Summary

The change from the emission intensive economy of today to a net zero economy won’t happen overnight, and it won’t happen by accident. For investors, an active and considered approach to portfolio and asset management will likely be required.

Infrastructure portfolios have a number of important roles to play in decarbonisation of the real economy. Of course, the operations of infrastructure assets need to decarbonise. But beyond this, infrastructure assets are critical enablers of the decarbonisation of other sectors. Fulfilling this enabling role will require not only change to existing infrastructure assets, but a significant amount of new infrastructure to provide goods and services – especially energy – in new ways.

The best way for pension funds and likeminded long-term institutional investors to protect their beneficiaries from the financial risks of climate change is to take all reasonable steps to support an orderly transition to a net zero world.

Zachary May, Executive Director, Strategy and Policy

Both transitioning infrastructure and “clean” economy infrastructure could be expected to generate attractive, stable, long-term returns, and both have a systemic risk mitigation role to play. Clean economy infrastructure also has a portfolio risk mitigation role.

This paper outlines how investors can use their infrastructure asset allocation to help manage their total portfolio climate risk, whilst also channelling capital into greener projects that will assist in the mitigation of systemic (global) climate risks.