Ensuring sufficient investment to meet our Net-Zero target

Writing for Utility Week GIIA CEO Lawrence Slade says there is no time to waste on securing net zero investment … 

Infrastructure is of course key to modern life, and even while many of us are now no longer commuting, digital networks have replaced transport infrastructure as being essential to our everyday lives.  As we progress further into the 2020s and as the pressure to decarbonise our economy to meet our 2050 net-zero carbon goals becomes stronger, so will the pressure grow to ensure that our infrastructure is fit-for-purpose not just for today but for decades to come.  Worryingly in the most recent Global Infrastructure Investor Association (GIIA) and Ipsos MORI report 65% of people think that Britain is not doing enough to meet infrastructure needs – a figure that, for instance, indicates that the UK lags behind other G8 countries.

Achieving Net-Zero will require substantial investment across both greenfield and brownfield infrastructure.  A recent report produced by the GIIA in partnership with PwC indicated that to finance the transition to net-zero, the UK would need to attract investment in the 2020s alone of at least £400bn.

While of course, it is also fair to say that the government will also fund varying amounts of the investment required- COVID-19 has added immense fiscal pressure to already strained public budgets, thereby increasing the need to attract private finance.  However, to complicate matters, the UK is not the only nation or trading bloc to have committed to net- zero, and the huge investment that this entails.   Given the scale of investment needed around the globe, the UK must ensure that it has the appropriate policy and regulatory frameworks in place that will ensure it can compete to attract capital from long-term investors.   This necessity should not be taken for granted as over the past few years foreign direct investment levels overall into the UK have been falling.  The House of Commons Library shows that by 2019 FDI had fallen for the third consecutive year since 2016, having peaked at £192bn in 2016 to £35.6bn in 2019.

So, what needs to be done?

Over the past few decades, the UK has seen hundreds of billions invested in its water and energy networks alone, a sum that is nearly double pre-privatisation levels.  This investment was attracted by the UK’s excellent regulatory frameworks. But over the last decade, the view of many is that these “gold standards” have been steadily undermined, to an extent that confidence has reached a low point at the very moment when the UK needs to increase FDI.

The long-awaited National Instructure Strategy laid out the welcome expectation that substantial levels of private capital will be required to meet the UK’s infrastructure investment needs; HM Treasury expects private finance to provide at least half the required investment – while acknowledging more needs to be done to mobilise this.  For instance there is also an acceptance that the UK’s regulatory regime must be updated to reflect the different challenges of today, helping to ensure that private sector investment can be unlocked at the lowest possible cost.  Likewise, there must also be a clear understanding of the roles and responsibilities of regulators and governments, linked to a commitment that aligns the interests of consumers in both the short and the long term.

But regulatory reform is just part of what needs to happen if we are to see the required levels of private investment in the UK’s infrastructure across the length and breadth of the country helping to deliver against not just the net-zero agenda but importantly helping to meet the government’s levelling up ambition.

The recent publication of the National Infrastructure Strategy, the Energy White Paper, and other government policy papers has provided an encouraging glimpse of the government’s direction of travel.  However, as the National Infrastructure Commission recently called for in its 2021 Monitor Report, we desperately need a clear framework that sets out the delivery plan that will achieve these policy goals; a plan that will provide investors sight of a strong pipeline of projects laid out over the next few decades.

The government needs to work with industry to resolve issues tied to more nascent technologies such as CCUS and hydrogen where revenue models are underdeveloped.  There needs to be an honest conversation about the role and expectations for these technologies; their ambitions for instance for hydrogen across industrial applications and domestic applications and the gas versus electric heat debate for example. Only when investors and industry can see these answers and can judge how the government is seeing the risk and reward balance can sensible decisions be made.

Over the years there has been much debate about the benefits of private investment in the UKs infrastructure.  We strongly recommend that all parties work together to build a strong transparent evidence base that can allow stakeholders to make accurate performance evaluations of the value of private investment in, and operation of, our infrastructure.  This will assist and improve future financing decisions; help rebuild trust and aid discussions around the suitability of different financing models across differing sectors.

