Carbone 4 & LTIIA Webinar: “The elephant in the room”: Climate challenges and opportunities for infrastructure investors

The Webinar organized by Carbone 4, an independent consulting firm specialized in low carbon strategy and climate change adaptation, and by the Long Term Infrastructure Investors Association (LTIIA) on June 11, 2019 focused on how to integrate climate related risks to the investment and portfolio strategy of infrastructure investors. The Webinar welcomed speakers from Carbone 4, Guggenheim Partners and Meridiam.

According to the International Energy Agency “Existing infrastructure represents already 95% of our carbon budget allowing us to remain below 2°C global warming”.

The carbon budget fixed by the Paris Agreement defines the amount of greenhouse gas emissions allowed in order to keep the climate risks under control. According to our ability to respect the Paris Agreement carbon budget of 2°C/1,5°C different climate scenarios are possible with a more or less high intensity of

  1. Physical risks: coming from growing physical climate consequences (sea level rise, heat waves, droughts etc.)
  2. Mitigation risks: coming from the transition towards a low-carbon economy (regulation changes, carbon pricing, reputation, new markets)

Answers given by Carbone 4

  • Immediately embark upon an investment path that makes it possible to stay within the Paris Agreement carbon budget. This is whatis known as a 2°C/1.5°C compatible pathway;
  • Integrating climate risk management practices, whether transitional (meaning mitigation risks) or physical;
  • Transformation of assets that are currently highly carbon-dependent such as motorways, buildings and airports.Airports and motorways, for example, could be included in these ‘2°C compatible’ infrastructure portfolios provided that their individual climate performance and their weighting within the portfolio (as a % of the euros invested) are compatible with the carbon budget. It is very unlikely, for example, that a portfolio with 30% airport investments will be compatible with the carbon budget and the 2°C global warming limit.

Download full report of Carbon 4

Answers given by Guggenheim Partners

The capital needed to limit the global average temperature increase to 2°C is estimated around $5 trillion per year by 2020 (cf. World Economic Forum). Guggenheim Partners want to encourage institutional investors to engage in a wider spectrum of risks and geographies to meet these goals. To this effect, Guggenheim Partners developed the Sustainability Quotient (SQ) as framework for institutional investors to use when considering an investment in sustainable infrastructure. According to the SQ each project must contain the following characteristics before capital is committed:

  • Financial returns: Seek institutional rates of return
  • Good Governance: Implementing best practices for transparency and accountability
  • Environmental soundness: Respect the environment and regional natural capital
  • Social impact: Partner with local population for positive social benefits

Answers given by Meridiam

For Meridiam, resilience of its assets is the core of its investment methodology. Resilience means that the project must be justified, adaptable and anchored in a comprehensive resilience strategy. Meridiam emphasized the fact to include climate risks, Environmental and Social Governance (ESG) and Sustainable Development Goals (SDG) impact procedures within its investment and asset management process.

To that effect, Meridiam converges its tools with those of other Multilateral Development Banks (MDBs). They also encompass a tailor-made methodology to assess the contribution of each asset to UN SDGs. Meridiam also commits itself to the 2-Infra Challenge Initiative launched by Carbone 4 and largely supported by other players such as the French Development Bank (AFD) aiming at enhancing green investment in infrastructure.