B.I.S.S Research White Papers

Integrating ESG into Private Infrastructure Investments

There is an estimated US$15 trillion global gap 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 US$80 billion in 2018, double the amount raised just five years earlier. Major global PE firms, such as Ardian and EQT, 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 US$20 billion 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 BSR’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:

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.