The Bid Episode 212. The Infrastructure Shift to Low-Carbon Investments
Episode description:
Infrastructure investments have long been recognized as a foundation for economic growth and low carbon infrastructure is increasingly becoming an area of interest for investors in both public and private markets. But how will low carbon infrastructure play a role in the evolving energy investing landscape? Helen Jewell, Chief Investment Officer for fundamental equities at BlackRock helps us explore the significance of infrastructure from an investing perspective, the opportunities in public markets, and the long-term growth potential from investments in renewable energy.
Sources: Growth in global electricity demand is set to accelerate in coming years in IEA, February 2025; BGF Sustainable Growth Infrastructure Fund, Fundamental Equities, BlackRock Febrruary 2025; FTSE Developed Core Infrastructure Index = 3.35%, Source: FTSE Russell as at 31 January 2025; National Grid Sell US Onshore Renewables Arm $174billion Brookfield Reuters, February 2024; Bloomberg NEF, January 2025; Bloomberg New Energy Outlook, 2025; How Copper Will Shape Our Future BHP, September 2025;
Written disclosures in each podcast platform and each episode description:
This content is for informational purposes only and is not an offer or a solicitation. Reliance upon information in this material is at the sole discretion of the listener.
Reference to the names of each company mentioned in this communication is merely for explaining the investment strategy and should not be construed as investment advice or investment recommendation of those companies.
For full disclosures go to Blackrock.com/corporate/compliance/bid-disclosures
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<<TRANSCRIPT>>
Oscar Pulido: Infrastructure investments have long been recognized as a foundation for economic growth and low carbon infrastructure is increasingly becoming an area of interest for investors in both public and private markets. But how will low carbon infrastructure play a role in the evolving energy investing landscape?
Helen Jewell: Infrastructure is the physical back bone of any part of the economy. It's transport, it's power, it's water, it's waste, it's digital assets. It's everywhere, and it's absolutely key to growth in what is a relatively low growth environment.
Oscar Pulido: Welcome to The Bid where we break down what's happening in the markets and explore the forces changing the economy and finance. I'm Oscar Pulido.
Coming up, Helen Jewel, Chief Investment Officer for fundamental equities at BlackRock will help me explore the significance of infrastructure from an investing perspective, the opportunities in public markets, and the long-term growth potential from investments in renewable energy.
Helen will also provide insights into how infrastructure can facilitate the decarbonization of power generation and the challenges investors should consider in this dynamic investing trend.
Helen, thank you so much for joining us on the bid.
Helen Jewell: It's great to be here.
Oscar Pulido: Helen, we are here to talk about infrastructure, which is a topic that we've been talking about for a while now. We've had Jay Jacobs talk about the infrastructure development that is needed in the us. we've also heard from others about the build out of data centers that are needed for the growing use of AI, but perhaps you could give us a reminder of its significance from an investing perspective, and also how does it tie to this theme of low carbon investing?
Helen Jewell: Oscar, the key thing to remember is that infrastructure is the physical back bone of any part of the economy. It's transport, it's power, it's water, it's waste, it's digital assets. It's everywhere, and it's absolutely key to growth in what is a relatively low growth environment. What's important is that when we have quite high public debt levels, we need to have private capital coming in to really make a difference in infra and infrastructure is critical to addressing the world's expanding energy needs.
I know a lot of people have talked about this already. But historically, Europe's energy need was decreasing, and the U.S. was flat, but that is now changing. Global electricity demand is forecast to grow by around 4% a year between now and 2027. And in the US that means adding the equivalent of California's current power consumption to the national total over the next three years.
Now, that is driven by a number of things, and the one that most people talk about is of course, AI. One of the most sources of need for energy in the future is also things like air conditioning. So, it's not about AI, it's about so many of the things in the day to day. And a mix of energy is really important to meet that demand. You need not only the traditional energy sources, but you need low carbon sources to be coming through, and that requires ultimately a lot of infrastructure spend.
Oscar Pulido: Helen, you mentioned infrastructure is all around us. It's a fundamental part of any economy. And you also mentioned that private markets play an important role in funding the growth of infrastructure, and that's I guess how I think about it, because these tend to be longer-dated projects, and they require capital that maybe needs to be locked up for many years. But how do public markets offer access to the infrastructure theme?
Helen Jewell: Yeah, it's a great question because I think when people think about infrastructure, they often do think about the private market piece. But key infrastructure includes electric transmission, distribution lines, toll roads, railroads, airports, power plants, pipelines, cell towers, data centers, utility companies- it is, like you say, infrastructure is literally all around. And all of these of these companies can actually be accessed by public markets. So, I’ll just a throw a couple of examples out there. Cable makers like Prysmian are for power grid upgrades, and other grid service providers such as Hubble, they are found in in public markets. Public markets are also home to many of the materials and energy companies that are essential to infrastructure expansion. So, what you actually find is much of the infrastructure need is found in public markets.