Also, it is of the upmost importance that the Government should carefully consider the application of powers granted by the National Security and Investment Bill.  The scope of the bill is very wide, creating the likelihood that a large volume of notifications should be expected when the powers become operational. Given this, Government must ensure that the unit set up to manage this is fit for purpose from day one, ensuring any delays in deal approval are kept to a minimum and that there is as much transparency as possible around decisions.  Moves to encourage early informal advice are to be welcomed, this should be combined with a determination from government to use its powers sparingly, to help continue the view of the UK being a positive destination for foreign investment.

As we approach COP26 the government, regulators, and investors must work together across this agenda to stand a chance of delivering the scale of ambition for UK infrastructure.  It is often said that there is no shortage of money, and indeed the GIIA estimates that the leading private investors in infrastructure have at least US$200bn of “dry powder” available for deployment, with new funds being raised all the time.

But there is a shortage of time.

When Net Zero 2050 was announced, there were 122 quarters before 2050.  Since the legislation came into being on 27th June 2019, we have burnt through 6 of these and are nearly through the 7th.  As a country we have the technology, skills, and businesses; let’s not waste any more time and ensure we get the right frameworks in place to guarantee we also have the required levels of investment from private as well as public sources.

https://utilityweek.co.uk/no-time-to-waste-on-securing-net-zero-investment/ 

Blog – Infrastructure Investors rising to meet the SDG challenge

GIIA Communications and Events Executive Rebecca Jones takes a look at how members are rising to meet the challenges set by the UN in the Sustainable Development Goals … 

Established in 2015, the 17 United Nations Sustainable Development Goals (SDG), and the 169 sub-goals and indicators which sit behind them, represent an action plan for the planet and society to thrive by 2030. Addressing issues such as poverty, hunger, climate action, gender equality, education, clean and affordable energy and life on land and sea the SDGs recognize that action in one area will affect outcomes in others, and that development must balance social, economic and environmental stability.

Writing in the 2020 Sustainable Development Goals Report, UN Secretary General Antonio Guterres wrote:

“The 17 Sustainable Development Goals (SDGs) demand nothing short of a transformation of the financial, economic and political systems that govern our societies today to guarantee the human rights of all. They require immense political will and ambitious action by all stakeholders.”

Infrastructure sits at the very heart of a number of the Sustainable Development Goals. By providing a range of essential services including transport, energy, water, waste management and digital communications, infrastructure serves as the backbone of a modern, civil society.

Investors in infrastructure are taking various approaches to meeting the challenge set by the UN’s Sustainable Development Goals and are shaping investment decisions and asset management allocations as part of a broader ESG agenda as highlighted by two recent GIIA publications in partnership with Marsh & McLennan looking at Global Risks for Infrastructure Investors (The Climate Challenge & The Technology Challenge).

With almost $US 1 trillion dollars of infrastructure assets under management, spread across 55 countries on 6 continents, GIIA members are helping to drive the transformation spoken about by Secretary General Guterras. Increasingly, asset owners are working with their local communities to maximise their ability to meet Sustainable Development Goals, while continuing to deliver these essential services. Some examples are listed below:

  • In India, CDPQ are investing in meeting India’s renewable energy targets, but the investment also extends to providing school lunches and health clinics in local communities.
  • In London, Dalmore are invested in a project to turn three quarters of a million tonnes of waste into energy which powers more than 150,000 homes, while creating new apprenticeship opportunities
  • In New York, Brookfield’s Oswegatchie River Hydroelectric Project has developed an innovative series of fish-ladders to ensure their natural passage up and down the River can continue uninterrupted, while the project itself providing power to over 1000 homes
  • And in Melbourne, a number of investors including OMERS and GIP’s investment in the Port of Melbourne has created more than 29,000 jobs with most coming from the local community while creating in excess of $A7.5 billion in economic growth for the Australian economy. In addition the Port has also provided more than $A250,000 in community partnership funding.

In launching the Sustainable Development Goals in 2015, then Secretary General Ban Ki-Moon stated:

The seventeen Sustainable Development Goals (SDGs) are our shared vision of humanity and a social contract between the world’s leaders and the people.”

Meeting the ambitious targets set down by the UN, particularly in light of the ongoing Covid19 pandemic, will require Government and the private sector to work collaboratively to bring new approaches to our cities, our regions and our natural environments.

