By Principles for Responsible Investment (PRI)

On the 23rd of February 2017, the Principles for Responsible Investment (PRI) announced that it had developed a new infrastructure workstream in response to the growing demand for sustainable infrastructure solutions in both developed and emerging markets.

According to a 2016 study by McKinsey, governments and private investors need to fill a $90 trillion infrastructure funding gap to meet the world’s development needs over the next 15 years. The new US administration has committed to investing heavily in renewing its infrastructure while the UK has positioned infrastructure as a key pillar of its post-Brexit plans.

With 131 countries committing to the Paris Climate Agreement at COP21 and pledging to dramatically reduce their carbon footprint – mostly through development of low-carbon energy and transportation infrastructure – it is vital that future infrastructure projects are both sustainable and climate resilient. Both the G20 and the OECD are exploring how to direct more institutional investment into infrastructure, which can present an attractive opportunity for long-term capital. Emerging markets, in particular, will require substantial investment in new green infrastructure to mitigate and adapt to climate change and support development objectives.

The new PRI workstream will focus mainly on private debt and equity investments in infrastructure, both direct and via funds. It will also ensure consideration of material ESG factors in investment decision making and provide guidance on integrating responsible investment throughout the investment process from origination to exit. An Infrastructure Advisory Committee composed of 17 LP and GP representatives from nine countries will share their expertise and guide the new infrastructure strategy.

“The commercial reality is that investors adapting to the ‘new normal’ of a low/no return environment are seeking opportunities for higher yields,” said Fiona Reynolds, managing director of the PRI.

“Long-term investors with lots of patient capital need a home for those funds and infrastructure, and long-term sustainable investing are like a marriage made in heaven.”

“By its very nature infrastructure investment is for the long-term – and integrating environmental, social & governance issues into all of its aspects will lead to long-term value for investors and society,” said Chris Newton, executive director, RI, IFM Investors’, representative to the PRI Infrastructure Advisory Committee.