Oscar Pulido: And so, Helen, what are some of the reasons that investors might want to use public markets over private markets to, to access this theme? or do you see value to, both public and private markets as a way to invest in infrastructure?
Helen Jewell: There's definitely value in but let give you four reasons why we think that public markets are a really interesting place to play the infrastructure theme. Liquidity, diversification, income, and valuations.
So, let's start with liquidity. Ultimately, public markets are liquid and private markets are not. The second of these is diversification. What a people don't realize is there's not a large overlap between infrastructure and global equities. For example, the MSCI World or the S&P500 contain just 3% infra. So, by increasing your exposure to the asset class, you offer a natural diversification to your portfolios.
And what we've also seen is that infra stocks historically outperform when broader markets fall. Companies like utilities also give you income. And income is really important part of the infrastructure story. You've seen dividends of around 3% within this space.
And the final part is valuations. Infrastructure stocks remain at a discount versus the broader equity market, especially those companies in the renewable energy space, because a lot of the news flow around that space is putting pressure on the valuations.
But we that this presents a really attractive entry point for investors who are interested in listed infrastructure names. The discount has already been noticed by private buyers who are recognizing both the long-term earnings potential of listed infra companies and their low valuations. And we are expecting and already seeing listed infrastructure M&A activity to be the valuation story as well and providing us with a flaw for those valuations.
Just recently, for example, we saw private equity company Brookfield buy the US renewable energy assets from National Grid. So, four really, really important reasons why public equities are such an important part of infrastructure spend. Liquidity, diversification, income and valuation.
Oscar Pulido: Helen, that was super clear. Those four reasons and the valuation point, I can't help but think that with public markets, the price is invisible in the market every day, right? That's the point of public markets; you see valuation instantaneously and-
Helen Jewell: We sure do!
Oscar Pulido: - you don't see that with private markets that goes to your point of liquidity. Liquidity is different and sometimes private market valuations are a bit lagged, but the valuation point is instantaneous and noticeable to the buyer and the seller for that matter.
Helen let's talk about low carbon infrastructure. How does the low carbon landscape intersect with the infrastructure theme that you're talking about?
Helen Jewell: Well, it's all about the investment. I think the starting point of so much of this is to remember what those energy needs really are. An investment in the low carbon energy transition has grown 11% to hit $2.1 trillion in 2024. You need power and that power generation comes from all different sources.
And again, it's not just those companies which are the initial power you need the companies that are supplying the grid related connections, cables equipment transformers, power management, that is all part of the jigsaw puzzle.
So, investment in power grids totaled around $400 billion in 2024. And whilst renewable companies can be accessed in private markets when it comes to these grid related names, they are mostly accessed by public markets. And we all know, and it's been talked about so much on The Bid as well, the AI demand pull that is coming over the next few years for energy but right now what we are really focused on is hardening- making these grids more resilient, especially as climate related disasters are becoming more common.
We want wires to be below ground to reduce the risk of fires. So, expansion of this grid infrastructure is absolutely pivotal to the low carbon transition and enormous investment is needed to boost the ability to get that energy from where it is made, maybe a remote wind farm miles away to where it's actually being used in towns and cities.
Just take National Grid- National Grid owned the electricity transmission system in England and Wales, and these kinds of utilities are the ones that are critical to making sure that the sources of power generation are able to get to where that power is being used. And National Grid has outlined enormous levels of investment and aims to double the amount of energy that can be transported around the UK.
So, it all goes back to that stat, we need 4% more energy. This comes from renewable energy as well as hydrocarbons, and it all needs to go to where it is needed. And these grids are pretty much exclusively in public markets.
Oscar Pulido: Helen, the more I, listen to you, it's clear that infrastructure is a very pervasive theme. It cuts across private markets and as you've made the case, public markets as well and numerous sectors, and for that matter, numerous geographies. Part of what you've talked about is the utilities sector, so maybe talk a little bit more about how utilities facilitate the decarbonization of generation and maybe talk more about the long-term earnings growth from investments in renewable energy.
Helen Jewell: Oh, Oscar, I just love utility companies! And utility companies are often overlooked in the ongoing overhaul of the world's energy system. Even they comprise around half of the listed infrastructure universe. They give you also resilience in portfolios. Some of them are pretty monopolistic in nature, meaning very high barriers to entry, and so what they have is these cash flows that are viable, visible, long-term, contractual- really, really powerful cash flows. And the sector's investment in renewable energy may result in significant long-term earnings growth. They could cross a 50% share of electricity generation at the end of the decade through renewables.
