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Pulse Survey Q2 2023: Europe

Infrastructure investors voice concern about UK regulation as US green investment surges

  • New study finds infrastructure funds with close to $1 trillion in assets under management view Nordics as the most appealing Western European investment destination.
  • Concern about environment for debt and equity raising reaches highest point in Pulse survey history.  
  • Appetite to invest falls across individual markets and sectors as rising prices, skill shortages and energy costs weigh on plans.

Major infrastructure investors see political instability and regulatory frameworks as greater barriers to investment in the UK compared to the rest of Europe and the Americas, according to the Q2 2023 Pulse survey from the Global Infrastructure Investor Association (GIIA) and Alvarez & Marsal (A&M).   

Asked to rank the severity of various barriers on a scale of 1 to 7, the UK posted significantly higher averages in the categories of ‘unattractive regulatory regime’ (6.45) and ‘political instability/ sentiment’ (6.55) compared to the rest of Europe and the US.   

Participants were also asked to score different markets according to their attractiveness as investment destinations in the round on a sliding scale of -5 to +5. The UK posted an average score of +1.14, below that recorded for the Nordics (Sweden, Norway, Finland and Denmark) at +2.36 and Iberia (Spain and Portugal) at +1.59. No European country matched the +3.25 posted for the US.

For the first time since the survey’s launch three years ago, sentiment towards debt and fundraising has turned negative. Respondents state that the availability and cost of debt financing are now having a greater impact on current European portfolios than inflation or the energy crisis. As yields on deposits and bonds improve, many are shifting their focus away from ‘core’ assets, offering low risk, stable returns, to higher yielding ‘core plus’ strategies, targeting strong returns and capital appreciation.       

Though appetite to invest has fallen generally, infrastructure investors continue to put sustainability concerns front and centre, highlighting the appeal of assets in the sustainable energy, battery, and communication industries.    

With the US Inflation Reduction Act heightening the appeal of the US market, around four in ten (38%) respondents state that they intend to spend at least $5bn on achieving net zero across portfolios in the Americas over the coming five years, compared to just two in ten (18%) across Europe.

GIIA Acting CEO Jon Phillips said: “There is no doubt that economic and geopolitical uncertainty has had a dampening effect on investment decisions over the last six months. But such is the scale of future investment needed, it’s critical that governments work with private investors to unlock more of the $500 billion in dry powder that they have ready to deploy. 

“Implementation of ambitious infrastructure legislation in the US is helping to crowd in swathes of sustainable investment, and it’s important to look at lessons learnt as that market tops the global league table for investor appeal.       

“Equally our members are now highlighting regulatory reform as their number one ask of governments. As we head towards national elections in several key markets, and as net zero targets close in, constructive dialogue between investors and governments is a must.”     

A&M Managing Director and Head of UK Energy & Infrastructure Transaction Advisory Group Wayne Jephson said: “While investor sentiment faces headwinds across Europe, it is the UK that stands out.

“The UK is finding it tough to rebound from a confidence dip we noted in the autumn and respondents see the regulatory environment as particularly challenging, with diminished appetite for investment in core regulated assets.”

A&M Managing Director Jason Clatworthy said: “Although the market is yet to bounce back in the short-term, over the longer term, the evaluation of ESG factors seems to have become more ingrained in the investors' decision-making process.

“This is now regarded as one of the key considerations when making decisions – a critical development considering climate change continues to rank among the most significant risks."