PEI’s Infrastructure Investor Global Summit 2022 took place in Berlin from the 21st to the 24th of March.
Four members of GRESB’s infrastructure team attended the summit, lending their insights and expertise across a range of panels as moderators and speakers. In case you weren’t able to attend or just want a quick recap, we’ve compiled their impressions below.
In this article:
Hear from David Thomas about the opportunities and limitations of impact investing
Based in the UK, David is GRESB’s Business Development Director for Infrastructure in EMEA. On Day 1 of the summit, David moderated the panel “Doing well and doing good: the opportunities and limitations of impact investing“. He was joined by panelists with a broad range of experience across the social infrastructure investing space.
The speakers included:
- Sophie Kazmierczak, Sustainable Finance Manager at NEXT Generation Invest GmbH
- Darren White, Associate Director ESG at Infrastructure Advisory Group KPMG
- Pete Gladwell, Group Social Impact and Investment Director at Legal & General
And the panel touched on three main topics, namely:
- How social infrastructure is a means to achieve the Sustainable Development Goals (SDGs) and what the limitations are of using SDGs as an impact investing framework
- How investors can navigate greenwashing when investing in social infrastructure
- The role of data in assessing the ESG credentials of investors’ portfolios
The aftermath of impact investing
Impact needs to have a stated intention of pursuing positive social or environmental impact, running in tandem with financial return. This needs to be measured and communicated accordingly. Integrity is the key driver. The questions that we as an industry need to be asking are: “How are our investments improving people’s lives? What is the impact we are causing? And what are the social and environmental outcomes?”
Sustainable development through collective action and social infrastructure
The industry should be more open to collaborative and collective action. By acting together, we can drive change more effectively and increase the benefits felt by those impacted by the investments we make. Getting fund structure right is key: ‘’How does the fund structure affect social additionality?’’ When short-term, closed-ended funds are used, for example, it can be very difficult to generate social additionality as this can force focus to be on short-term financial outcomes.
The SDGs are a useful tool for developing investment strategies. However, on its own, simply linking investment strategies to specific SDGs doesn’t go far enough in terms of defining how investment is going to create a clear and measurable impact. The SDGs are useful as a broader goal, but they were originally intended for government-level policies and practices. Additional nuance is definitely required for the investment industry.
The key to avoiding greenwashing is to focus on needs first, not measurement. Firstly, we need to ask: ‘’What are the right capital structure and the right type of investment to meet that need?’’ Following that, we should utilize our expertise to measure what is required to fulfill that need.
Aligning objectives with desired social outcomes
As an industry, we need to be aware that simply investing in social infrastructure does not automatically categorize it as an impact investment. The key question we should be asking is: ‘’Have we created the positive social outcomes that were set out at the beginning of the process?” There should be more of a focus on aligning commercial motivations with social motivations if we really want to have a positive impact on people through infrastructure investment.
Hear from Joss Blamire about how to make ESG data useful and effective
Joss, our Director of Infrastructure, sat on the panel ‘Making ESG data useful’, a fundamentally important topic for GRESB, as our core business is to carry out ESG assessments and provide data and actionable insights to members, investors, and partners.
The speakers on the panel included:
- Mary Nicholson, Head of Responsible Investment at Macquarie Asset Management and an inaugural member of GRESB’s Foundation Board
- Silva Dezelan, ESG Director at Stafford Capital Partners
- Kate McKeon, Head of Sustainability at InfraRed Capital Partners
- Claire Curtin, Head of ESG at Pension Protection Fund
The panel discussed a number of aspects related to ESG data, including:
- How ESG data across different frameworks can become more effectively aligned and standardized
- How the quality of ESG data can be improved
- What the future holds for measuring performance data in infrastructure
- And how various stakeholders in this sector are using ESG data
Standardizing ESG data and determining what is relevant
When it comes to ESG data across different frameworks, there is an opportunity and critical need for industry leaders to be at the forefront of the standardization process. Conferences like the IIG Summit help to bring together ESG leaders to discuss what is really material to managers and investors around the world and to understand where ESG data is available and where it is more difficult to collect.
The future of ESG data management
Investors and managers are clear that there is still a way to go in agreeing on what data to collect and standardizing the collection and communication process to achieve better quality data. In terms of assurance and the reliability of data, our panelists felt that it is important to use expert technical consultants to assist with managing and organizing data collection and ensuring its quality.
Asset management and ESG as part of due diligence
Investors engage with managers to make sure that the asset managers are working towards the investors’ key goals. Investors are now digging deeper into more active stewardship of assets and are not just reporting on policies. Investors want to know what action is being taken in regards to their main objectives.
From an asset manager’s perspective, being able to drill down and see where issues are located across their portfolios by comparing the performance of assets is extremely useful. Moreover, a new focus and an ever more important aspect of ESG data is considering it pre-deal, as part of due diligence, and starting to understand how this could impact the valuation based on the knowledge of the work that is required to meet ESG objectives post-acquisition.
Through the establishment of the GRESB Foundation, we play a central role as the custodians of a platform to facilitate ESG data collection. The Foundation is an independent, industry-led body that sets the GRESB Standards and determines which information is material to collect in the Assessments through collective knowledge, experience, and application of frameworks and standards relevant to infrastructure assets.
