Investing in sustainable infrastructure

Investing in sustainable infrastructure could support net-zero targets, while delivering inflation protection and stable income to pension funds

Few asset classes offer the opportunity to engage as directly with the issues surrounding the climate emergency as Infrastructure. Navigating how to responsibly invest into the physical assets, on which our society depends, is inherently complex given the multitude of options available.  Should investors seek a net-zero portfolio today, or accept the requirement to pair investment in new greenfield infrastructure (i.e. Renewable Power) with the decarbonisation of existing infrastructure to pave the way for a sustainable future?

During a recent industry seminar Infrastructure investing, the energy transition and Net Zero: a 3D view, we shared our belief that sustainable infrastructure could achieve stable and positive outcomes for pension portfolios without compromising on net-zero targets.

The future of infrastructure

At BlackRock, our focus is on three key themes which we see as the future of infrastructure: decarbonisation, digitalisation and decentralisation which represent a $100 trillion investment opportunity over the next three decades.1

For us, the most important theme right now is decarbonisation and its pivotal role in how we create a sustainable infrastructure for a lower-carbon future.

Investment opportunities of net zero

New sectors are emerging, including the creation of energy storage facilities that could help reduce the urgency for energy imports. By integrating renewables with energy storage, there is the potential to provide stable and consistent power.

Massive investment in sustainable infrastructure is required to find clean and alternative sources of energy. While solar and wind energy have grown over a very short period of time, further initiatives are needed. 

Only substantial investment in infrastructure can really change the energy mix and phase out older forms of energy generation in favour of cleaner and more varied ones by 2030.

Over the past decade, BlackRock has made almost 50 investments in the energy transition and energy security space, including pipelines and terminals, electric vehicle charging, digital infrastructure and the circular economy. They include permanent carbon capture facilities – a key and still new part of the decarbonisation drive to reduce levels of carbon already in the atmosphere.

Infrastructure offers stability within a pension portfolio due to the non-cyclical nature of the assets concerned and contracts that may last as long as 25 years. In periods of market stress, it provides a lot of downside risk protection, but with growth on the upside.

Infrastructure plays a powerful role in any portfolio for several reasons:

  • Growth – income is based on long-term contracts.
  • Inflation protection – top of the list for many of our investors.
  • Diversification – sustainable infrastructure can add resilience and diversification to your portfolio.
  • Sustainability – sustainable infrastructure can offer positive, measurable impacts on both society and the environment.

With the energy crisis dominating everyone’s thoughts and the energy transition so high up the government’s priorities, sustainable infrastructure is more important than ever.

Risk: Diversification and asset allocation may not fully protect you from market risk.

  1. BlackRock estimates based on total opportunity set for the 3D’s, 31 October 2021
Stuart Wright
Director, BlackRock Alternatives Specialists, EMEA