Stockholm (NordSIP) – Impact infrastructure should be a top priority for any long-term sustainable institutional investor. “Achieving the Sustainable Development Goals by 2030 and net zero emissions by 2050 require urgently scaling-up investment in and construction of sustainable infrastructure,” urges UN Secretary General António Guterres. Are investors eager to oblige? And what kind of obstacles do they encounter on the way?
To summarise the development of impact infrastructure investing, on 4 September, Phenix Capital Group released a timely report based on the extensive Impact Database that the consulting firm has accumulated over the years. According to Phenix, a key challenge for institutional investors continues to be finding investable solutions at scale that have the right risk, reward, and impact to make a difference to the triple bottom line.
Tracking the evolution of infrastructure funds reveals impressive growth in the sector. Boosted by the Green Deal in Europe and the Inflation Reduction Act in the US, the number of funds has increased by a massive 274% since 2014, from 86 to 322 currently. Although the total number of projects remains below pre-pandemic levels, private participation in infrastructure commitments has increased by 23% since 2021, reaching USD 91.7 billion across 263 projects. Right now, there are 110 infrastructure funds, run by 89 organisations, which are open to investment and raising capital, including 34 with an open-ended evergreen structure. Eight more infrastructure funds are coming to market.
While these numbers sound impressive, the fact remains that the area where infrastructure investing is most needed, in low- or middle-income countries, is one of the areas of least investor focus. “By market, our report shows that only 19% of the funds in the Phenix Impact Database focus on emerging market infrastructure, while 81% on global and developed markets,” state the authors.
The uneven distribution is also evident in which SDGs infrastructure funds are targeting. SDG7, Clean and Affordable Energy, is a clear favourite, attracting 89% of all funds. The theme is undeniably important, as it also ticks the decarbonisation/Climate Action (SDG13) box. Yet private equity infrastructure investing can potentially offer a much wider variety of investable themes from an impact investing point of view.
From an investor point of view, pension funds are the largest group targeting infrastructure, with 69 pension funds looking at sustainable infrastructure investments. Swedish pension AP2 is among the asset owners to allocate capital to this impact asset class. However, challenges remain as institutional investors seem to struggle to find scalable, investable solutions.
The Phenix report highlights possible solutions to the challenge. One of these is the Global Impact Pool, a multi-theme impact vehicle that invests in private equity, venture capital, infrastructure, and private debt. Launched by Van Lanschot Kempen in 2018, the pool has already accumulated EUR 218 million in committed capital.
“One of our goals is to be a catalytic investor; to put money to work where it is really needed and team up with money that is willing to work on these projects with us so we can get the energy transition ball rolling, faster,” says Simon Oosterhof, co-portfolio manager of Van Lanschot Kempen’s Global Impact Pool.