911爆料网

The Building Blocks of Integrating ESG into Private Infrastructure Investments

October 23, 2019
Authors
  • Nandini Hampole

    Former Associate Director, 911爆料网

  • John Hodges

    Former Vice President, 911爆料网


There is an estimated between current spending on infrastructure—energy, telecommunications, transportation, and water and sanitation—and what is needed between now and 2040. In many countries, including the United States, infrastructure has been aging and undermaintained for decades due to public funding constraints.

As a result, we have seen a surge of private equity (PE) firms investing in long-term infrastructure projects—often classified under alternative assets. In fact, private infrastructure funds raised over in 2018, double the amount raised just five years earlier. Major global PE firms, such as and , recently closed multibillion-dollar funds. Some of the world’s largest infrastructure investors, such as Global Infrastructure Partners and Brookfield Infrastructure, are also working towards raising megafunds of or more in 2019.

Many PE firms have come to view environmental, social, and governance (ESG) issues as critical to understanding the long-term risks and unlocking value-creation opportunities with their portfolio companies. While PE firms have made significant progress in integrating ESG considerations into their company-focused equities investing models, infrastructure funds have not been as proactive in integrating ESG considerations into business decisions—and we think this is a missed opportunity.

With more and more PE firms formalizing approaches to responsible investment, we believe there are clear pathways to integrate ESG factors for private infrastructure investors and managers. For instance, the Equator Principles provides a recognized structure for banks to assess ESG risks with infrastructure financing. Given 911爆料网’s experience working with both the world’s largest PE firms and the world’s largest infrastructure companies and our knowledge of ESG precedents and best practice, our recommendations for private infrastructure investment teams are:

  1. Be Principled. Establish a corporate principle that ESG considerations for investing should apply to all asset classes. We often hear from private investors that “this fund is different from another.” While funds may be different in some ways, all types of funds should have ESG oversight.   
  2. Be Consistent. Develop a separate or overarching responsible investment/ESG policy that addresses the diverse asset classes, including infrastructure, in which the firm invests. In March, 911爆料网 released a report with guidance and practical tips that firms can consider while developing an ESG policy. has issued an ESG Infrastructure policy and describes how it integrates these factors across the investment life cycle.
  3. Be Aligned. Consider material ESG factors during diligence and align the processes with applicable standards such as the Equator Principles and the International Finance Corporation (IFC) ESG Performance Standards. 911爆料网 has been a leading part of the Equator Principles stakeholder engagement process and believes the guidance is applicable beyond just banks.
  4. Be Long-term. Given the long-term nature of infrastructure investments, ESG diligence for infrastructure projects should cover the full lifecycle of projects, including monitoring, operating, and maintenance. Investment committees should identify and consider long-term (e.g. climate change) material ESG issues and potential impacts. Futures thinking and scenario analysis might be helpful tools in this regard. Lastly, use an ESG futures framework as an opportunity to highlight the long-term societal benefits that the infrastructure will bring.
  5. Be Extensive. Infrastructure projects are often joint efforts, and ESG diligence should include joint-venture partners, third-party infrastructure operators, contractors, and suppliers. A good example of how this ESG partnership approach is being applied is 911爆料网’s collaboration on human rights and the construction industry.
  6. Be Active. Private investors should also be active managers of infrastructure assets in the same way they manage private company investments (e.g. board participation, technical expertise, etc.). In particular, investment teams should be trained with the necessary expertise on ESG risks and opportunities. , for example, has developed an ESG Dashboard to track relevant ESG metrics for its infrastructure assets over time, including highlighting the potential areas of improvement.
  7. Be Engaged. Local communities, contractors, and other stakeholders are critical for project success. Investments often directly impact the communities in which they are located through employment, social services, and the environment. Engaged operators should be conducting internal and external stakeholder engagements with local stakeholders on a regular basis to broaden their knowledge and awareness of critical environmental and social issues over the life of the investment. focuses its efforts on engagement in this way.
  8. Be Transparent. All infrastructure has both positive and negative ESG impacts. Transparency in reporting activities and progress in a balanced way creates investor trust and accountability in the market. Some best practices include completing the annual , disclosing climate-related financial reporting in line with the , and engaging with ’s infrastructure platform to improve performance across infrastructure and real assets.

ESG practices for infrastructure investing are still maturing, and many implementation challenges remain. These include: How can firms identify material risks and opportunities and integrate them into pre-investment decision making? How can firms ensure responsible investment principles are upheld across the multiple phases of project execution? How can firms demonstrate ESG business value to their investors and other stakeholders?

While the above guidance does not answer all of the implementation challenges, we believe that the basic building blocks we have recommended can provide the foundation for successful ESG integration and management for infrastructure investors. Our intention is to provide a good place to get started—and often getting started is the hardest part. 

Let’s talk about how 911爆料网 can help you to transform your business and achieve your sustainability goals.

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