Incorporating sustainability factors into investments in infrastructure and real assets is a complex task but one which can have a significant and immediate impact on the world around us. The large environmental footprints of infrastructure assets and the essential services which they provide make the consideration of sustainability issues an integral part of operating.
Infrastructure assets include toll roads, airports, railways, utilities (gas, electric and water), pipelines, mobile towers and satellites. These types of infrastructure projects are necessary services that can have significant environmental and social impacts, including:
- Carbon emissions contributing to climate change
- Emission of air pollutants
- Resource scarcity and degradation
- Stranded asset risk
- Health and safety of workers and local communities
- Customer and supplier relations
- Indigenous rights and land rights
- Operations or businesses that involve rogue governments
However, it is widely held that infrastructure creates a positive social impact as it forms the pillar of a country’s economy and enables both economic and social development and so, increased spending on infrastructure can create an economic multiplier effect. It can aid in revitalising disenfranchised regions by creating jobs and improving access to services. Infrastructure also underpins several of the UN Sustainable Development Goals (SDGs), and so investors can play their part by investing in those companies which manage the ESG risks effectively.
The environmental impact of infrastructure assets extends far beyond emissions and so finding companies who are taking steps to mitigate this impact and operate in a sustainable manner is imperative. The negative environmental impacts of these assets are often the most immediate and well understood by investors and the public. It is the social considerations of infrastructure assets that are less well recognised in terms of sustainability despite their serious implications for long term profitability. Many assets are monopolistic in nature, meaning that their customers have little or no option to switch supplier. Their practices are often under scrutiny from regulators, politicians, the media and the public, which all feed in to a company’s social licence to operate. We believe that companies which manage these risks effectively are more likely to be successful over the long term.
The Castlefield B.E.S.T Sustainable Portfolio Fund contains a holding which seeks to address these factors in the form of the First State Sustainable Listed Infrastructure Fund. The recent offering from First State had been on our horizon prior to the launch of the Portfolio Fund, with the team having presented to Castlefield with their initial plans for their fund long before its eventual launch in December 2017. The fund is managed by Rebecca Sherlock and takes a high conviction approach, focusing on opportunities in global listed infrastructure while incorporating a sustainability overlay and undertaking extensive engagement. We have confidence in the team’s commitment to sustainability and their conventional fund which is run alongside the sustainable fund demonstrates their expertise in listed infrastructure investment.
The team use a forward-looking positive approach when looking for investments and invest in companies which show commitment to sustainable development. They may seek out companies which are already best-in-class in terms of sustainability as well as those companies which are undergoing a transition towards a more sustainable way of doing business. Like Castlefield, they view company engagement as a fundamental method of influencing strategic direction and are very active shareholders.