The electrification of various fossil fuel powered processes, oil drilling, oil driving, is also supportive of electric utility growth, and the drive to a low carbon economy has brought support from the regulatory space as well. Governments, consumers, are all leaning into the investment that is needed by the utilities to support the energy need. And utilities they are part of the solution for this.
Oscar Pulido: It is interesting 'cause when I think about the utility sector historically, it does feel like a little bit of a, I'm going to use the word boring sector, but boring is not a bad thing there as you mentioned, consistent cash flows, they operate in high barriers to entry, and now it sounds like it's a sector that is, uh, benefiting from the demand for AI, the infrastructure theme, and so perhaps a sector that is going through a little bit of a Renaissance.
Helen Jewell: It really is going through Renaissance. I think when people think about boring, they're missing what exactly you say what means. It means resilience, it means consistency of cash flows, and a lot of the time what people are, focused on is, they're thinking, okay, well, maybe the regulators will start to back away from things like renewables. Again, what it's missing is the need for renewables to be part of the energy solution that we have. So why wouldn't you these assets that give you a steady source of cash flow with potential earnings uplifts as well? They're in the perfect place to be, and again, what we're seeing at the moment is a lot of the valuations are being compressed because of externalities that are not really relevant and important to the actual fundamentals of these businesses.
Oscar Pulido: Helen, we have talked to some of your colleagues, at BlackRock. Folks like Olivia Markham, who last year talked about the materials that would be needed to electrify the power grid. We've also talked to Will Su about the demand for energy that is going to be created from the growing use of AI and the power demand that that brings And, and you've alluded to that. How is the demand for materials and metals expected to increase due to investments in AI data centers and renewable power. And what challenges does the supply side face? In other words, is it easy to get these materials and metals?
Helen Jewell: The short answer is it's not easy to get them, but they're going to be needed. The vast investment in AI data centers and renewable power means that metals and materials demand is set to soar. Copper is the great example, and I know Olivia talked about this a lot as well. According to one forecast, copper could grow by around 70% to 50 million tons a year by 2050, but copper is pretty come by. Existing mines might produce around 15% less copper in 2035 than they do today. So, you've got an increased demand and yet a reduced supply for copper in the future, and that is obviously basic 101, where you've got from an investing perspective, a sweet spot in terms of an investing need.
Mining companies ultimately are investing billions of dollars to grow that copper supply. The major reinvestment just to stand still is a challenge for the industry. So, demand rising, supply struggling, what happens in that environment? The price goes up and again, from an investing perspective, super, super interesting. And one other thing always to remember with this, most of the world's major metals producers are listed on public markets. So, we believe this area presents a really interesting long-term investment opportunity.
Oscar Pulido: Helen, you've made a compelling case for infrastructure as a long-term theme, that there are a number of sectors and industries that you can invest in to benefit from it, and that, of course, it's not just private markets, but also public markets that offer access to infrastructure.
But perhaps you can also talk about some of the challenges when investing in this area that investors should also consider.
Helen Jewell: Well, there's a couple. The first is politics. Politics is really important. The regulatory environment is different in every region, so it's really important to have that local expertise and deep company knowledge.
The second is interest rates. Ultimately what we have here are companies that are valued based on the present value of future cash flows. So, they're very bond-like in the way that the prices react. And if interest rates are seen to be stickier, just like with bonds, that does put pressure on their prices. So that that could be a little tricky. If interest rates stay sticky because of inflation, then what we might see is some pressure on these prices, and that's something we to be aware of.
But I want to bring it back to basics. This is a sector which is critical to what the world needs at the moment, which is more energy. And we are in a situation where the amount of demand that is being required is greater than the supply, which we think will give us earnings growth going forward. So, these are some of the benefits of investing in infrastructure, as well as some of the risks. And these are the things that investors ultimately to consider.
Oscar Pulido: Right Helen. And that last point, it almost goes back to something you said at the outset, which is the demand for e energy, electricity is growing worldwide. There's a step change in that, and therefore these companies are seeing a step change in their earnings profile, which is what should be the most compelling item for investors to consider. Helen, this is definitely a theme that I think is going to have some persistence for some time. So, I have a feeling that we're going to welcome you back at some point to, to hear more about what you're seeing in the public markets. thank you for sharing this info and thank you for doing it on The Bid.
Helen Jewell: Thank you very much, much, Oscar. It's been great to be here.
Oscar Pulido: Thanks for listening to this episode of the Bid. Next up, we dive into the growing trend toward private markets investing, and how these types of exposures can be a ballast in uncertain economic times. If you want to keep up with what's happening in the economy and the latest market trends. Make sure to subscribe to the bid wherever you get your podcasts.
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Spoken disclosures at end of each episode:
This content is for informational purposes only and is not an offer or a solicitation. Reliance upon information in this material is at the sole discretion of the listener.
For full disclosures go to Blackrock.com/corporate/compliance/bid-disclosures
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