SotD 2019: ESG takes centre stage 

With ever-increasing scrutiny of corporate behaviour and calls for greater diversity, the industry is grappling with how to invest responsibly. 

During our Licence to Operate roundtable, published in the March 2019 issue of Infrastructure Investor, Ingrid Edmund, senior portfolio manager, infrastructure investments, at Columbia Threadneedle Investments, made a telling observation.  

“As a fiduciary, you have to be able to deliver whatever you promised people in 20 years’ time,” she said. “If your assets or your management teams are not aligned with those objectives, then someone is going to take away your returns in the next 20 years.” 

That wise assessment reflected the growing importance of ESG principles in infrastructure investing and specifically to the difficulties in getting the elusive ‘S’ right.  

The latter, however, is crucial in an age where populism is on the rise across the world and countries that were once staunch supporters of privatisation now have mainstream political parties actively supporting nationalisation (here’s looking at you, UK). 

Keeping one’s licence to operate is of the utmost importance for asset owners, and ESG is crucial in this regard.  

As Esther Peiner, managing director, infrastructure Europe at Partners Group, put it: “If we all build our portfolios’ track records in terms of positive impact or ESG compliant-investing in five to 10 years we will see that certain assets will be easier to divest because they are ESG compliant, while others will sit on the shelf because no one will want them.” 

But ESG is also of growing importance to LPs. Our 2019 LP Perspectives survey showed that of all the main alternative asset classes, infrastructure was the one in which LPs were most likely to give serious consideration to ESG when carrying out due diligence. 

They are also placing increasing importance on diversity. Niamh McBreen, investment director, asset management, infrastructure, Europe at AMP Capital, told us during our roundtable: “Our more sophisticated LPs, they’re saying, ‘We expect you to be more diverse because we know that diverse groups make better decisions, and better decisions reflect themselves in better financial performance’.” 

Yet when it comes to diversity, the asset class still has large strides to make. Angela Miller-May, chief investment officer of the $10.6 billion Chicago Teachers’ Pension Fund – which has 42 percent of its assets committed to managers classified as minority, women and disadvantaged business enterprises – told us “it’s hard to find a diverse manager in infrastructure”. This has to change if the industry is to continue on its march towards the investment mainstream. The prize has never been bigger.  

Last year was a record one for fundraising, with around $90 billion raised. This year’s tally is threatening to go past $100 billion. As owners and managers of essential services, infrastructure investors have a golden opportunity to lead by example over the next decade.