Our industry is engaged in an important dialogue to improve sustainability through ESG transparency and industry collaboration. This article is a contribution to this larger conversation and does not necessarily reflect GRESB’s position.
Infrastructure plays a key role in the normal functioning of modern-day society by providing essential services, such as energy generation, transportation systems, and healthcare facilities. It plays an important role in advancing sustainable and inclusive development while enhancing social resilience. Public sources of capital play a critical role in funding infrastructure projects. However, public funding alone cannot close the infrastructure financing gap. Now more than ever, asset managers are attracted to infrastructure investments, given the opportunity to promote sustainable growth and enable the pathway to net zero.
The United Nations Environment Programme (UNEP) defines sustainable infrastructure as “infrastructure that is planned, designed, constructed, operated, and decommissioned in a manner that ensures economic and financial, social, environmental, and institutional sustainability over the entire lifecycle.” Often, the operational stage of the asset lifecycle gains the most attention regarding the environmental, social, and economic benefits that the asset provides. However, an increased focus on greener construction and planning practices for greenfield development can have an equally profound impact.
In 2022, the UNEP found that the production of concrete and steel accounted for four percent of global energy use and six percent of emissions. Furthermore, the production of glass and brick contributed an additional two to four percent of global emissions. ESG considerations at the planning and pre-construction stage offer a two-staged benefit of reducing emissions during construction while setting good foundations for the asset to emit less during its lifetime. Careful consideration of the carbon intensity of the materials used, construction techniques, and the transportation of plant, equipment, and materials to the site can significantly influence a project’s environmental impact. Likewise, it is crucial to consider environmental risk and opportunity at the pre-construction stage when considering site selection and asset design.
In the early stages, it is essential that the planning process considers any environmental risks the development may pose, such as biodiversity risks and those associated with contaminated land. Project decision-makers get the opportunity to consider these risks at the earliest possible time and aim to avoid, reduce, or offset those effects during the design stage so that those issues are not held by the asset once built. This is particularly important as infrastructure assets are characterized by their enduring lifespans, typically remaining operational for extended periods, often exceeding 30 years of use.
The longevity of infrastructure assets in development underpins the importance of ensuring the long-term resilience of these assets. Considering the substantial capital required to initiate and complete such projects adds another layer of complexity to their development. Take, for instance, the Thames Tideway Tunnel, a monumental undertaking with a projected cost of GBP 4.5 billion. This substantial financial commitment highlights the obligation for extensive ESG planning and foresight to safeguard the substantial investments made. Such an example further enhances the need for infrastructure to consider not only the current landscape, but also future-looking scenarios, such as requirements to meet net-zero goals and the need for increased resilience to climate risks, all the while maintaining the ability to foster new technologies and innovation years into the future. This involves incorporating resilient materials, designing infrastructure to withstand extreme weather events, and establishing robust contingency plans for unforeseen circumstances.
Investors also must consider the social impacts of the prospective development, including the positive aspects of the development, such as job creation, community partnerships, improved transportation networks, or connectivity. Moreover, investors must consider the negative aspects, such as the creation of social isolation and increased noise pollution. This includes direct risks from the new construction and how those impacts may arise due to the interconnected nature of infrastructure networks. Consultation with key stakeholders, including community groups, is increasingly critical in the planning stage. Stakeholder engagement can range from simply informing the public about plans for a project to engaging in more consultative practices like procuring input and feedback from various groups, and even empowering key community stakeholders in the final decision-making process to shape the objectives and outcomes of the project.
Historically, despite the importance of sustainability considerations in the construction and planning stages of infrastructure development, the majority of reporting and certification schemes only lend themselves to built infrastructure projects. The release of BREEAM New Construction: Infrastructure and certifications such as Leadership in Energy and Environmental Design (LEED) have begun to close that gap. However, there are limits to their applicability to all types of infrastructure investment. Investors require a solution whereby they can report on both their assets in development and in operation under the same mechanism that will give a unified picture of their fund’s ESG performance.
In response to this demand, GRESB has released its solution via the Infrastructure Asset Development module, allowing a broader spectrum of assets to participate in the scheme and receive the benefits of marking compared to industry peers. The solution will utilize dynamic materiality, which changes how various ESG issues are scored depending on the characteristics of the asset and the current phase of the development project – whether pre-construction or construction.
This will allow all projects to engage in reporting while respecting the inherent differences with projects at various stages of development, varying geographies, and varying sizes of projects. Investors will be provided with an asset-specific benchmark report alongside a fund-level development-specific report (where over 25 percent of the fund’s assets under management participate in the scheme). This expansion aims to encourage the adoption of data tracking and reporting, which allows managers to showcase effective risk management and quantify their positive ESG impacts.
This article was written by Eleanor Hughes, Managing Consultant, at EVORA.
References
Hamilton, Ian, Harry Kennard, Oliver Rapf, Judit Kockat, Sheikh Zuhaib, Zsolt Toth, Margaux Barrett, and Caroline Milne. 2022 Global Status Report for Buildings and Construction: Towards a Zero-emission, Efficient and Resilient Buildings and Constructions Sector. Nairobi, Kenya: United Nations Environment Programme, 2022.
“Tideway: The Tunnel.” Tideway London. Accessed February 12, 2024.
“United Nations Environment Programme.” UNEP. Accessed February 12, 2024.