Energy Transition: Implications for Infrastructure Investors
In the face of cascading environmental, geopolitical and macroeconomic shocks, reshaping the world’s energy landscape is no longer a mere policy option, but an urgent necessity to significantly bring down greenhouse gas emissions. The global energy transition is already underway, and has shown that when the political will exists, policies can be rapidly implemented, and private actors can quickly align themselves.
Described as the “biggest global theme of our generation” , investments in the global energy transition are already becoming a defining feature of the market. In 2022, such investments topped the USD 1tn mark, overtaking investments in fossil fuels for the first time. But average annual investments in the energy transition must grow three-fold by 2030 if we are to get on track for net zero. This is an enormous challenge, which investors in infrastructure must respond to by scaling up their act.
The Long-term Infrastructure Investors Association (LTIIA) set up a working group specially to share feedback and experiences from January to June 2023, drawing as much as possible from concrete experiences and feedback from our investors .This report seeks to review and analyse these trends and their implications for Institutional Investors in Infrastructure, both sector-wise and in terms of business models and allocation strategies. The report “Energy Transition: Implications for Infrastructure Investors” integrates qualitative and quantitative research and based on two surveys conducted with members of the LTIIA working group, provides guidance, as well as policy proposals and recommendations for policymakers, regulatory authorities, for investors and asset owners, and for fund managers. The recommendations cover the need for roadmaps and commitments, public financial support when technology or market risks are too high, adapted sectoral and prudential regulations as well as enhancing technical and market expertise for Fund managers.
The energy transition, with its immense significance and far-reaching implications, stands as the linchpin in our collective efforts to combat climate change and forge a path towards a cleaner, greener, and more resilient world. We hope this report will help foster awareness of investors on their potential role and improve both public and private sector stakeholders’ understanding of the issues, obstacles and opportunities to help catalyse and increase private investment in energy transition-related infrastructure.
Research on infrastructure benchmarking
For several years, LTIIA and its founding members have been sponsoring research at http://edhec.infrastructure.institute/ into the nature, benchmarking and valuation of long-term investments in infrastructure. Check out some of results to date.
Social infrastructure : from Challenge to Opportunity for Investors
Human capital, a key driver of resilience and productivity, is largely underpinned by social infrastructure; the facilities, buildings and intangible assets that serve to generate key collective services in healthcare, education or affordable housing. Social infrastructure is also a critical enabler for a fair transition to sustainable development model.
So, it should be a concern to everybody that overall, the stock of social infrastructure has not kept pace with the needs of populations, in advanced economies and emerging ones alike. Chronic public underinvestment has generated an investment gap over time, where available assets are no longer sufficient and fit for the kind of use needed, not to mention future needs linked to big demographic and societal trends at play. This was cruelly highlighted during the COVID crisis, when healthcare and education infrastructure had to adapt to unprecedented circumstances.
This is where we, at LTIIA, believe the private sector has an important role to play: as the public sector is increasingly overstretched and constrained by deficit and debt issues , there is a room for more and better private sector involvement. Moreover, social infrastructure investments hold potential for increased allocation by institutional investors seeking diversification into low-risk, regular income assets. Long term private investors have long started investing in those assets, but the potential – and the need – for ramp up remains huge. Drawing on the vast pool of experience and contributions of LTIIA members, this report analyses the current constraints and current challenges limiting institutional investors’ share of the market. It then formulates recommendations to the various stakeholders – policy decision-makers, regulators and Development banks, as well as institutional investors – so as to better and further develop this market in what should be a win-win approach for society at large.
Climate-Resilient Infrastructure: How to scale up private investment
Infrastructure is reckoned to be on the front line for Climate change as both a driver and a prime potentially impacted sector. Its assets are vulnerable to extreme weather events, or just small local shocks, liable to disrupt complex networks. Infrastructure projects targeting Adaptation are, in this respect, suffering from a financing gap even bigger proportionally than the general Infrastructure gap. But whereas Institutional Private investors have significantly ramped up their act in Mitigation (in particular through Renewable energy4 and energy efficiency), private financing of Climate Adaptation Infrastructure to date is difficult to measure and most probably still negligible.
The object of this report is to foster awareness of Institutional and Private sector investors on their potential role and improve understanding of the issues, obstacles and opportunities to help catalyse and increase private investment in climate resilience infrastructure assets.
Financing Development: Private Capital Mobilization and Institutional Investors
A report by Georg Inderst, Infrastructure expert, member of LTIIA Advisory board & Adviser to institutional investors & international organizations