A discussion paper by Richard Palmer & Bronte Bishop and published by WSP | Parsons Brinckerhoff, the Infrastructure Sustainability Council of Australia (ISCA), and the GRESB, December 2016.
According to this discussion paper by Richard Palmer and Bronte Bishop, the rapid growth of sustainability frameworks for infrastructure assets can be linked to a number of global trends such as climate change, urbanization, biodiversity loss and conservation, and the interconnection of global financial markets. These trends help outline some of the environmental, social and governance (ESG) issues that need to be taken into account by individual and institutional investors.
In dealing with infrastructure sustainability (IS) frameworks, IS can be defined as the optimization of externalities (environmental, social, and financial) and the assessment of such impacts in the provision of infrastructure projects and assets. The IS rating tool looks beyond regulatory standards and assesses sustainability across the conceptualization, provision, and operation of infrastructure, and includes ratings such as Design and As Built (v1.2), and Operations (v1.2). The GRESB Infrastructure Assessment, which consists of both a fund and an asset assessment, attempts to provide a global standard ESG reporting and benchmarking for infrastructure investments, and allows institutional investors to access critical business intelligence. According to the UN Principles for Responsible Investment (PRI) Guidelines for Direct Infrastructure Investments, if more than 10 per cent of assets under management (AUM) are categorized as direct investment, the Direct Infrastructure module (D-module)—one of nine modules for which scores from E to A+ are awarded—should be completed.
The value of investors and asset owners in using an integrated approach to IS and GRESB is three-fold in terms of risk management, efficiency, and governance/reporting. Risk management would include tackling climate risk, social license risk and procedural risk (carriage of responsibility), while efficiency would include the promotion of energy efficiency and the mitigation of long-term carbon emissions. Meanwhile, the integration of governance/reporting can lead to better outcomes through more informed decision making, as well as improved planning and accountability in areas where governance is problematic.
When comparing the GRESB Infrastructure Assessment, the UN PRI Guidelines for Direct Infrastructure Investment, and the Infrastructure Sustainability Council of Australia (ISCA) Operations (v1.2) Rating, the latter is shown to be more comprehensive in terms of benchmarks and reporting indicators. Meanwhile, varying levels of overlap exist between the three frameworks, although an asset-level IS Operations rating seems to provide a more comprehensive assessment of ESG. When it comes to reporting alignment, the documentation required by each tool is dependent on the standard targeted for each asset and the categories it triggers.
To complement this comparison, it is important to note that while the qualitative assessment of relatively large investment risks and relatively small requirements for mitigating actions are sufficient to attract early adopters, quantified data on value and risk mitigation will be important in order for the value proposition for integrated ESG to take hold in mainstream decision making. Moving forward, both ISCA and GRESB should continue to collaborate with the investment community to build a robust ESG community for all infrastructure assets and investments.