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Infrastructure investment is core to the climate solution

Without significantly increased investment in infrastructure, the globe has no chance of reaching the Paris Agreement goal of Net Zero carbon emissions by 2050, according to Sarah Shaw, CIO of 4D Infrastructure.

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“While the speed of ultimate decarbonisation remains unclear, there appears to be a real opportunity for multi-decade investment in decarbonisation projects as almost every country moves towards a cleaner environment,” she says.

“Investors wanting to be part of the decarbonisation investment thematic should consider infrastructure as a means of participating.

“Energy transition and decarbonisation of the power sector is an obvious theme and will have the greatest impact on countries looking to achieve Net Zero. However, other forms of infrastructure, such as transportation, also have a key role to play. 

“Morgan Stanley has estimated that US$50 trillion is needed in investment in five key decarbonisation technologies (primarily in the energy space) over the next 30 years if the Paris objectives are to be achieved, equating to US$1.6t trillion a year.”

Ms Shaw says this number just grows when looking at other information sources.

“The OECD estimates US$6.9 trillion a year of infrastructure investment is needed by 2030, while IPCC forecasts US$2.4 trillion a year is needed over the next 15 years to keep temperature rises below 1.5 degrees.

“Whatever source is used, and even if we assume that only a portion of the needed investment will be completed, there is a clear, long-duration opportunity that infrastructure investors can capitalise on, considering how essential infrastructure is to decarbonisation.”

Ms Shaw’s comments come as the 4D Global Infrastructure Fund passes its five-year mark, returning 8.44 per cent p.a. since inception compared to their absolute benchmark’s 7.01 per cent p.a.*

“Since launching our business in 2015, we have seen interest in infrastructure investment grow exponentially, while the opportunities for us as investors have also increased.

“Our partnership with Bennelong Funds Management over the past five years has been integral to the fund’s success. This support has freed the portfolio management team to focus on investment management, and to make the investment decisions that have seen us consistently beat the infrastructure indices and our absolute benchmark, and provide good returns for our investors.

“During the past 12 months of COVID-19, the fund thematic has remained unchanged – and in fact, the opportunities for infrastructure investors have actually expanded during this time.

“Under-valued infrastructure assets have presented incredible buying opportunities over the past 12 months. The sector is also set to benefit from the huge amount of fiscal and monetary stimulus from governments around the world, with much of that spending focused on essential infrastructure investment around the globe, including the green energy transition.

“Studies suggest that for every $1 of infrastructure investment, an economy gets a boost of anywhere between $3-$5. That’s a significant economic boost as a result of the infrastructure investment dynamic.”

Although on the face of it, infrastructure may be seen to have significantly contributed to current environmental concerns – with electrification and transportation, for instance, big drivers of carbon emissions – Ms Shaw says that in fact, further infrastructure investment is a core part of the solution.

“There will be no Net Zero without increased investment in infrastructure.

“This opportunity is a key thematic to which investors can gain exposure, and one that will not be derailed by COVID-19. In fact, in all likelihood it is enhanced as governments fast-track infrastructure roll-out and green policies as part of much-needed economic stimulus programs; and interest rates remain lower for longer, supporting investment and valuations.”


 

*As at 8 March 2021. Inception date is 7 March 2016. Benchmark is the OECD G7 Inflation Index + 5.5%. Performance figures are net of fees and expenses. Past fund performance is not indicative of future performance.

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