Infrastructure investors are leading other real assets

In October, EVORA Global and GLIO hosted a lunch with a select and insightful group of investment managers who are leading on the integration of ESG. In a number of ways, these leaders were ahead of other real assets, particularly real estate. There are obvious differences between direct investment in infrastructure and equity investment in both listed and private infrastructure companies, but there are some shared challenges.

Their main challenge is that their investor clients have lots of diverse, individual views on ESG – ranging from taking a hard line on exclusion screening through to being anti-ESG. The result is a split mentality between “sector shifting” through full or partial divestment vs. transitioning assets.

As reported in GLIO Journal issue 9 [1], strict exclusion criteria can see companies with >5% revenues from coal generation, or even nuclear power exposure excluded. In the latter camp, the successful transition of Danish Oil & Natural Gas (DONG) to renewable energy giant, Ørsted, is a resounding success story. Effective stewardship and the use of voting rights could be the key to requiring a successful transition. For listed companies this could mean addressing investor demands on transition progress or on the private side majority and full ownership is preferred by these leaders to enact change.

Can all infrastructure assets transition to Net Zero Carbon? Our guests felt that it was easier for real estate and that the measures were clearer for those assets. The plethora of carbon accounting standards doesn’t help provide clarity. However, the Transition Pathway Initiative is an industry initiative which is trying to provide useful, sector-specific guidance. The lunch conversation focused on operational GHG emissions and there was no discussion of embodied carbon, which is a present preoccupation for real estate. Other ESG categories, including green and social infrastructure, were not mentioned.

Like many others, these investment managers are being bombarded with information requests. This is time consuming for them and for the infrastructure companies, where many of them do not have in-house ESG expertise nor resource. It is even harder for debt providers who are one-step removed. There is no standardisation, and guidance developed for corporates is being forced into the requirements for real assets even when the risks are different. This means that, in some cases, data is being shared which doesn’t represent the underlying operational ESG risks (and opportunities) for infrastructure.

EU regulations, like SFDR and the Taxonomy, is expected to drive data collection and use. The UK, Singapore and Japan are all following suit. Even the US SEC could require mandatory climate risk disclosure in line with TCFD. If this is accompanied with better guidance on how to interpret and use data this would be welcomed, as guidance for real assets is presently inadequate.

The lack of ESG capacity within infrastructure companies is a barrier for the successful delivery of transition plans. Given the war for ESG talent and the shortage of supply in technical skills, this could be a systemic risk for real assets, both infrastructure and real estate. Proxy data will have to be used.

At the moment, the best quality disclosures are coming from a variety of companies who are open, transparent and prepared to engage with GLIO and GRESB. Many of these companies own and operate legacy assets which have a more material impact on the environment. This is reflected in the recent GRESB scoring, which values the availability of data and information transparency more highly than progress on material performance. GRESB is the best available option at present and there was a recognition that this doesn’t make all of the ESG risks transparent for investors. This is clearly an area for development in the short to medium term.

Given the variety of investor information requests, there is an expectation that tailored metrics may be required, which adds to the confusion and makes standardisation of metrics more difficult.

Where ESG is being integrated into investment decisions, screening is a popular approach. ESG knowledge is appearing in Investment Committees and whilst there may not yet be ESG ‘red lines’ there are some amber ones. Reducing over time a fund’s exposure to fossil-fuel intensive sectors. There was a clear consensus that some sectors, like coal, will be fully excluded within this decade, if they’re not already. Oil & Gas infrastructure is being given more leeway, but the clock is ticking. However, utilities companies also own our electricity infrastructure – essential transmission and distribution lines, which needs to grow and be renewed, so starving them of capital through screening could slow our shift to electrification of transport, buildings and industry.

Another approach to ESG integration is in valuations, with the discount factor being tweaked to represent both downsides and upsides. Alignment with SDG objectives is also happening, but mainly focused around clean energy and climate change.

Both of these approaches require forward-looking, as well as historical, data. Some managers are looking for this from third parties, with some difficulty, but others are insistent that these models will only be created in-house. For the long-term hold periods of infrastructure assets, this forward-looking perspective has to be refined in the short to medium term. Clarity over climate action and a clear policy framework will be a determining factor for both mitigation and adaptation infrastructure. Important decisions have to be made at inception to avoid making transitions impossible.

If you would like to discuss improving the sustainability of your infrastructure assets or funds, please get in touch with our dedicated infrastructure team.


