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Industry association interview with Real Asset INSIGHT

GIIA's Acting CEO Jon Phillips discusses the challenges facing the year ahead and the strategy to achieve a positive outcome for infrastructure investment in Real Asset Insight

What are the big challenges facing the infrastructure investment sector and your members in 2023?

As a fast-growing membership organisation, we provide a bird’s eye view of rapidly evolving international policy and regulatory frameworks, so that our members can help governments and communities by investing billions of pounds in the infrastructure networks needed to modernise and decarbonise economies.

Keeping up with this fast-changing investment climate is essential for our members. In the UK and all around the world, we’re facing higher inflation, the threat of climate change, skills shortages, disruption to supply chains, high borrowing costs and post-pandemic recovery – all pressing considerations for investment decision-makers.

And from a performance perspective, as interest rates rise, core infrastructure fund managers who target lower, more stable returns are having to make their case more strongly to those who now consider debt investments as the way forward.

Then there’s the concerning rise of protectionism and populism the world over. I started this year by making the case to a UK Parliamentary committee for strengthening the protections for investors against these trends. If they’re significantly eroded, as is increasingly the case in markets such as the EU, it will become much harder to mobilise the private sector investment in energy, water, transport and digital networks that we need to achieve net zero.

Governments cannot finance these things alone, and policymakers around the globe should be looking to best practice around regulatory frameworks and incentives that spur sustainable investment. 

What are likely to be the chief positive influences on strategy in 2023?

The powerful focus of both public and private sectors on climate change and environment, social and governance (ESG) factors will drive even greater investment in renewables, clean technology and digital communications infrastructure. The pressing need for deep-seated resilience against climate and disaster risks as part of the net-zero transition will increasingly come to the fore.

Many of the highest-value investment deals around the world in 2022 involved roads, liquid natural gas terminals and gas pipelines. These infrastructure networks are carbon intensive, but will become fundamental to sustainable economies as they are repurposed for electrification and increased use of hydrogen.

On the geopolitical side, I expect we’ll see more vying to attract inward investment as net-zero targets close in. This could be the moment for the UK to make good use of its newfound regulatory freedoms outside the EU, if it wants to keep up with its European and North American neighbours.

I hope that in 2023 we will see governments around the world increase their backing for emerging tech, especially batteries for renewable power storage and carbon capture, as well as alternative fuels. There are already signs of progress, with the EU’s Important Projects of Common European Interest (IPCEI) bringing public funds together to back projects that lack commercial viability now, but will secure returns in future.   

I think we’ll see greater interest in investment in emerging and developing economies too, with growth forecasts much greater for emerging markets than established ones. With government balance sheets hugely stretched by the cost of tackling covid, private investors will have an increasingly pivotal role to play in closing the infrastructure gap.   

Where do you see the best value and what will be the best strategy this year?

I see the need for deep-seated resilience across infrastructure networks to withstand climate shocks and disaster risks. The need to decarbonise and to tackle shifting geopolitical dynamics are fundamental to the strategies of both us as an advocacy group and the investment approach of our members. 

Worldwide political dynamics have altered massively since covid, in part driven by rising energy security concerns, with attention turning to the global race to attract sustainable inward investment. Among developed markets, the US is ramping up green subsidies to great effect, while the EU and UK are looking at how to respond.

As an organisation, we’re right at heart of these discussions, speaking with EU and UK officials about lessons learned from the US, and engaging at state level across the pond with regards to implementation of federal funding commitments.

Ambitious policy initiatives such as the US Inflation Reduction Act and EU Green Deal Industrial Plan are driving the net-zero and environmental, social and governance (ESG) agendas forward, with investors more interested in these areas than ever before, especially when it comes to digital, clean tech and energy assets.

This interview originally appeared in Real Asset INSIGHT, read the full article here