Sustainability factors driving infrastructure investments

The Infrastructure Sustainability Council of Australia (ISCA) has revealed that environmental, social & governance (ESG) factors are driving infrastructure upgrades in Australia.

Last year, Australia saw large loan facilities being deployed for the first time to drive ESG upgrades and improvements to major infrastructure assets.

The ISCA said in a statement that a recent development within the broader ESG movement is the rapid increase in the scale of Sustainability Linked Loans (SLLs).

SLLs offer explicit price incentives to borrowers or investors for environmental improvements.

“Companies that achieve their sustainability targets benefit from favourable interest rates, while a failure to do so will lead to higher rates. With SLLs, companies therefore have an incentive to align both financing and sustainability objectives,” the ISCA said.

“SLLs are driving significant environmental upgrades of corporate and infrastructure assets around the world.”

ANZ, Westpac and BNP Paribas banks have provided billions of dollars of SLLs to organisations such as Sydney Airport, Investa Commercial Property, Queensland Airport, Adelaide Airport and AGL.

“Communities, consumers and governments increasingly expect investors to allocate capital in a socially and environmentally responsible and ethical way, and be transparent about their investment practices,” the ISCA said.

The council stated that many organisations have developed their own internal policies and procedures to assess ESG risks and opportunities within its industry frameworks.

Research released by Bloomberg New Energy Finance in October 2019 showed that  the total amount of sustainability linked debt now exceeds USD1 trillion (AUD$1.5 trillion).

The ISCA stated that infrastructure investment by superannuation funds in Australia have a particularly strong ESG focus due to the long term nature of the assets and investment mandates.

“Investors measuring and reporting ESG performance will also proactively look to improve the performance of their assets,” The ISCA said.

“SLL’s can improve quality, performance and value through their focus on upgrades of existing assets.”

The council stated it expects that ESG screened investments will continue to grow in importance as organisations look to demonstrate their environmental, social, governance and commercial sustainability.

Clean Energy Finance Corp (CEFC) is also providing loans linked to ESG performance, including AUD100 million into MIRA’s Australian infrastructure platform to target lower carbon emissions and improved energy efficiency in assets including airports, electricity, port, rail and water, and AUD150 million to the IFM Australia Infrastructure Fund.

These two investors hold a portfolio of assets including ports, electricity networks, airports and water infrastructure.

CEFC also manages the Australian Recycling Investment Fund.

According to the ISCA, investments under an ‘ESG’, ‘sustainable’ or ‘ethical’ investment umbrella have moved into the mainstream over the past decade, and particularly in the last three years.

Sustainability linked debt comprises green, social and sustainability bonds which have been around for 10 years, and the more recent green and sustainability linked loans.

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