Insights into the GRESB Infrastructure Assessment and Key Changes for 2021

By Matthew Brundle and Natalie Sinha.

Globally, the demand for public and private sector investment into infrastructure is growing, alongside increased demand for investors to have robust environmental, social and governance (ESG) information for managing risk and opportunities within their portfolios.  Whilst Real Estate investments have benefited from a number of reporting frameworks and guidelines, historically, there has been an information gap for investors on the ESG performance of infrastructure assets.  

The GRESB Infrastructure survey was first launched in 2016, 5 years after its Real Estate counterpart. It provides a globally established tool to benchmark the ESG performance of infrastructure asset portfolios. The survey allows participation from a huge variety of sectors, including Utilities, Power Generation, Social Infrastructure and Transport amongst others.  The annual survey consists of individual Asset Assessments which can be reported individually or consolidated into a Fund Assessment with other portfolio assets.

Since its launch, participation in GRESB infrastructure has grown substantially. In 2020, participation in the Infrastructure Fund Assessment increased by 10% year on year to cover 118 funds while the Infrastructure Asset Assessment grew by 8% to include 426 assets (2019: 393) with total AUM £579billion (see figure 1). Transport, Renewable Power and the Social Infrastructure sectors have the highest representation as these sectors historically attract greater public scrutiny. Data Infrastructure had the highest growth increasing from 21% to 38%, likely reflecting the growing importance of this sector in modernizing society and economies. Energy and Water Resources also grew significantly while most other sectors were stable.

For the past three years GRESB has been trialling voluntary reporting in its new Climate Resilience module, recognising the importance of this topic.  Reporting to the Resilience Module has steadily increased with 126 funds and assets participating in 2020.  From 2021 onward it will become a mandatory scored module as GRESB seeks to align the scheme with both UN PRI requirements and the recommendations of TCFD.

Figure 1 – growth of GRESB Infrastructure participation 2016- 2020

GRESB Infrastructure Overview

Figure 2 – GRESB overview showing how the scheme is structured

The GRESB Infrastructure Asset Assessment is split into two components: Management and Performance. In contrast to Real Estate, the scoring of the survey is largely determined by an initial ‘Materiality Survey’ which uses 17 questions to rank 46 ESG issues according to how relevant they are to the asset: high, medium, low or no relevance. Focusing on the materially relevant ESG areas is necessary to create peer groups for comparative assessment in such a broad investment category.  In parallel to the Real Estate Survey, the Management section covers areas such as Leadership, Policies, Reporting, Risk Management and Stakeholder Engagement. The Performance component awards points for data reporting of metrics which are determined as relevant issues through the materiality survey.

Changes to GRESB Infrastructure 2021 and the Integration of the Resilience Module

GRESB have pre-released the questions for the 2021 Infrastructure survey, for both the Fund and Asset level assessments as well as an overview of the key indicators. For 2021, the Infrastructure Assessments have been kept stable with relatively few changes. The scoring mechanisms for the Fund and Asset surveys have now been released, ahead of the reporting window opening in early April 2021. Initially, GRESB intended to add a Development Component into the Asset Assessment, to enable better reporting and benchmarking for assets (projects) in development (in design or construction). However, this is no longer going to be incorporated into this year’s survey but may be introduced in 2022.

The most substantial change is that the Resilience Module, which was optional in previous years, has been integrated into the Assessments and is now mandatory. These questions have been incorporated into both the Fund and Asset level assessments. This change helps facilitate Taskforce on Climate Related Financial Disclosures (TCFD) aligned reporting for all participants. Although these questions are not currently scored, this is likely to change in future years. The following five new indicators on Resilience have been added to the Risk Management section:

IndicatorQuestion – Climate-related Risk Management
RM3  Resilience of strategy to climate-related risks Does the entity’s strategy incorporate resilience to climate-related risks? If yes: Does the process of evaluating the resilience of the entity’s strategy involve the use of scenario analysis?
RM4.1  Transition risk identification   Does the entity have a systematic process for identifying material transition risks? (Policy and Legal, Technology, Market, Reputation)
RM4.2Transition risk impact assessment

Does the entity have a systematic process to assess the impact of material risks on the business and/or financials of the entity?
RM4.3Physical Risk Identification   Does the entity have a systematic process for identifying material physical risks?
RM4.4Physical risk impact assessment   Does the entity have a systematic process for the assessment of impact from material physical climate risks on the business and/or financials of the entity?
Table 1: GRESB resilience mandatory questions 2021

These questions will mean that Infrastructure assets and funds need to begin to understand how they will be impacted by physical and transitional climate change risk. In GRESB 2020, there was a 60% growth rate in assets and funds reporting under the voluntary Resilience module (figure 4, below). However, there was a reduction in the average scores achieved (figure 5). GRESB analysis concluded that this was due to increased reporting, but it signals that respondents found the questions challenging. This is likely to be the case in the GRESB 2021 reporting window when the questions are made mandatory.

