One third of infra fund managers unaware of looming ESG requirements

A third (34 per cent) of fund managers at infrastructure investment firms are unaware of the upcoming EU disclosure requirements, due to come into force in March 2021, according to research by global law firm Linklaters. 

Out of those surveyed, just over half (53 per cent) were aware of these requirements, with a third (34 per cent) unaware and a further 13 per cent not sure. The research highlights the task ahead for funds as they are forced to disclose their approach to taking ESG positive and adverse impacts into account in investment decision-making.

Vanessa Havard-Williams, Global Head of Environment at Linklaters, says: “The EU disclosure requirements are due to come into force in just over seven months. For those funds who are yet to be across the detail, the clock is ticking, and they will need to move quickly to ensure compliance.”

The research, commissioned by Linklaters and carried out by Censuswide, explores the role of environmental, social and governance (ESG) issues in decision-making by infrastructure investment funds. Over 300 fund and portfolio managers were polled, with over GBP1 trillion of assets under management, in the UK, France, Germany, Italy, Spain, Belgium, the Netherlands and Luxembourg.

Nearly a quarter of investment fund managers expect to grow the proportion of green assets in their portfolios by more than 20 per cent in the next two years. Just under a quarter (23 per cent) said they would increase the share of green assets by 21 per cent-30 per cent, with a further two-thirds (63 per cent) saying they will raise levels by 10 per cent-20 per cent. The findings demonstrate the significant role the infrastructure investment community is set to play in the ‘green recovery’ from the Covid-19 crisis.

Digital infrastructure is the sector which fund managers see the most opportunities as a result of the Covid-19 pandemic, with just under 4 in 10 (37 per cent) citing interest, followed by renewable power (32 per cent) and green infrastructure (24 per cent) as popular sectors for potential investment.

When asked about their most likely future assets in the green space, green and climate-resilient real estate came top with over a third (36 per cent) of fund managers planning such investments. Electric vehicles and its accompanying networks (35 per cent) were the second most popular.

Industry data backs up a rush to green opportunities by infrastructure investment funds in the countries polled, with USD14.4 billion funnelled into green infra in 2019 – up from USD12.5 billion in 2018, an increase of 15.2 per cent.

It comes as ESG credentials and transparency rank joint-second place (both 32 per cent), after growth potential (36 per cent), in the top three factors fund managers are mostly likely to consider when managing their portfolio, highlighting the important role funds are giving to sustainability in their investments.

Havard-Williams adds: “The appetite for green is clearly growing and fast. But there is plenty of room for growth in this space, especially if we are to meet the ambitious global climate goals that have been set for the coming decades.

Funds are recognising the role they can play in the green recovery from the Covid-19 crisis and will be spurred on by upcoming EU regulations that embed ESG into investment decision-making.”

The US is the most attractive destination for infrastructure investment funds, with over four-in10 (42 per cent) of those polled including it in the top three geographies they are likely to invest in over the next two years. The UK follows closely behind, (31 per cent) as does Asia (24 per cent).

Meanwhile, around a fifth of respondents see opportunities in Eastern Europe (21 per cent), Western Europe (21 per cent) and Southern Europe (19 per cent).