This article is sponsored by QIC Infrastructure
How do you define sustainability and what role does it play in infrastructure investment?
Sustainability is all about delivering resilient financial returns to our clients over time while positively contributing to the prosperity of people and the environment, delivered over multi-decade horizons.
There is a real responsibility involved in investing in and managing infrastructure assets, because these assets typically provide essential services to society, while also playing a vital role in terms of economic growth and job creation. They are typically very long-life assets. In order to deliver long-term value for investors, infrastructure owners therefore have to be good custodians, demonstrating positive contribution to employees, customers, the communities in which the assets operate and, importantly, the environment.
Without that positive contribution over time, companies may end up facing operating restrictions. Those that do it well will not only retain a social licence to operate, but will also be granted a licence to grow, because stakeholders will have a vested interest in their success.
What do you see as the biggest challenges facing infrastructure assets today from a sustainability perspective, and how are those challenges evolving?
Challenges and opportunities exist as two sides of the same coin. How this plays out often comes down to the timeframe within which they are considered, and the perspective through which the business views them. If a business is future focused and embraces disruption, it can plan to position itself and manage key risks accordingly.
A key factor in this, and an example of one such challenge and opportunity in its own right, is the issue of attracting and retaining the right people within portfolio companies. It is important to have people with the right level of expertise, depth of operational experience and alignment with the purpose and values of the organisation. This also extends to having the right type of leadership, in order to equip teams with the skillsets of the future, particularly around sustainability and technology.
What have you found to be particularly effective when it comes to optimising that human resource element?
Without engaged people, a business simply isn’t sustainable. For a business to be able to work through the sustainability transition, it needs the right capabilities and culture at a leadership and board level, as well as within the broader team. A workforce needs to be aligned with the purpose and values of the organisation. We are also looking for new types of leaders today – leaders that are purpose led, aspirational and inspirational in terms of embracing the changes that businesses need to address.
“There is a real responsibility involved in investing in and managing infrastructure assets”
As an infrastructure investor, selection and development of people in senior roles within our portfolio companies is an area where we can really have a lot of influence, and it is something we spend a great deal of time focusing on. At QIC, our people, culture and operational specialist function have deep experience within recruitment markets and understand how to build diverse thinking through the types of people that are placed on our boards and in our management teams. We work very closely with our portfolio companies to assist them in addressing these challenges.
We also advocate for, and support, our portfolio companies to recruit additional team members, particularly in roles positioned to focus on sustainability. We help them manage their challenges and develop opportunities together in this way. Over the past two years alone, eight portfolio companies have enhanced their sustainability capability through recruitment, from Generate in the US to Pacific Energy in Australia.
What do you see as the biggest opportunities that the global sustainability shift has for infrastructure investors?
The scale and pace of deployment that is needed to meet global challenges – whether that’s in clean energy, sustainable transport or healthcare for ageing populations, for example – underlines that these investment thematics are not only resilient, but also align with positive outcomes for society and economies.
Institutional infrastructure investment is going to have a pivotal role to play in enabling this more sustainable future. Increasingly, this is what our clients are demanding and, importantly, it is what the members of their superannuation retirement funds are expecting.
What capabilities does a manager need to have in place to keep pace with this evolving situation, and support portfolio companies to do the same?
It is important to be able to look over the horizon and see what is changing across all industries, and not just focus on the sectors where our portfolio companies operate. We need to understand emerging trends and opportunities, as well as risks, over the short, medium and long term to build resilient investment portfolios through market cycles.
At QIC, having specialist capabilities as a manager across the key areas of people and culture, technology and sustainability means we can bring deep industry knowledge combined with asset management experience and apply it to the infrastructure assets that we invest in. It helps inform investment decision making, but also the way that we engage with and guide the management teams of portfolio companies throughout our ownership period.
Another essential attribute is an active approach to collaboration. Many of the challenges that we are going to face will require working closely not just with the companies in our investment portfolio, but also with partners and experts outside of the investment management field, whether that is universities, R&D organisations or start-ups. Collaborating in this way allows us to evaluate emerging investment opportunities and access tech solutions early.
How else are you addressing the need to keep pace with technological change?
Again, having that specialist technology capability within the team is important in helping us see over the horizon. What are the emerging risks and emerging opportunities that technology is bringing our way? Where is disruption likely to come from?
We address these factors on two levels. First, we target our investment focus on infrastructure portfolio companies within key sectors that represent the sustainable technologies of the future. We also feed this expertise into the approach we take in supporting the management teams of our portfolio companies, by ensuring they are aware of the emerging opportunities and potential disruptions their sector faces.
We’re already seeing the benefits of this approach playing out in real time, for example with QIC-led research and leveraging of networks in the emerging hydrogen economy having facilitated origination opportunities and execution of pilot projects for several of our portfolio assets.
Technological disruption driven by the need for sustainability, particularly when it comes to environmental themes, is going to impact every industry. Ports and airports, for example, need to understand what their role will be in delivering sustainable fuels for shipping and aviation.
We have a number of tactics that we employ to make sure we, and our investee businesses, are on top of these evolutions. For example, we employ cross-portfolio company forums on the topics of sustainability and technology and innovation. That enables information exchange, because while our assets operate across different sectors, we are seeing convergence. The energy and utility sectors are converging with the electrification of transport and logistics, for example.
Furthermore, we are aware that recognition is an important factor in encouraging and keeping pace with change and so we have established the QIC Innovation Awards, which are all about promoting and rewarding best practice. In turn, that helps catalyse change in other companies by making them aware of ideas that might not otherwise have been in their field of vision.
How do you think a more challenging economic and geopolitical backdrop will impact the importance of a hands-on approach to transitioning assets to a sustainable future?
The issues of sustainability, decarbonisation and geopolitical instability are all linked. What we are seeing at the moment in Europe, with a major conflict in Ukraine, is accelerating the energy transition thematic and decarbonisation. We are already seeing an increased move towards renewables and a growing focus on national energy security and independence, which we know will play a more prominent role for governments going forward.
These are all factors that we think about when looking at new infrastructure investment opportunities. We believe these forces will only require more active asset management. Being aware of the changes that are taking place and their implications for assessing transition risk and transition opportunity is vital. We need to be able to identify the potential for stranded assets, on the one hand, but also the potential for well-timed and targeted investment through our portfolio companies on the other, as we move into that new energy world.
What role does community engagement play in your approach to sustainability?
The essential nature of services provided by infrastructure companies makes them inextricably linked to their communities, which creates a powerful symbiotic relationship between stakeholders. The scale of new infrastructure that is going to be required to address the big challenges that the world is facing, such as climate change and population growth, will inevitably impact people on the ground. Whether that’s through building a new dock at a port or a new wind farm on agricultural land, these projects are going to have a tangible impact on the way people live and work in those areas. It needs to be addressed through genuine engagement and understanding of the social, economic and environmental challenges that these people are experiencing.
We also need to address those challenges by demonstrating that what we are going to build is a legacy which will make a positive difference to their lives. This is something that must be strategically managed at a portfolio level as well as, importantly, through support for the portfolio companies’ executives and sustainability professionals as they interact with their local communities.