Figure 4: GRESB data showing increasing participation in the Resilience module by fund and asset 2018-2020
Figure 5: GRESB data showing decreasing scoring in the Resilience module by fund and asset 2018-2020

EVORA considers it is likely that further climate resilience questions will be incorporated into the GRESB Infrastructure survey in future years, and therefore it is imperative that Infrastructure investors and operators start by carrying out a gap analysis of their existing funds and assets in line with TCFD requirements. This requires engaging all areas of the business to understand the implications of climate risk and opportunities, followed by the development of a roadmap towards full TCFD alignment. In terms of full TCFD disclosure, GRESB submissions in themselves will not suffice: a separate risk appraisal and forward-looking analysis is required.

Key challenges for participants

A core component of successful environmental management involves having structured Management Systems. Figure 3, below, shows that the GRESB performance of funds which have active Environmental Management System programmes score consistently higher across the performance themes. This highlights the importance of applying EMS principles to infrastructure assets and funds.

One observation we have made from working with infrastructure assets is that, due to complex investment structures, assets tend not to have asset specific Management Systems, with a tendency to rely on corporate level commitments and documentation to drive ESG issues.  This potentially leaves assets passively managing ESG and not proactively driving forward improvement plans.  Historically GRESB has simply encouraged assets and funds to acknowledge ESG as an issue and awarded points accordingly.  However, each year the scheme progressively tightens its requirements by awarding points for demonstrable improvements in performance and having long term improvement targets. Therefore, having a dedicated ESG programme active at asset level will soon become the essential for GRESB success.

EVORA has been providing GRESB support since its inception and we are proud to be GRESB Global Partners.  Our experience has shown us that clients who proactively engage with the process of GRESB each year, by using it to continually drive ESG improvements over time, do the best.  EVORA therefore encourage all participants to consider GRESB as ‘a journey, not an event’.

Performance data for Infrastructure assets

GRESB are making strides in the right direction by beginning to incorporate questions on climate resilience aligned to TCFD, but the existing survey is not infallible. The current Infrastructure survey is particularly strong on the Management section, however the Performance section, which tracks numerical data, does not currently require evidence to be submitted or data assurance. At EVORA, we advocate a further drive towards assured performance data to ensure the data is reliable, accurate and externally verified. This will add extra credibility to the overall survey.  

In contrast, the Real Estate survey requires tools for data management to ensure integrity and quality.  Data management is so important that EVORA developed its own software platform, SIERA, to help dynamically manage data collection, and provide quality checks and validation. We envisage data within the infrastructure survey requiring a similar data intelligence tool to manage data flows which will bring parity between the two schemes.

A further point of note is the subtle but necessary move from simple retrospective data reporting to predictive scenario analysis. This switch is most notable for forecasting pathways to Net Zero, which has become essential for forward-looking investors seeking to align to Paris Climate Change Agreement.  But is also beginning to be applied to other ESG themes for those wishing to deliver against UN SDG’s as GRESB have introduced some new impact reporting questions into the 2021 survey. In respect of Net Zero Carbon pathway modelling, Real Estate can use the Carbon Risk Real Estate Monitor (CRREM) tool to assess asset stranding risk. However, there is currently no equivalent tool for Infrastructure, despite the fact significant decarbonisation will be required for Infrastructure assets and funds.

GRESB Infrastructure Public Disclosure

GRESB has recently partnered with the Global Listed Infrastructure Organisation (GLIO) and have launched a new ESG Index (January 2020) [1], which is being introduced this year.  The index is the first of its kind and intends to address ESG issues in the investment process to gain a deeper insight into the risks and opportunities that materially impact the value and performance of infrastructure investments. GRESB Infrastructure Public Disclosure is unique in its focus to measure only material ESG disclosures by listed infrastructure companies and vehicles. The evaluation is based on a set of indicators aligned with the GRESB Infrastructure Asset Assessment, allowing for a comparison of ESG disclosure performance between GRESB participants and select non-participants. It also provides investors with a resource hub to access ESG disclosure documents across their full investment portfolio.

