Investing in sustainable infrastructure

Staci West 10/02/2022 in Sustainable investing, X Millennials

As societies grow, so does the need for new and better infrastructure. Infrastructure is all around us: roads, airports, oil and gas, even telecoms. It’s an essential part of our everyday life and, therefore, our economies. But despite the everyday presence, it remains relatively unexplored for investors.

“Investment in infrastructure is a long term requirement for growth and a long term factor that will make growth sustainable.” — Chanda Kochhar, former CEO of ICICI Bank in India

The UN’s Sustainable Development Goal #9

Industry, Innovation and Infrastructure. The aim of this goal is to build resilient infrastructure, promote inclusive and sustainable industrialization, and foster innovation. SDG9 has eight targets that include twelve indicators for measurable success. Broadly speaking, it encompasses not only traditional infrastructure such as access to all-season roads for rural communities, but also global manufacturing production, air transportation and research and development.

Spotlight on transport

The role of transport in sustainable development was first recognised by the UN in 1992, and global attention of transportation has increased in recent years. 2020 was catastrophic for air travel due to the pandemic. Air passengers declined by 60%* and jobs supported by the air transport industry fell by 52.5%*. A constantly changing list of open and closed destinations added a high level of uncertainty and, as such, air travel is not projected to get back to pre-pandemic levels until 2024*.

Alex Araujo, manager of M&G Global Listed Infrastructure fund, told us about his concerns for the sector on the Investing on the go podcast back in November 2021. Although not discussed in the podcast, the fund directly considers a company’s sustainability credentials and research is led by ESG analysis and overlayed directly with the UN Sustainable Development Goals.

The transport sector will have a large role to play in achieving the Paris Agreement and climate-based targets. Why? Because close to a quarter of energy-related global greenhouse gas emissions* come from transport and these emissions are projected to grow substantially in the years to come.

How can investors help?

SDG9 was one of only four goals identified in M&G’s ‘SDG Reckoning Report’ to have made improvement in the last year, despite most of the world – and projects – coming to a halt due to the pandemic. We saw the $1.2 trillion infrastructure bill in the US, while sustainable infrastructure is a key part of the European Green Deal. It’s also clear infrastructure continues to form the foundation of developing societies – and economies. So, investment opportunities in the sector are growing.

Sustainable infrastructure is an excellent opportunity for investors. Financing projects that meet the needs of growing populations, urbanisation and the transition to low carbon economy takes capital. The Ninety One Global Environment fund actively invests in only those companies contributing to the decarbonisation of the world economy.

FundCalibre rates three infrastructure funds: First Sentier Global Listed Infrastructure, M&G Global Listed Infrastructure and VT Gravis UK Infrastructure Income.

Interconnected goals

Sustainable transport is mainstreamed across several SDGs. According to the UN, almost 300 million out of 520 million rural dwellers in 25 countries lack good access to roads*. Enhancing rural road connectivity helps to reduce poverty (SDG 1) by providing farmers with better access to markets to buy and sell goods, as well as access to health (SDG 3) and education facilities (SDG 4). Additionally, better infrastructure is directly linked to goals focused on economic growth (SDG 8) and sustainable cities (SDG 11).

*Source: Source: UN Sustainable Development Goals, 2021 Report

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