Amid inflation, rising rates, and a potential recession, investors are increasingly seeing sustainable infrastructure as a safe haven for long-term growth.
According to a research paper released by Pitchbook, these sustainable assets — such as solar and wind farms, or even hospitals that are progressing toward environmental or social sustainability — are a large part of the future of the asset class.
“The need for better infrastructure has existed in most communities across the globe for as long as civilization has,” the report stated. “Now, with concerns about Earth’s ability to support the human population and its economic activities, that need is being felt more acutely.”
Fundraising for infrastructure investing as a whole has risen over the past decade, with 2021 representing an unprecedented high at $127.9 billion across 94 funds. And while that number had only hit $95.2 billion by the third quarter of 2022, last year’s total is still expected to be in line with recent averages.
As the asset class has grown, so has demand for sustainable infrastructure, PitchBook said. But it’s only in recent years that the sector has really blown up: From 2008 to 2019 the average capital raised by the top 20 sustainable infrastructure funds was $1.8 billion. For 2020, 2021, and the first three quarters of 2022, those numbers were up to $4.9 billion, $28.5 billion, and $25.5 billion, respectively.
“Private market infrastructure funds seem increasingly to have been investing in sustainable and digital infrastructure, with activity stimulated by the digitization of the economy and modern life, as well as the sociopolitical, regulatory, and government spending conditions,” the report stated.
Funds focused on environmental efforts included renewable energy and carbon-capture assets such as solar and wind farms. Socially sustainable funds were concentrated in hospitals that seek to broader access to healthcare and schools aiming to increase access to education.
According to the paper, there are several key factors underscoring this trend, namely the urgency toward climate change and the increased social awareness around the issue.
“In countries like the U.S. where infrastructure condition ratings are low (a C- as of 2021), improvements need to be made independent of a push for sustainability,” the paper noted. “However, it is reasonable to improve upon infrastructure in ways that will be most compatible with future needs, systems, and structures where possible, such as those minimizing carbon emissions, utilizing energy-saving technologies and renewables, or possessing water-efficient features.”