With the index comes the need for increased transparency and information around listed infrastructure ESG performance, and it can be assumed the two schemes will progressively align to drive integrated financial and ESG reporting. GRESB have released guidance on the Infrastructure Public Disclosure, which explains how it works alongside the annual survey, with similar timelines for data collection, validation and results. 

GRESB Infrastructure Public Disclosure data is initially collected by the GRESB team for selected companies, including the entire GLIO Global Coverage Index as well as both 2020 GRESB Infrastructure Asset Assessment participants and non-participants. It consists of four Aspects: Governance of Sustainability, Implementation, Operational Performance and Stakeholder Engagement. Together, these Aspects contribute towards a Public Disclosure Level, expressed through an A to E sliding scale. The index includes 30 indicators, covering four Aspects. Each indicator is scored between zero and full points, depending on the availability of evidence and selected answer options. Combined, these indicators add up to a maximum of 100 points. Constituents receive a GRESB Infrastructure Public Disclosure Level, from A to E, based on the following scale:

GRESB Infrastructure Public Disclosure LevelNumber of points receivedGLIO/GRESB Index Band

The scheme is brand new but marks an initiative in the market which will, in time, improve ESG data quality enabling investors to have greater surety of asset and fund performance.  The index is free to register and use for all GLIO or GRESB members.  Further information on the index can be obtained here.

Future directions for GRESB Infrastructure

GRESB have stated that they will continue to shift the emphasis and scoring from management and transparency to performance to meet the needs of the investors and society. The annual survey is expected to track and respond to the wider ESG landscape, which comprises legislative changes such as the latest EU regulations, including sustainable finance (SFDR). This also includes initiatives and global agreements such as the UN Sustainable Development Goals. These drivers of change are already embedded into GRESB and will continue to gain greater prominence within the future schemes. Impact and outcome reporting are also expected to become a future area of performance measurement and asset differentiation, for which many infrastructure assets are well placed to achieve good outcomes.

There is no doubt that the GRESB Infrastructure survey will continue to grow in importance and provide valuable ESG information to investors. The addition of the GRESB Infrastructure Public Disclosure adds a new dimension to the scheme, placing emphasis on publicly available information. Infrastructure Assets and Funds will be required as a minimum to have well-established Environmental Management Systems in place with targets for improving their performance, as well as looking towards more mature sustainability strategies which incorporate climate resilience and TCFD alongside the UN’s SDGs. GRESB reporting will continue to play a role in helping infrastructure assets in contributing to a more sustainable future, placing an increasingly high expectation on the sustainability approaches of participants. 

If you would like to discuss GRESB Infrastructure or wider sustainability support, contact the team at


Building Back Better the Potential of Infrastructure

By Matthew Brundle and Natalie Sinha.

Can Infrastructure Shape a New Sustainable Future and what should investors know?

As global populations increase, the UN estimates that there will be 9.8 billion people on the planet by 2050. Estimates predict that 68% of the global population will be in urban areas by this time. [1] With an increasingly urbanised global population, the number of megacities is also expected to increase rapidly to 43 Megacities by 2030, with more than 10 million inhabitants in each.  There is evidently a pressing challenge to ensure that infrastructure embeds sustainability into cities by encouraging low emissions lifestyles and promoting equitable living. With the passing of 2020 under the cloud of the global pandemic of COVID-19, we are moving into a new decade. This decade has been billed as ‘the decade of action’ on sustainability. What role should infrastructure play in meeting the challenges of sustainability and climate change whilst rebuilding economies? 

Firstly, we need to consider the existing environmental, social and economic impacts from infrastructure to understand how it can be used in building a more sustainable world.  Not all infrastructure is equal today or will be in the future in terms of environmental impact and as a force for positive social change.  Traditionally, public and private sector investors have viewed infrastructure as a safe, long term and stable investment class, which makes infrastructure investments ideal for pension fund investors and Government bonds.  However, the picture is complex and nuanced: there are signs investors are seeking to acquire specific types of infrastructure classes, whilst moving away from others. Furthermore, the COVID-19 pandemic has exposed the vulnerability of some infrastructure assets in a changing world, a prime example being that of transport infrastructure.