We already work with expert partners and consultants through participants to help complete the GRESB Assessments. Furthermore, we provide our own validation through automatic measures, such as identifying errors and outliers in data in addition to manual validation to double-check the information provided by participants.
Hear from Cathy Granneman about the role of emerging markets toward a greener planet
Cathy is the Manager of Member Relations for Infrastructure. She led the panel discussion on a topic of ever-growing importance, ‘’The role of emerging markets in paving the way towards a greener planet’’ and how this has become increasingly relevant on a global scale.
The speakers on the panel included:
- Opuiyo Oforiokuma, Senior Partner at Africa50 Infrastructure Acceleration Fund
- Sarvesh Suri, Director at MIGA World Bank Group
- Leticia Ferreras Astorqui, Portfolio Manager at Development Finance Allianz Global Investors
- Darius Lilaoonwala, Managing Partner at Augment Infrastructure
The panel revolved around three main topics, namely:
- Climate adaptation
- Emerging markets
- Sustainable development
Adapting to climate change
Climate adaptation is a topic that is steadily appearing on the radar of investors across the globe. With the release of the latest report from Working Group 2 of the IPCC, “Climate Change 2022: Impacts, Adaptation and Vulnerability“, the urgency of this sometimes overlooked topic is further underlined. For emerging markets, in particular, climate change is happening now and adaptation is not something that can be left to the future.
SDGs & ESG
Mitigation has been investors’ primary focus up to now. This hasn’t only drawn attention from adaptation efforts, but also from progress toward the SDGs. Infrastructure is critical in many emerging markets to build resilience to the impacts of climate change, begging the question of whether low-carbon technologies or emphasis on mitigation should be more important than access to energy and other socio-economic development opportunities. Holistic approaches to investments, weighing the E, S, and G, should therefore be the norm.
There are other obstacles that climate adaptation investment faces in emerging markets. Although short-term thinking may make an investment in adaptation efforts seem cost-ineffective, they tend to bring significant returns on investment when a long-term view is taken. Attracting and mobilizing funding can also be challenging for investors unfamiliar with the urgency that climate adaptation requires. In both cases, education and active engagement are necessary.
Mutually beneficial interactions
Nonetheless, there are more and more examples of successful integration of climate adaptation in emerging market investments. From blended finance, due diligence integration, and new financial models, investors and managers are capitalizing on the opportunities brought by placing climate adaptation as a central aspect in the investment process, benefiting themselves and, perhaps more importantly, local communities.
Hear from Aurelien Reynolds on the roles that SFDR and EU Taxonomy play in infrastructure funds
Aurelien is an Associate and long-standing member of the Infrastructure team. He moderated the panel, ‘’What does SFDR and EU Taxonomy mean for infrastructure funds?’’. Aurelien has deep knowledge and experience with these topics as the product lead for GRESB’s new SFDR reporting solution. He was joined by fund managers who focus on infrastructure and ESG.
The speakers on the panel included:
- Jemima Atkins, Portfolio Manager at Investment team Allianz Global Investors
- Rhianydd Griffith, Senior Vice President at Federated Hermes Infrastructure
- Valeria Rosati, Senior Partner at Vantage Infrastructure
- Gwen Colin, ESG Director at Vauban Infrastructure Partners
The panel revolved around three main topics, namely:
- The challenges around implementation
- The strategic shifts taking place within the investment cycle
- Seeing the taxonomy and SFDR as more of an opportunity than a burden for managers
Working collectively towards better data management
The panel delved into the data management processes as well as internal and external tools that help collect and aggregate data. These processes help fund managers meet disclosure requirements notably around the collection of Principle Adverse Impact data for example. However, setting up these data management systems to a good standard is both time-consuming and challenging. Cooperation and engagement are key to ensuring investee companies report the most material information back to their shareholders as the SFDR and EU taxonomy are a very top-down requirement, at least until the Corporate Sustainability Reporting Directive comes into force.
Insufficient guidance from SFDR & EU Taxonomy challenges proper data collection
For both SFDR and EU Taxonomy, the regulations still contain abstract and incomplete guidance making it challenging for investee companies to collect and report the correct information back to their investors. Furthermore, this lack of clarity also means that there is a lack of competent technical advisors in the market that can really help fund managers and their assets fully comply.
Portfolio composition is subject to strategic shifts notably with the introduction of Article 9 of SFDR products with sustainable investment objectives. This has prompted asset managers to consider not only screening criteria around eligible activities but also strategic thinking and consideration around capital allocation that would enable the attainment of the sustainability label. The primary advantage of SFDR and EU Taxonomy is that it holds financial market participants accountable for their ESG impacts and investment decisions. In addition to that, it also provides a rule book as to what can be labeled as sustainable or not in an attempt to stop greenwashing.
The path to a green transition
With the introduction of SFDR and EU Taxonomy, ESG is expanding to new limits. The goalposts are moving fast and not just in Europe but globally. Challenges remain in obtaining this data and unraveling exactly what is needed with many aspects left subject to interpretation. As delays on final documentation continue, the deadline for disclosures is looming closer. ESG can now add regulation as part of its overall risks and opportunities. The hope remains that these initiatives continue to accelerate the green transition, limiting emissions to a 1.5-degree scenario.
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