GIIA response to FT article on ESG

GIIA has published the following response to Brad Cornell’s opinion piece in The Financial Times (16th July, 2020) titled ‘The ESG concept has been overhyped and oversold’

Infrastructure investors increasingly believe that key to their commercial success is a focus on the principles of ESG investing, to manage risk, improve the performance of assets under management, and enhance their corporate reputation. It is not just a question of doing the ‘right’ thing, although in today’s society that is pretty fundamental to maintain your ‘social licence’; investing through the ESG lens for the long term also makes good business sense. A way to look at ESG investing is through the 7 R’s model (credit to Wayne Visser, Professor of Integrated Value and Chair in Sustainable Transformation at Antwerp Management School), in the way that it lowers risk, improves reputation, fosters resilience, increases resource efficiency, anticipates regulation, supports recruitment and increases revenues.

Good ESG performance should not be seen as a one-off. Companies that improve their ESG performance go on a journey that results in continued improvement, adding value year after year. Making decisions without ESG information is also risky and, in some cases, could be seen to constitute a disregard for fiduciary duty.

Investors that have embedded ESG into their decision making should not be “called on to make judgments on social issues that they are not empowered to make, nor equipped to handle”. Effective executive decision making is actually informed and empowered by the extent to which an organisation is engaged with the societies within which it operates. Companies that have enhanced engagement with their stakeholders are likely to make better informed, well-rounded decisions.

Infrastructure investors are consciously choosing to invest for the long-term with ESG at the core of their investing strategies, because they know it is the way to build long term value for stakeholders and shareholders.

New Infrastructure Pulse Survey

GIIA, in partnership with Alvarez & Marsal, is pleased to launch the new GIIA Infrastructure Pulse Survey for both the European and Americas markets. This quarterly survey aims to provide a regular temperature check of sentiment in the sector and to monitor emerging trends.

Click here to view the results of the Europe Infrastructure Pulse Survey

 

Click here to view the results of the Americas Infrastructure Pulse Survey

Speaking on the release of the Survey, CEO Lawrence Slade said:

“We are excited to work with Alvarez & Marsal on the Infrastructure Pulse Survey which will monitor some of the key trends and issues affecting the infrastructure investment space in both Europe and the Americas. We are confident this will become a valuable market tool in understanding what is happening in the sector.”

Against a backdrop of Covid-19, a number of interesting common themes emerged from the first survey:

  • Most respondents raising capital expressed a neutral or marginally positive view of the
    fundraising environment.   For those investing new capital, almost three quarters of respondents indicated that infra debt markets remain favourable for funding of new infrastructure deals in both geographies.
  • In terms of general outlook and views of the impact of Covid-19, respondents highlighted the only positive impact of Covid-19 was in communications infrastructure (due to the increased criticality of connectivity as more work from home), which continued the overall positive outlook for the sector.  Unsurprisingly, the most negative outlook was noted for airport transactions and oil & gas related midstream assets.
  • Respondents indicated that the most positive outlook in Europe was for the Nordics, Iberia and Germany, whilst in the Americas the most positive outlook was in the USA. The most negative sentiment was reserved for Greece/Cyprus, Eastern Europe, and Mexico.
  • ESG is emerging as an important consideration for investors and their LP’s across both the Americas and Europe.  Covid-19 and other events in 2020 are likely to accelerate the ESG agenda with a flow through to investment criteria.

Results from the next quarter’s survey are anticipated in mid-October.

New Blog – Responsible investors and the post-pandemic recovery

This blog first appeared on GRESB Insights 

John Kavanagh and Max Worthington

With the overall numbers of new cases and deaths continuing to decline and lockdown measures slowly being eased in most major economies, the worst of the COVID-19 pandemic appears to be abating. As countries start to rebuild in the months ahead, the crisis has clearly revealed a fundamental reshaping of investor priorities, accelerating trends that began long before the pandemic took hold.

During this time, health and care workers have rightly been championed as stalwarts of society while key workers have continued to provide essential goods and services to grateful communities across the world. Charities, community groups and private fundraisers have shown the good that can be done through voluntary affirmative action. Societies have continued to function as people have banded together to support each other in their times of need.