In the recent annual investor survey by IPE Real Assets two questions revealed this changing attitude [2], demonstrating that infrastructure remains an attractive investment class overall, but renewable energy and telecommunications/digital infrastructure are providing the most interest from investors compared to other types of investments.

Infrastructure in a changing world

The COVID-19 pandemic has also highlighted the need to re-think what the future of infrastructure might look like, taking into account future patterns of work, recreation, and travel.  Whilst it is apparent that people will want to travel again once restrictions have been lifted, the way we travel in the future is still a point of speculation: the mode of transport, frequency of travel and destinations are likely to be reshaped. These factors will profoundly impact future infrastructure considerations determining city growth and regeneration plans. 

It is self-evident now that our reliance on telecommunications and digital infrastructure has never been greater, for keeping in contact with friends and family, working from home, and shopping online. In our reshaped world, digital communications will continue to become an even more essential part of keeping global markets open. They also provide an opportunity to do business more efficiently and with a lower carbon impact by avoiding unnecessary global travel.  A key challenge for this asset however it to ensure that society as a whole has equal access to the new digital word.

The recent speeches by UK Prime Minister Boris Johnson and US President Joe Biden highlight the pivotal role digital technologies play in re-invigorating society and unlocking regenerative growth from struggling old industrial cities with the new digital technologies of the future.

The most pressing challenge of our time however is the transformation of energy infrastructure: moving from existing fossil fuel intensive sources to low and zero emissions energy. There is no doubt there is a need for continued but more rapid energy transformation both in terms of technology adaption and grid decentralisation.  The current challenge for major power generation plants is centred on a delicate balancing act, requiring careful downscaling of existing fossil fuel intensive assets, whilst continuing to manage them well. This will potentially enable some fossil fuel assets to minimise emissions today and potentially be converted to run on lower emissions fuels in the near future, such as switching from natural gas fired power stations to lower emissions gases like hydrogen.

There are also challenges in how the energy sector dovetails with the built environment and real estate sector.  For example, enabling the increased use of renewable energy sources, incorporating energy storage into the grid, as well as integrating power management systems to increase energy network resilience. The energy infrastructure system therefore needs to undergo significant change as it plays a key role in supporting the delivery of net zero carbon for real estate.

Governments committing to building back better

It is both encouraging and timely that  the new US Biden administration and the UK Government have been raising the profile of infrastructure during recent speeches and have committed to “build back better”.  They have stated the intention to invest in infrastructure to provide multiple benefits: tackle the climate crisis; redress social inequities highlighted by the pandemic; and use infrastructure investing as part of their ‘levelling up’ agendas. 

In addition, Alok Sharma MP, the President of the UN Climate Change Conference of the Parties, which is scheduled for November 2021 in Glasgow, has also referred to the need for infrastructure to be central to building back better. In fact, the theme is becoming so central to the UK Government policy for 2021 and beyond it has established a dedicated Build Back Better Business Council with the inaugural meeting being held on 18th January 2021. [3]

The Prime Minister outlined the need to seize opportunities of Brexit, support job creation, cement the UK’s position as a science superpower, deliver an upgrade to infrastructure and launch a green industrial revolution – ensuring that we build back better, fairer, greener, and faster.

The Chancellor laid out the three key pillars of the government’s plan to drive growth beyond the pandemic: investing in infrastructure, skills and innovation. He set out that improved infrastructure leads to improved productivity, [and] skills are the single best way to drive human productivity and key in addressing regional disparity, and investment in innovation is critical to deliver new growth, ideas and services.

So why is investing in infrastructure the right thing to do at a time when the global economy seems on its knees?  The truth is Governments around the world have always favoured investing in infrastructure as a fundamental element of growing an economy. Not only does it demonstrably invest in your own nation and its future generations, but it also stimulates economic inward investment throughout the economy, enabling it to grow or regrow from within.  A 2009 report entitled ‘Construction in the UK Economy: The Benefits of Investment’ showed that every £1 spent on UK construction led to GDP growth of £2.84 [4].  The report also showed that, of the money invested in the construction sector, over 70% remained in the local and national economies. This is due to stimulation elsewhere in the construction value chain, benefits of employment opportunities and wider social and economic benefits such as better education services delivering a higher-skilled workforce.

