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          The Infrastructure Investment Thesis

          Global Sustainable Infrastructure

          Written by: Félix Boudreault

          Published: 28 August 2023

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          Key takeaways

          With the challenges of climate change and rising inequality, investing in appropriate infrastructure has never been more important.

          Global policymakers have taken note and recently announced programmes that call for investment in sustainable infrastructure projects.

          Investing in infrastructure assets helps to diversify a portfolio, provides defense against inflation, and can also complement sustainable investments.

          FEATURED ARTICLE

          Adequate infrastructure is vital for any thriving or developing community, as it provides the physical and digital structures that support society. As world leaders work to address the challenges of climate change and rising inequality, investing in appropriate infrastructure has never been more important.

          New infrastructure is needed to adapt to the energy transition as we move away from fossil fuels. The International Energy Agency1 estimates that, to meet Net Zero by 2020 goals, infrastructure investment needs to exceed $USD 1 trillion annually by 2030. Furthermore, climate adaptation upgrades to airports, railways and other infrastructure are going to be increasingly important as temperature levels rise. The effect of record temperatures in the UK in July 2022 are a prime example of this, as a raft of public infrastructure, including rail, water and electricity were placed under severe strain from the heat.2 Infrastructure also plays a role in addressing social inequity through improvements in education and healthcare, as well as expanding access to the internet and digital services for the world’s most underserved populations. The consequences of the digital divide became particularly apparent during the COVID-19 pandemic.3

          Global policymakers have taken note and recently announced programmes such as “Build Back Better World” initiative (which is a G7 initiative that aims to reduce the $USD 40 trillion infrastructure funding gap), the European Commission’s “NextGenEU” plan (a European plan launched in June 2021 to support member states invest in sustainable and resilient infrastructure) as well as the US government’s Infrastructure Investment and Jobs Act, known as the “Bipartisan Infrastructure Bill”, signed into law in November 2021.

           

          These initiatives invariably call for investment in sustainable infrastructure projects.4 The Build Back Better World initiative, for example, has specific considerations for climate and social improvements. The NextGenEU plan is offering investments of over EUR 800 billion for a “healthier, greener and more digital” Europe, with 40% of the total allocated to climate initiatives and 26% to digital improvements.5

          Moreover, America’s $USD 1.2 trillion infrastructure fund has a climate focus, with $USD 65 billion allocated to power infrastructure and $USD 7.5 billion allocated to EV charging stations.

          Another $USD 55 billion is allocated to water projects, while digital infrastructure will receive $USD 65 billion for improved broadband access. This favorable policy backdrop provides a boost for new infrastructure assets.

          From an investment perspective, inclusion of infrastructure assets in a portfolio offers diversification and defensive, inflation-hedging properties. These attributes are largely innate to large infrastructure projects and could offer higher returns. Such attributes can also serve to complement sustainable investments in other parts of a well diversified portfolio.

           

          This Featured Article has been produced by Sustainable Market Strategies. Rize ETF Ltd make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability or suitability of the information contained in this article.

          References

          1

          IEA, “Net Zero by 2050”, May 2021. Available at: https://www.iea.org/reports/net-zero-by-2050

          2

          World Economic Forum, “Climate change: Can water, rail and electricity systems cope with rising temperatures?”, July 2022. Available at: https://www.weforum.org/agenda/2022/07/united-kingdom-climate-change-infrastructure-britain-heatwave

          3

          World Economic Forum, “COVID-19 exposed the digital divide. Here’s how we can close it”, January 2021. Available at: https://www.weforum.org/agenda/2021/01/covid-digital-divide-learning-education/

          4

          White House, “FACT SHEET: President Biden and G7 Leaders Launch Build Back Better World (B3W) Partnership”, June 2021. Available at: https://www.whitehouse.gov/briefing-room/statements-releases/2021/06/12/fact-sheet-president-biden-and-g7-leaders-launch-build-back-better-world-b3w-partnership/

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