Private investors, too, have risen to the challenges posed by COVID-19, supporting employees, customers, communities and supply chains during the crisis. In response to the crisis, investors have demonstrated the highest principles of responsible asset stewardship and corporate social responsibility. Global Infrastructure Investor Association (GIIA) members have committed upwards of $200 million in financial donations to good causes, care for employees and flexible payment terms for customers during this time. As long-term stewards of capital, private investors are helping to mitigate the impacts of the pandemic on society as a whole.

Stakeholder capitalism

A decade after the global financial crisis of 2008-9 began to precipitate a shift in corporate behavior, such views are starting to converge into something akin to a new worldview, shared by the world’s leading executives, but also by consumers, employees, campaigners, academic institutions and regulators.[1] This shift is often referred to as a new form of ‘stakeholder capitalism’[2].

As Larry Fink, chairman of BlackRock, the world’s largest asset manager, warned in 2019 that companies without a social purpose fail to make the investments in employees, innovation and capital expenditures necessary for long-term growth.[3] Investors have moved the dial forward, marking a clear link between social purpose and the success of private enterprise. One can’t now exist without the other.

Fiona Reynolds, CEO of the UN Principles for Responsible Investment (PRI), points to the emergence of a more ‘progressive mindset’ since the most recent prior crisis in 2008-9.[4] This mindset encourages investors to design their strategies from the start with long-term value creation in mind, not just focusing on maximising private capital returns but on delivering value for the societies within which they operate.

Last year, the World Economic Forum and Business Roundtable updated their mission statements to reflect this new reality; Business Roundtable’s new Statement on the Purpose of a Corporation was signed by 181 CEOs who committed to lead their companies for the benefit of all stakeholders – customers, employees, suppliers, communities and shareholders.[5]

The COVID-19 crisis has provided the opportunity for these words to be put into action, and responsible investors haven’t hesitated from stepping up and leading the way to the post-pandemic recovery.

Responsible investor actions

Private investors of all sizes have learned from the global financial crisis and stepped forwards when they were needed most. US investment bank Goldman Sachs has pledged US $25 million as part of the Goldman Sachs COVID-19 Relief Fund to support communities in most urgent need globally, while the firm has matched employee donations up to an additional $5 million.[6] These funds have directly impacted on some of the hardest-hit communities in the US while their $275 million Small Business Stimulus Package has supported some of the hardest-hit small businesses, ensuring that they are not left behind during the crisis. Similarly, KKR & Co. has created a $50 million fund dedicated to supporting frontline workers and mitigating the financial hardship created by the pandemic.[7]

DWS, a pan-European asset manager has donated EUR 1 million to various charities and food banks across Europe and the US whilst maintaining day-to-day operations and preserving employee wellbeing. Hamish Mackenzie, Head of Infrastructure at DWS notes that: “a huge effort was made by the DWS team to support management as they worked to ensure the continuity of operations whilst protecting the safety of employees. Clear and regular communication, early engagement with employees and other stakeholders and the ability to draw on the experiences of the Global Financial Crisis were all essential tools to navigate the crisis.”[8]

Others have pointed to the responsibility investors hold towards their portfolio companies and operating assets. Chris Manser, Head of Infrastructure Equity at Swiss Life Asset Managers, observes that: “we are fully aware of the obligation that we particularly have as an infrastructure investor to incorporate and promote sustainability and ESG practices, both within our platform and at the companies we hold in our portfolio. The pandemic has, once again, demonstrated the need for this push towards a responsible business environment and we will continue to support the effort now, and in the future.”[9]

The crisis has also shone a light on those organisations not to be seen to be behaving responsibly through, for example, accepting government support schemes for lower paid staff while retaining the pay-packets of those at the top end of their payroll. “The crisis has definitely impacted how we evaluate company behaviour,” says Marte Borhaug, Aviva Investors’ Global Head of Sustainable Outcomes, who has been engaging with companies on what their social responsibilities might entail. “There’s been a turning point; investors and consumers have become much more vocal about companies that are perceived to be failing to take their social role seriously.”[10]

Long-term challenges

As the crisis recedes, pre-existing structural challenges will move back into focus for governments and regulators. Speaking to some of the leading young investors at the Personal Investment Management & Financial Advice Association’s “Virtual Fest” on Wednesday 3 June, Mark Carney, former Governor of the Bank of England, encouraged young investors to channel their investments to sustainable opportunities. He said that the crisis will precipitate a “sweet spot” of opportunities for investment in areas such as infrastructure, which creates jobs and has “big multiplier effects on the economy”, which will bring benefits across the board to both investors and societies for the long-term.