More recently, a 2018 report by CECA entitled ‘The social benefits of infrastructure investment’ [5] illustrated the social value of investing in infrastructure. The report uses case studies to show how infrastructure shapes our everyday lives in many ways we take for granted, ranging from how we work, travel, spend leisure time, respond to climate change and tackle poor quality in urban environments.  It also reminds us that past major public health crises have sparked ground-breaking innovation in infrastructure: after four major cholera outbreaks in London between 1832 and 1866, Joseph Bazalgette revolutionised the sewer network for central London which was instrumental in relieving the city from cholera epidemics, while beginning to clean the polluted River Thames.  The pandemic crisis of 2020 has the potential to spark similar transformational changes in our infrastructure networks and systems.

The future of infrastructure?

We have sought to highlight some of the key global patterns in infrastructure investing, as well as governmental commitment to ‘building back better’. It is clear that the landscape of infrastructure is continually evolving and can play a central role in economic rebuilding and growth.

Humankind is unquestionably at crossroads in how we shape our society and the future.  EVORA firmly believes that through drive, creativity, and passion there is much to be gained from tackling the challenges set out in this article.  Whilst some investors may see the challenges discussed in this paper as a significant risk to your investments, we urge you to also consider them as significant opportunities and to do more for your investors and for the next generation by embracing sustainability and ESG and using this to drive forward innovation.

On a final point and note and inspiration, in a recent article published in IPE in January 2021, it is noteworthy that the United Nations Principles for Responsible Investment (UN PRI) and some significant pension fund investors have called for dialogue with the UK Government on practical ways to access the ‘unrealised reservoir of support from the investor community for stronger climate action’ [6] and to help the delver UK’s 10 Point Plan for a Green Revolution [7].  Although the discussions have not been undertaken at this stage, it is evident there is a strong appetite for ESG financing for the benefits of investors and society.  What a great way to start a new decade.

If you would like to discuss improving the sustainability of your infrastructure assets or funds, please contact us at



How can ESG help deliver better infrastructure?

Infrastructure is vital for living comfortable, convenient modern lives.  Every day, infrastructure systems are working beneath the ground, on the land, and above our heads. Each morning, when you turn on the tap, power up your computer, or step outside to travel to work, you are interacting with infrastructure.  Infrastructure has a life of its own and without it our modern lives would be very different.

Infrastructure is a huge area of investment globally which attracts both government and private sector funding. Due to its size and complexity, it often requires a complex mix of investment strategies including debt, equity and bonds.  Infrastructure assets, alongside real estate, are categorised as real asset investments and therefore they share similar Environmental, Social and Governance (ESG) risks and opportunities.  However, the scale and complexity of infrastructure assets can create some unique challenges.

The United Nations predicts that population growth will continue, reaching 9.7billion people on the planet by 2050. Much of this population growth will be in urban areas, and infrastructure provisions will need to grow alongside the population. As a result of the continued and growing demand for infrastructure provisions, infrastructure assets have significant potential to positively affect the environment and society. These assets will also play a role in creating a successful and resilient response to the challenges of a changing climate, as well as being affected by climate change themselves.

Due to the pivotal role infrastructure assets hold in meeting current and future demand, and their centrality in addressing climate change, they have varied and wide ranging stakeholder interest groups with high levels of expectation when it comes to ESG delivery.  For this reason, EVORA are seeing many investors coalesce and gravitate toward the United Nations Sustainable Development Goals (UN SDGs) as a suitable framework that addresses stakeholders concerns and which they know and understand.  Increasingly, there is a growing expectation that implementing effective ESG strategies aligned to the UN SDG’S which address the associated risks and opportunities and link actions to outcomes is becoming the minimum requirement.

This year, the Covid-19 pandemic has profoundly impacted the global economy, causing many to take stock, reflect and consider the future of society. We face dual crises: responding to the pandemic and addressing and responding to environmental and social challenges, including climate change. In a post-Covid world, infrastructure can be central to addressing these multiple challenges. This has been solidified by both the UK Government and the new US administration pledging to place investment in infrastructure at the heart of their ‘build back better’ programs. 

So why look at infrastructure now? Firstly, investment in infrastructure development is urgently needed to replace aging and poorly performing assets with assets fit for the 21st century that positively address the climate crisis.  Secondly, infrastructure assets are fundamentally about investing in future generations but also, crucially, provide much needed jobs today, thereby providing an excellent way to rebuild and diversify regional and national economies.  With these factors in mind, having robust ESG management becomes essential in managing outcomes as well as demonstrating effective use of funding vehicles.

