Private infrastructure at ‘a tipping point’, says JP Morgan

ESG has become a ‘matter of strategic positioning’ rather than the ‘compliance consideration’ it used to be, according to the group.

Private infrastructure investment is at “a tipping point” where ESG has become the “No.1 trend”, according to JP Morgan.

The integration of ESG standards to portfolio companies has become mainstream and is “critical” to effective due diligence, underwriting and asset management, according to Matthew LeBlanc, chief investment officer of JP Morgan’s infrastructure investments group.

“[ESG] is now “a forward-looking matter of strategic positioning rather than the backward-looking compliance consideration of the past”, he said in the group’s Global Alternatives Outlook for 2019.

LeBlanc identified governance as the first of the three ESG aspects to be broadly adopted by the industry, covering standards such as majority control, independent directors and policies on hiring and corruption.

Environmental and social have followed, with the latter identified as the “most challenging” of the three. Many companies overlook the social standards part of ESG, according to LeBlanc, “even though a failure can cost a company its social license to operate”.

JP Morgan said it has “seen first-hand how the consideration of ESG factors can help reduce risk and ensure the sustainability of returns” and believes this will be “paramount” in asset management in 2019.

Elsewhere, it also said it expected asset managers to continue to step in to buy transportation leasing assets, spotting an “intensifying” of the departure of banks from such companies due to Basel regulations, along with an increase in core-plus transportation assets in general.

JP Morgan has one transport rail leasing asset itself in Beacon Rail, which makes up for 6.8 percent of its $9.7 billion portfolio, as at June 2018. Transportation assets in general account for 28 percent of the Infrastructure Investment Fund’s portfolio overall.