- 5. Investment insight
Positioning for investment in more than just net zero
“Infrastructure projects in the 2030s will look different – I think there'll be such a richness around them when we design them with nature. We will look at it and wonder why it took us so long to get there,” said Mott MacDonald technical director for nature services Julia Baker, speaking during a panel discussion at Carbon Crunch on how to deliver more than just net zero.
However, getting to the point where nature, as well as other co-benefits such as social value and climate resilience, are valued equally alongside net zero means that funding, planning and delivery of infrastructure needs to change – but how easy will that be in reality? That was what the session chaired by Mott MacDonald global practice leader for climate change Madeleine Rawlins aimed to answer.
Removing barriers through streamlining policies, procurement and permits
In the conversation, Madeleine was joined by Sustainable Development Capital executive director of sustainable cities Lolita Jackson and Equitix ESG and sustainability manager Joe Robinson to consider the challenges for investors. Greater Manchester Combined Authority (GMCA) director of environment Mark Atherton, alongside Julia, discussed the issues facing scaling up delivery.
Mark pointed out that GMCA looked at the wider benefits it could deliver alongside net zero when it set out its target to be net zero by 2038 in 2019. “We developed a Greater Manchester Five Year Environment Plan rather than a carbon only plan,” he said. “Within the current plan, we look at buildings, energy and transport, as well as the natural environment and climate adaptation. Our new plan, that will be launched at the end of 2024, will add in aims for air quality and sustainable growth. Within each of those areas we look at both co-benefits and co-enablers and take a systemic approach wherever possible.”
Nonetheless, it is not as straightforward for investors. According to Lolita, one of the biggest barriers to scaling up net zero transition and delivering on co-benefits with investment, is the need for the streamlining of what she called the three Ps - policies, procurement and permits. “We need to get to the point where it doesn’t take five years for the permits to come through,” Lolita added. To illustrate the point, she spoke about a multibillion-dollar offshore wind project in the United States that spent so long in the permitting process that the project was no longer financially viable as costs rose during the delay above those originally projected.
“We need to think about how we can get the money deployed in two years instead of five,” she added.
Standardisation helps the financial markets understanding of projects
However, the panel underlined the need to make sure infrastructure projects offer a return on investment while also meeting the demands for climate resilience and delivering on co-benefits.
Joe explained: “Our role is to design attractive financial products that bring institutional capital into infrastructure. We have to think about the role those assets play in delivering services and the people whose pension money it is that we are managing. We have to strike the right balance between returning on their investment and meeting an increasing range of sustainability-related objectives associated with those investments.
“So when it comes to designing a fund structure today, we put in place a sustainable investment framework that looks at certain themes and impacts that we're striving to achieve. Those themes don't go beyond our financial returns objectives, they are aligned with achieving a financial return while delivering a positive sustainability outcome. However, there are trade-offs to ensure that we're not delivering, for example, a decarbonisation objective at the expense of social or governance standards in other aspects of those assets.”
Lolita added: “It's hard for us sometimes to be able to make the balance while also ensuring the social aspects are considered as part of our risk management.
In order for nature positive and social value to be a determining factor, the investment strategy of our funds would need to shift.
When we were founded, that was not as prominent as it is now. Our investments do not currently consider nature overtly but we are trying to put that into our KPIs going forward.”
Lolita added that working with the Greater London Authority on a £100M fund for decarbonisation projects across London had opened up conversation with the asset owners about what their needs are. “That may end up tweaking what we actually look for in our criteria,” she said.
We have seen a significant move forward in how to commoditise and standardise sustainable investments.
According to Joe, regulation has a role to play in supporting prioritisation between return on investment, decarbonisation and the creation of wider benefits. He added: “In Europe, over the past three years we have seen a significant move forward in how to commoditise and standardise sustainable investments. This has helped the market understand what products are trying to achieve and what criteria need to be met in order to realise those objectives. This means we have to think very hard when it comes to our pipeline of investments and what's investable.
We need evidence of mitigations to maintain an assets resilience
“There's an initial sustainable investment objective – whether that's carbon transition, mobility, network enhancements or social infrastructure – and then we've got KPIs to quantify how an investment can deliver against those, both financially and in terms of meeting, for example, a target of the UN Sustainable Development Goals.
“What we’re looking for in the due diligence phase is evidence of mitigations that are already in place or being planned to avoid significant harm to other sustainability objectives in that asset.”
For Mark, getting the funding for infrastructure is not the only challenge in ensuring co-benefits are valued – capacity is also a barrier. He said that one of the key roles of a local authority should be to act as a convenor to help empower local people and business to deliver more than the local authority can on its own and he believes there is more work to be done on empowerment.
As an example of the impact local authorities can have in a convening role, he added: “We've been given £6M by government to create a net zero accelerator, which means that by April 2026 we're aiming to bring a £1bn investment pipeline to market. We recognise that some of the projects we want to bring forward in the pipeline will be more attractive than others, so we want to create a blended model, one that is still attractive to the market but brings together investments that offer smaller returns with ones that are more financially attractive.
“If we are successful in doing that, we can create an investment case which is greater than the sum of its parts, and that's how we can potentially start to bring in some of these wider benefits and make them attractive to the investment market.”
While there is clearly further work to make nature and social value investable elements of infrastructure, Julia urged the industry to contemplate the economic cost of not considering nature. “Some measures to get to net zero and reduce our carbon emissions damage and destroy nature,” she said. “And the evidence is overwhelming – we know that that hits economies and society.
“There’s no net zero without nature, so if we don't address these costs, they're simply stacking up and someone will have to pay for them at some point down the line.
“Nature shouldn’t be another silo – we need to consider, nature, climate and society alongside decarbonisation.”