In the recent Aviva Real Assets Study 2020 [1], in which global institutions were asked about their views on ESG post-COVID, the overwhelming response showed ESG as front and centre for investors’ concerns. 81% of respondents stated that ESG objectives and delivering on sustainability is a primary duty of their organisations.  Furthermore, 91% of global insurance and pension fund investors are now committed to delivering Net Zero.  As a result, infrastructure assets in all its various classes and forms are the foundation for how the Net Zero commitment will be realised.  The Aviva survey also indicates that ESG has evolved in its sophistication and needs to be considered as a balanced a score card between the ‘E’ and ‘S’ and not simply about environmental risk management that has been the focus in the past.

So how can the ESG and sustainability agenda be delivered in practice?  There are a variety of excellent reporting frameworks, such as GRESB and the UN Principles for Responsible Investment (PRI), for investors to work within which provide globally recognised frameworks which set a baseline for benchmarking performance.  Launched in 2016, GRESB Infrastructure continues to grow in popularity, with over 426 assets totalling $579billion assets under management participating in 2020.  As the scheme evolves, greater focus is given to performance outcomes rather than just good intentions.  Now more than ever, it is imperative for investors to analyse, understand and seek ways to optimise ESG performance in their investments. Reporting is a great place to start.

We have been working with closely with investors over the past decade to deliver best-in-class ESG practices, helping them strive to constantly do better by setting ever more ambitious targets to improve ESG performance. EVORA can help you understand and optimise your infrastructure ESG approach. If you are interested in finding out more, contact the team at


Climate Risk Readiness White Paper

1.   Why is climate change such an important investment risk for investors in real estate & infrastructure?

A summary of the factors driving change in the real asset markets.

In early 2020, before the pandemic hit, BlackRock’s Larry Fink called out the fact that “Climate Change is Investment Risk”. Three paragraphs of his annual letter stood out, highlighting the connection between material climate risk, their impact pathways, and the drivers of asset value:

“Will cities be able to afford their infrastructure needs as climate risk reshapes the market for municipal bonds? What will happen to the 30-year mortgage – a key building block of finance – if lenders can’t estimate the impact of climate risk over such a long timeline, and if there is no viable market for flood or fire insurance in impacted areas? What happens to inflation, and in turn interest rates, if the cost of food climbs from drought and flooding? How can we model economic growth if emerging markets see their productivity decline due to extreme heat and other climate impacts?

“Investors are increasingly reckoning with these questions and recognizing that climate risk is investment risk. Indeed, climate change is almost invariably the top issue that clients around the world raise with BlackRock. From Europe to Australia, South America to China, Florida to Oregon, investors are asking how they should modify their portfolios. They are seeking to understand both the physical risks associated with climate change as well as the ways that climate policy will impact prices, costs, and demand across the entire economy.

“These questions are driving a profound reassessment of risk and asset values. And because capital markets pull future risk forward, we will see changes in capital allocation more quickly than we see changes to the climate itself. In the near future – and sooner than most anticipate – there will be a significant reallocation of capital.”

On its own, this proclamation from the CEO of the world’s largest asset manager might have created a few ripples in the investment markets, but not create a wholesale market transformation. However, the letter sandwiched an unprecedented period in the history of mankind’s battle with climate change. At the end of 2018, the UN Intergovernmental Panel of Climate Change (IPCC) published a Special Report on the impact of global warming of 1.5°C, which provided a stark warning about the consequences of inaction on climate change. In the period between these two events, several other activities took place which reinforce the market change:

  • Public opinion about the need to act on climate change shifted significantly in favour of action, in no small part to the meteoric rise in popularity of Greta Thunberg’s ‘Fridays for Future’ school children protests and the disruption caused by other campaign groups, such as Extinction Rebellion (XR) protests, and legal class actions brought forward by student groups around the world.
  • Climate science and the quality of climate modelling continues to improve, with recent work showing that the likely outcome of global warming will be between an average global warming of 2.6°C and 3.9°C. This is well above the low-risk threshold of 2°C agreed at the 2015 Paris Climate Summit (COP 21) and the preferred target of 1.5°C.
  • Significant capital reallocation towards delivering ESG objectives happened during 2019 and continued into 2020.

