risks and we need to standardise it without diluting it. GRESB provides a really strong framework for that.”

Ongoing challenges

Although there is positive momentum in the sustainability reporting space, commentators remain keen to see further collaborations between key stakeholders.

Faria wants greater recognition of the particular circumstances of infrastructure projects in emerging markets and developing countries compared with those in the developed world: “While standards can be and should be applied properly and universally, the implication on investment needs to take into consideration the factors in the emerging markets where they may not have the same [renewable] alternatives as the developed countries.”

He would also like to see more standards developed in relation to the social element of ESG: “The current focus is on carbon emissions, but what about diversity, impact on communities and child labour? We need metrics for these important issues too.”

With COP26 now over, stakeholders will need to keep up the pressure on policymakers to ensure momentum behind improving sustainability reporting standards for infrastructure projects is not lost.