ESG Tools for an Emerging Asset Class

Sunday, February 28, 2016

While investor interest in infrastructure was increasing, investors in other types of real assets were focusing on the importance of environmental, social, and governance(ESG) performance as a source of value and risk.

The catch is that ESG considerations for infrastructure are different from assets like real estate. Infrastructure projects are typically big, long-lived and, critically, their primary function is to provide essential services, such as energy generation, clean water, waste management or transportation. This means that ESG issues associated with infrastructure are often more complicated and investors may potentially face higher risks. This is why investors have started to integrate ESG factors into their investment processes, to understand and mitigate risk. But there is also an opportunity: infrastructure investors have the time on their side. They can use their long-term investment horizon to actively engage on ESG topics and help assets to improve their performance, such as reducing operating costs, satisfying customers, and strengthening their license to operate.

These issues underpin increasing investor interest in data and tools to help them inform their investment process. This starts with transparency – actionable information needed to understand the attributes and performance of investments. Transparency provides the foundation for comparison and quantitative analysis – objective benchmarks that allow investors to recognize market leaders and laggards.

The new GRESB Infrastructure Assessment will help meet this need with new tools for systematic assessment, objective scoring, and peer benchmarking for infrastructure companies and funds. These entities represent current and future investments for leading institutional investors. Investors will be able to use GRESB Infrastructure to monitor and engage with current investments and conduct rigorous due diligence on future prospects.

GRESB Infrastructure leverages GRESB’s 7+ years of experience gained from providing ESG benchmarking for property companies and funds around the world. This means that GRESB Infrastructure will offer a familiar set of tools for investors and participants. However, infrastructure investments have some important differences from real estate.

Critically, infrastructure is a diverse and heterogeneous category of investments. Both between and within infrastructure sectors, assets often cannot easily be compared. That’s why GRESB Infrastructure provides new criteria to segment and categorize a wide-range of infrastructure asset types – separating roads from ports, energy generation from distribution, and many others. This allows for apples-to-apples comparisons between similar types of companies and funds.

GRESB Infrastructure provides two levels of assessment: funds and assets. Fund managers can provide high-level information about their management and engagement practices. Asset operators are asked to provide more detailed information on management, policy, implementation, and performance indicators.

The first GRESB Infrastructure assessment will be pre-released on March 1st - visit  www.gresb.com to download the PDF. The assessment will be open for participation via the GRESB Portal on April 1st. The 10 founding investor members - representing over $1T in assets under management - will encourage their investments to participate in the inaugural assessment. In the coming months, the Founders will share their perspectives on the importance of ESG for infrastructure investors and the role of GRESB Infrastructure - watch this space for more. Their stories will inform and inspire others to follow their lead.

If you are interested in learning more about the GRESB Infrastructure Assessment or becoming a GRESB Infrastructure member, please contact Emke Bus or download our latest brochure.