And it is clear that cleaner, smarter and more efficient infrastructure will lie at the heart of many of these discussions – with GIIA members standing ready to take up the challenge.

To see how GIIA members are delivering against the UN Sustainable Development Goals please visit www.giia.net/case-studies

 

 

Infrastructure Pulse Survey Q1

GIIA is pleased to launch the results of the latest Infrastructure Pulse Survey for both the Americas and European markets, produced in partnership with Alvarez & Marsal.

The Infrastructure Pulse Survey provides a regular temperature check of investor sentiment in the sector as well as identifying emerging trends and attitudes from the investment community.

Key highlights from the 2021 Q1 Infrastructure Pulse Survey include:

  • An overall positive view of the fundraising environment in both Europe and the Americas
  • In Europe, investor sentiment remains strong towards the Nordics following increased deal activity in Q4, 2020 while in the Americas attractiveness for investment was stable or slightly higher than the previous quarter with Brazil showing the most significant improvement, albeit still with a slightly negative overall
  • In both markets investors were most bullish about opportunities in communications infrastructure, followed by sustainable energy generation.

Speaking on the release of the results GIIA CEO Lawrence Slade said while the ongoing global health pandemic continues to provide a challenging backdrop for investors, it was encouraging to see that sentiment remained positive.

“The profound impacts of Covid will be felt on the infrastructure sector for many years to come. However, as the world emerges from the pandemic, and with optimism stemming from the vaccine rollout, infrastructure can play a significant role in helping economies rebound as well as addressing new challenges around a changing climate and increasing digitalisation.”

Click here to read Infrastructure Pulse Survey Q1 – Americas

Click here to read Infrastructure Pulse Survey Q1 – Europe

CEO BLOG | Climate adaptation and resilience at the heart of infrastructure investment

GIIA CEO Lawrence Slade looks at the challenge of climate adaptation for global infrastructure investors. Earlier this morning, Lawrence joined the Infrastructure Panel at the Climate Adaptation Summit 2021. For more information about the CAS please visit https://www.cas2021.com/. Follow Lawrence on Twitter @Lawslade

 

GIIA members own and operate infrastructure assets around the world in a range of sectors that serve millions of people every day. Whether it is providing the infrastructure to get them to and from work, connecting them to the digital world, powering their homes and offices, delivering clean, safe and reliable drinking water or providing the necessary social infrastructure that supports their communities, GIIA members invest in a diverse range of essential infrastructure.

Despite the stark differences between these assets and investments, one common theme does apply to all. Namely, how to deal with climate risks.

From water companies like Yorkshire Water who set about increasing flood resistance through the construction of reinforced pump station walls and improved drainage systems to Caruna Energy rerouting electricity cables underground to ensure the continued supply of electricity in adverse weather, GIIA members are recognising and adapting to a changing global climate.

 The challenge of climate adaptation is no longer viewed, in infrastructure investment circles, as something extraneous to core business risks, but instead is now a vital component of any risk mitigation strategy.

Indeed, research by the National Institute for Building Sciences estimates that for every $1 invested in climate resilience saves $6 in future economic disruption from extreme climate events.

Recently GIIA, in partnership with Marsh & McLennan, released a report looking at climate risks for infrastructure investors that recommended investors employ three levers to defend their assets against climate risk: namely –

  • Using modern technology for climate focused scenario planning to predict future outcomes;
  • Considering key decision checkpoints in infrastructure asset life-cycle and timing climate resilience interventions appropriately; and
  • Using stakeholder engagement to proactively manage interdependent risks across an asset’s ecosystem.

While climate change has forced a structural rethink of risk profiles within the sector, this has led to an increased focus on climate resilience and adaptation strategies which, ultimately, delivers improved reliability for those millions of people who rely on today’s infrastructure in their day to day lives, and of course look to the sector to provide the clean, resilient infrastructure for future generations.

Global Risks for Infrastructure – The Technology Challenge

GIIA, in partnership with Marsh & McLennan, is today pleased to launch the latest in a series of reports looking at global risks for infrastructure.

