The push to net-zero emissions, sustainability, energy transition, and rapid development in technology is causing a major disruption in infrastructure investments, with the pace of change predicted to accelerate in the coming years.
Covid-19 has brought unprecedented disruption to the economy, and as the world recovers, investors face new pressures and opportunities to respond to climate change.
A global law firm Ashurst report, ‘Resilient Infrastructure, Rising to the challenge of a more sustainable future‘ released in December 2021, assessed the magnitude of these changes by interviewing 124 business leaders worldwide, including c-suite members, in-house legal teams and general counsels, as well as commercial and business development executives for their perspectives.
The following are the key findings of the report:
According to 80% of the respondents achieving net-zero emissions is the top driver for infrastructure investment changes. The second and third place goes to advances in technology and climate change.
Over 80% of the respondents have changed their evaluation and risk assessment approach due to the shifting landscape, but 17% answered that there is no need to change.
Of the participants, 37% believe that the future risk profile of the sector is increasing, 11% feel that the risks are increasing significantly, while 46% believe that it remains broadly the same. In comparison, 6% say that risks are reducing. When asked about what sectors face increased risks, 41% points to the transport sector, and 23% says that risks are evenly distributed to all sectors.
When asked about the outside influences affecting the industry’s response to the changes, they pointed to the continued need to make good economic returns for their investors’ areas as the most significant response driver.
They pointed to the government, and the way they carry out their roles can work as either the biggest driver or inhibitor of the sector’s response. Respondents identified the lack of coherent government policies as the biggest barrier to the sector’s coordinated response, highlighting the need to create the right platforms to flourish.
Mark Elsey, partner and global co-head of infrastructure at Ashurst, states, “This report highlights both the threats the opportunities for the infrastructure market as it transitions to meet the challenges posed by the drive to net zero, new technology and other forces of change.”
According to the report:
“The findings demonstrate a need for the industry to put a greater focus on more resilient infrastructure – assets that are flexible and robust enough for this changing landscape – to meet the needs of the future. The pressures on the sector mean that strategies that may have worked in the past cannot be relied upon to guide the future. Many of the norms that have previously informed long-term capital allocation will be significantly different in the years ahead. The assets that investors are used to financing today may not be appropriate in a world that will face powerful, complex issues such as how to respond to global warming, or how to harness and respond to the digital revolution.”
How will the public and private sectors prepare for a new and riskier future?
The report states that government and regulators can band together to create an enabling environment for the sector to flourish, such as setting stable policy frameworks, ensuring the right regulatory, economic, and policy platforms are in place to ensure finance continues to flow.
After all, the public sector will continue to require the resources and funding from the private sector to build resilient infrastructure.
Private sectors will need to understand that changes are taking place and that things that worked in the past in decision-making and capital allocation may not work in the future.
Therefore, they would need to evaluate projects and the associated risk that comes with them. Having this awareness will allow them to develop and finance projects that are fit for the future and resilient to the increasing uncertainties in the future.
Robust infrastructure asset management planning and practices will assist infrastructure owners in navigating the predicted changes.