Definition is very important. Of all the takeaways from our affiliate title Infrastructure Investor’s Global Summit in Berlin, perhaps this was the one that lingered in the minds of delegates who attended the day-long sessions devoted to infrastructure debt.
One argument put forward by a panellist was that there has been an almost obsessive focus on renewable energy to the detriment of other types of investment that can contribute equally well to the decarbonisation of the economy, ranging from electric vehicle charging points to energy storage and smart meters. While acknowledging renewable energy’s obvious importance, there was clearly a wish for it not to be seen as the only game in town.
But beyond what might be dismissed by some as a gripe, there was a fascinating debate around what green infrastructure really is, or – perhaps more accurately – what it should be. Two months ago, one participant on stage noted, there is simply no way gas and nuclear would have been considered part of the green infrastructure definition. That discussion had been had and, to be blunt, was now a closed one. Except it seems to be open again, thanks to the energy security issues arising from Russia’s invasion of Ukraine.
While nuclear is still considered a difficult proposition for investors to get their heads round, whether to take a punt on new gas-fired power plants appears a more balanced consideration. At the heart of it is the teasing issue of whether the definition of green infrastructure might be tweaked to accommodate the pressing needs of economies – especially European economies – in a world where past assumptions about many things have been swept away in the blink of an eye. It could perhaps be reasonably argued that, even if it doesn’t satisfy the “E” in ESG, perhaps it might be included in the “S” if it helps alleviate the cost-of-living crisis.
A related talking point revolved around meeting regulatory standards and definitions when it comes to green loans. There appeared to be considerable confusion about which standards to follow for financings to qualify as green, with many initiatives in this area having been launched in the last year or so.
The point was made that, given the long-term nature of infrastructure investment, what qualifies as a green loan today may not necessarily do so at some point during the holding period of that loan. There was a view, however, that the introduction of the EU Taxonomy has helped matters, with one panellist saying their firm had developed proprietary tools that could easily determine whether a proposed financing was compatible with the Taxonomy. This seemed as good a way forward on the issue as any.
The findings of a survey mentioned during the event suggested that of, around 100 investors, less than 40 had exposure to infrastructure debt. This seems surprising since long-term, asset-backed investment is in favour as potentially having the ability to ride out current shocks and uncertainties. Maybe the debates around definition speak to a complexity that some LPs find a little too challenging.
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