Seeking Greener Pastures: Exploring the Impact for Investors of ESG Integration in the Infrastructure Asset Class

Abstract

In recent years the conditions for infrastructure investment, particularly sustainable infrastructure investments, have become especially favorable. Investors are becoming increasingly interested in sustainable infrastructure projects which promote positive social and environmental impact together with long-term, stable financial returns. In the public sector, governments are growing more interested in measuring the broader community objectives which infrastructure projects satisfy. Responsible investment has, over the past few decades, proven to be a fast-growing movement in the field of investment decision-making. Responsible investments tend to be long term in nature and seek to reduce risk and achieve positive financial returns by taking environmental, social, and governance (ESG) factors into account. In the past, such considerations were applied primarily to public equity investments, but increasingly investors are applying this lens to other asset classes. One of the asset classes which is new to ESG scrutiny is infrastructure. This chapter examines the recent shift to infrastructure investment and the ability for high ESG standards over the full life cycle of these assets to contribute to a more sustainable financial system.