Global Risks for Infrastructure – The Technology Challenge examines the impacts that rapid technological advancement are having on infrastructure assets around the World and what it will mean for the sector in years to come.

Speaking on the launch of the Report, CEO Lawrence Slade said:

“The rapid pace of technological advancement around the world can be seen as something of a mixed blessing for the infrastructure sector. While it has unquestionably created new opportunities – and indeed in some cases entirely new markets – owners and operators of infrastructure assets have also been faced with new competition, changing demand patterns, evolving regulation and an increased exposure to cyber-risk.”

“In facing these challenges, infrastructure investors and asset operators must focus on building technological agility by developing new core skills within their teams and adapting and optimizing existing assets all while scanning the horizon for new technological advancements.”

Click here to read Global Risks for Infrastructure – The Technology Challenge

Raconteur ‘Future of Infrastructure’ Special Report

GIIA is pleased to once again be the Publishing Partner for Raconteur’s ‘Future of Infrastructure’ special report, appearing in today’s The Times, alongside contributions from other members including Macquarie, ISquared and Deloitte.

Click here to read Raconteur’s ‘Future of Infrastructure’ special report. 

New Report – The Future of Regulation

The regulated utility sector is a core pillar of the UK economy. Over the last three to four decades, it has overseen the transformation of utilities that deliver many of our essential services.

However, while the UK’s system of economic regulation is often praised as an example of best practice, there have been a number of shifts more recently that have impacted the effectiveness of the regulatory regime in delivering new investment.

In the much anticipated UK Spending Review, delivered today by Chancellor of the Exchequer Rishi Sunak, the Government itself acknowledges a need to provide a ‘clear and enduring framework for investors and businesses’ to support the model of independent economic regulation and GIIA welcomes the Chancellor’s commitment to preparing a policy paper on this topic to be shared in 2021.

‘The Future of Regulation’ lays out a set of core principles that we believe can effectively and fairly govern the UK’s regulated utility sector for decades to come, and will form a key part of our engagement with Her Majesty’s Treasury on this important policy area in coming weeks and months.

Click here to read The Future of Regulation

GIIA welcomes new CBI report ‘Investing in Infrastructure’.

GIIA was pleased to contribute to the CBI’s new report titled ‘Investing in Infrastructure – Sourcing the Finance to Build Back Better’.

We welcome the acknowledgement of the vital role that private investment plays in delivering the modern, efficient and socially responsible infrastructure needed for future generations and the 13 recommendations the report makes.

In particular GIIA welcomes those recommendations calling on the Government to provide more clarity around the role they see for private investment in delivering many of the nation’s major infrastructure projects.

Speaking on the release of the report, GIIA CEO Lawrence Slade said:

“At a time when Government spending is rightly focused on both the social and economic recovery from the coronavirus pandemic, the private sector has the expertise and innovative ideas, and  stands ready to help address the UK’s long term infrastructure challenges while playing a significant role in the UK’s economic recovery.”

The full CBI report can be viewed here

NEW REPORT | Global Risks for Infrastructure – The Climate Challenge

GIIA, in partnership with Marsh & McLennan, is pleased to release the second in a three part analysis of global risks for infrastructure investors. Looking at the Climate Challenge, this report discusses the specific risks to infrastructure investors under each of the key risk categories outlined by the Task Force on Climate-related Financial Disclosures, as well as crucial levers for achieving climate resilience at both the portfolio and asset level for the infrastructure sector.

Click the image below to read Global Risks for Infrastructure – The Climate Challenge

Physical risks related to climate change are becoming a crucial risk category for infrastructure owners and operators. Natural disasters are already a leading cause of infrastructure disruptions in high-income nations, and climate change is expected to exacerbate these disruptions. In addition, increased urbanisation is heightening concentration of infrastructure assets in high risk areas.

Applying the three mutually reinforcing levers discussed in this report can provide infrastructure investors with a launchpad for developing a dynamic and future-ready climate resilience strategy.

 

The first instalment of this series illustrated the risk landscape for infrastructure with the release of the 2020 Global Risks for Infrastructure Map while the upcoming final instalment will explore the impact of transformative and disruptive technological innovations on the infrastructure sector, with an expected release in Q4 2020.

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.