Investors will once again be leading the way in delivering the transition to Net Zero economies and delivering on the asks of the ‘build-back-better’ movements, including through demanding that the companies that they own and the assets that they operate are resilient to climate risk.[11] Groups like the United Nations Net Zero Asset Alliance and the Investor Agenda are already establishing a roadmap for how the world’s largest investors are seeking to accelerate and scale up the actions that are critical to tackling climate change and achieving the goals of the Paris Agreement.[12]

Much remains to be done but the crisis has shown what can be achieved when private investors step up to the challenge and embed a long term responsible view in their investments to generate returns for society and not just portfolios.

[1] Edgecliffe-Johnson, A. (2019) ‘Beyond the bottom-line: should business put purpose before profit’, The Financial Times, URL Link

[2] World Economic Forum (2020) ‘What is Stakeholder Capitalism?’ URL

[3] Fink, L. (2019), ‘A Fundamental Reshaping of Finance’, Blackrock, URL Link

[4] Reynolds, F. (2020), ‘COVID-19: harnessing the power of collective investor action for change’, UN PRIURL Link

[5] Business Roundtable (2019), Business Roundtable Redefines the Purpose of a Corporation to Promote ‘An Economy That Serves All Americans’, URL Link

[6] Goldman Sachs (2020), ‘Goldman Sachs Commits $300 Million to Support Communities and Small Business’, 3 April 2020 URL Link

[7] Oguh, C. (2020), ‘KKR sets up $50 million international coronavirus relief fund’, Forbes, 8 April 2020, URL Link

[8] Mackenzie, H. (2020), Email from DWS

[9] Manser, C. (2020), Email from Swiss Life

[10] Aviva Investors (2020), ‘Will COVID-19 prove a watershed for ESG?’, URL Link

[11] World Economic Forum (2020), ‘Build Bank Better’, URL

[12] UN PRI, ‘UN-convened Net Zero Asset Owner Alliance,’ URL, Investor Agenda, ‘Accelerating Action for a Low-Carbon World,’ URL

 

GIIA re-affirms commitment to diversity, equality and inclusion

Following a recent Board Meeting, GIIA has undertaken to continue looking for ways to promote the ideals of diversity, equality and inclusion across the sector and has issued the following statement along with specific actions to re-enforce this commitment:

GIIA, representing the world’s leading private investors in infrastructure, affirms not simply a commitment to the principles of equality for all members of society, but a mandate to actively promote diversity, equality and inclusion. GIIA recognizes the important role that infrastructure can play in providing opportunities and economic empowerment to individuals, communities and nations. As such, the sector has a vital role in promoting equality not only within offices and boardrooms but within the communities in which their infrastructure assets operate. We at GIIA will encourage our members to continue to focus on this agenda and share ideas that will help create opportunities for all.

As a membership body, GIIA intends to:

  • Appoint a Board member to be a champion of inclusivity and equality – to assist us, challenge strategies, champion board diversity and where appropriate represent the association
  • Host a specific member event in 2020 on how to increase inclusivity and equality in the infrastructure sector
  • Build inclusivity and equality into our wider program of activities wherever possible

Energy Transition Webinar – The role for electricity and gas

On June 30th, GIIA held the third in a series of exclusive webinars for members. Following on from successful sessions looking at the UK macro-economic picture and the airport sector, this webinar focused on the respective roles for electricity and gas in Europe’s energy transition and what that means for investors.

With thanks to our expert panel:

Janine Freeman, Director Strategy, PwC and Dr James Watson, Secretary General, Eurogas.

Watch the webinar here

View PwC slides here

View Eurogas slides here