ESG and sustainability forum

The advantages of a ‘carrot and stick’ approach
With many investment teams continuing to work remotely due to covid-19, incentivising them with regard to environmental, social and governance issues comes with its own special challenge.

Vantage Infrastructure – whose framework for ESG integration applies both to its own teams and its portfolio companies – has found a formula that works, senior partner Valeria Rosati told attendees at the start of Infrastructure Investor‘s Global Summit Online yesterday.

One component, which Rosati described as “the stick”, involves linking a portion of remuneration and business outcomes to ESG outcomes. Another, which she described as something between the carrot and the stick, includes training for the firm’s portfolio companies and extensive training for staff that is partially mandatory and partially encouraged.

But the X factor Rosati says has proven to be a “huge” motivator is training staff “to understand…  the relationship between the action, the risk and the quantification of risk [in monetary terms, so that] that they can appreciate directly how much value they’ve created or destroyed”.

Debt forum

Show me the data
GPs’ mantra is that track record is key for investors. But what happens when a young asset class barely has one?

That’s what Erik Savi, global head of infrastructure credit at The Carlyle Group following his arrival there last year from BlackRock, finds himself grappling with in conversations with LPs as he integrates them into the firm’s mezzanine strategy.

“A lot of education is required for new entrants and [they want to know] how the asset class has performed,” Savi told attendees yesterday. “There’s no great index out there. The only good publicly available data is Moody’s [project finance] recovery study.”

Savi also finds himself having discussions with LPs about how they should invest in infra debt.

“Where does the asset class fit?” he mused. “Insurance companies invested using fixed-income allocations, while pension funds, which were invested in infrastructure equity, were using this [bucket] to invest in mezzanine credit.”

Sounds like those educational talks are bound to continue.

Grapevine

“The most important deals are the deals you never do”

Digital Colony‘s Christophe Strauven offers some valuable advice at a time of record dry powder

Emerging markets forum

Not as risky as you think
Global Infrastructure Partners is queuing an investment pipeline to deploy as much capital in the developing world as it does in its traditional OECD markets, Jin-Yong Cai, a partner and emerging markets specialist at the firm, told attendees yesterday.

He added that risks in the developing world may be less than in certain OECD markets.

A highlight among developing markets? Brazil, where Cai said the government has done “quite well” in rebounding from years of recession and managing a region hit hard by the pandemic.

Otavio Castello Branco, co-founder of Brazilian infrastructure firm Patria Investments, agreed. He explained that the government had responded with “responsible” measures to support the private sector and that, as a result, the Brazilian market was “almost back to normal”.

Energy transition forum

The secret to renewables success? Single-mindedness
The proliferation of dedicated renewables funds has been well-documented but the vast majority – targeting both wind and solar assets – are doing it wrong.

That’s according to Michael Bonte-Friedheim, founder and chief executive of UK-based solar fund manager NextEnergy Capital. Bonte-Friedheim told attendees yesterday that his firm’s entire focus on a single technology enables it to outperform those that take a broader view.

“Comparing specialists to generalists, we do outperform,” he insisted. “As returns come down, the specialists will always outperform, whether that’s by 50 or 125 basis points. That will be my secret to success.”

Consider the gauntlet well and truly laid down.

Digital infrastructure forum

Doing good by doing digital
Rivers of (digital) ink have been spilled this year on what a great investment opportunity digital infrastructure is. But according to Omar Jaffrey, a co-founder of Melody Investment Advisors, the sector has moved beyond just being a promising growth story.

Due to trends accelerated by the pandemic, the digital buildout is now a matter of social good, a “buttress to the impact of covid,” Jaffrey said. He added that when children have to drive miles away from home to attend virtual classes or companies can’t fully integrate remotely, there is much work to be done.

Other panellists agreed, explaining that the opportunity set – telecom towers, fibre cables and data centres – will vary by region and will often go hand-in-hand. But the consensus is clear: more internet is needed for everyone.

Today’s highlights

Here are three sessions you won’t want to miss today (all times BST):

• 12.00-12.30 Planning infrastructure for the future Lord John Browne, the former BP chief executive, will call for greater imagination in planning and design in his keynote speech
• 14.45-15.15 What does the rise of sector-specific and region-focused funds mean for infrastructure investors? Panel discussion featuring BlackRock’s David Giordano, Carlyle’s Pooja Goyal, Actis’s Mikael Karlsson and Clifford Chance’s Toby Parkinson
• 15.45-16.15 Stop hurting women: how the data ignores women and creates poor urban infrastructure plans. Author Caroline Criado Perez OBE addresses the gender gap

For the full agenda, go to our Global Summit Online homepage.

Today’s letter was prepared by Bruno Alves. Zak Bentley, Kalliope Gourntis and Jordan Stutts also contributed.

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