Working Paper: Role of ESG Integration in Infrastructure Investment
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In the past decade and a half, post the global financial crisis, the infrastructure sector has undergone a significant transformation. However, despite the interest of the private sector, participation remains low and making the investment environment more attractive to private investors remains a challenge, due to multiple reasons including lack of knowledge and capacity to design and implement bankable infrastructure projects, lack of knowledge on new technologies, lack of alternative financing structures, low governance capacity and weak institutions. Since infrastructure is a highly illiquid asset class, typically held for long periods of time, infrastructure assets are especially vulnerable to long-term sustainability risks, such as climate and biodiversity impacts, changing environmental regulations, and changes to consumer health and safety regulations. Though difficult to quantify, these risks have material impacts on the financial performance of an asset over its life-cycle. While investors do see the relevance and potential financial impact of these ESG issues on their assets, they report they have neither the data nor suitable integration methodologies available to take ESG integration a step further and amplify their investments in Infrastructure (WWF & Cadmus Group, 2018).This position paper seeks to establish a business case for integration of sustainability principles at the core of infrastructure investments and evaluate how this can mobilise the flow of private capital into the sector. |