These factors, combined with new and forthcoming government regulations, would suggest that climate change and broader sustainability (or Environmental, Social & Governance) issues are here to stay for investors. Their material impact on financial returns is starting to become better understood as more time and money is invested in improving our knowledge and its application in real asset investment markets. Ignorance of these issues is no longer an excuse.

The way in which climate risks are being understood is in 3 categories:

  1. Physical risk
  2. Transition risk
  3. Litigation, or Liability, risk

For physical risk, the first step is to understand which climate-related hazards present a material risk, both now and over the period of an investment, including the disposal value. For instance, the materiality of a flood hazard could increase over time as climate change creates the conditions for more frequent and/or more severe floods causing damage or disruption to an asset. The impact pathway for that hazard could be that the repair costs and frequency of the floods means that an asset becomes uninsurable. Another impact pathway could be that the flooding makes it impossible to access an asset, which in turn reduces occupancy and the related revenue that generates.

The complex nature of the changes brought about by our warming climate means that the risk hazards and impact pathways could influence the drivers of asset value in multiple ways.

Whilst some of these material risks are apparent today, there are many others which will become much more visible over the coming decade. The trends that we see which could accelerate changes to asset value include: increased environmental & social disruption; increasing government regulation; and the internalisation of these costs to mitigate climate change and to adapt to the consequences. Companies and asset managers need to be prepared to avoid the risk of litigation.

2. What are the expectations for how investors and asset managers will respond to climate risks?

There is increasing certainty about how to be prepared to action.

Climate-related financial risk is a new topic for investors. In 2015, Mark Carney, as the Governor of the Bank of England, gave a speech which warned of the threat of climate change to financial stability. He spoke of the “Tragedy of the Horizon” where inaction on climate change today imposes a cost on future generations that the current generation has no direct incentive to fix. Meaning that the time horizon for decision-making in typical business and investment cycle is not suitable for tackling the catastrophic impacts of climate change.

Earlier in the same year, the G20 asked the international Financial Stability Board (FSB) to report on how climate change risks could be accounted for in the financial sector. Both of these events were precursors to the UN Climate Summit (COP21) in Paris later that year. The international political agreement reached at COP21 was a watershed for international climate policy as governments agreed that a target of limiting global warming to 2°C is a necessity to avoid catastrophic changes and that getting well-below this figure was desirable, so 1.5°C is the stretch target. To achieve this target collectively, we need to stabilise greenhouse gas (GHG) emissions, measured in tonnes of carbon dioxide (CO2) equivalent, by 2050 – also known as getting to Net Zero Carbon or being Carbon Neutral by 2050. Failure to do this will mean that the Earth will continue to warm and the financial losses will be much greater.

This growing recognition that climate change and the related financial risks have to be considered in the financial markets led to the announcement during COP21 to establish a Task Force on Climate-related Financial Disclosures (TCFD) under the auspices of the FSB and chaired by Michael Bloomberg. The TCFD will develop voluntary, consistent climate-related financial risk disclosures for use by companies and asset managers in providing information to investors, lenders, insurers, and other stakeholders. Considering the physical, liability and transition risks associated with climate change.

One year later the TCFD published its Recommendations for consultation, which were finalised by the summer of 2017. Over the last 3 years since the Recommendations were released there has been considerable efforts made by the FSB-TCFD to build support for their adoption by actors in the financial markets. Recognising that preparing an organisation to embed a comprehensive response to climate-related risks could take 3 years.

In parallel to this promotion of TCFD over the last 3 years, GRESB has been piloting a Climate Risk Module as part of their annual disclosure and benchmarking process specifically for real estate and infrastructure. Other international Environmental, Social & Governance (ESG)/Sustainability reporting standards have also promoted more effective consideration of climate risks and preparedness.

Every year the UN published an Emissions Gap Report. In 2019, the report stated that we need to reduce global GHG emissions by 7.6% every year between 2020-2030. If we don’t start that level of reduction now, then by 2025 we will have to reduce emissions by 15.5% every year to hit the target and this will be more costly and still necessary. The later that we leave act to mitigate GHG emissions, the higher the annual cost of mitigation action and the increased likelihood of increase cost of adaptation to a changed climate. Many companies have now adopted science-based targets aligned with the UN to reduce emissions and to get to zero. Governments are following suit.

The Recommendations of the TCFD are not requirements, they provide voluntary guidance intended to help companies acting in the financial markets to better manage and disclose climate-related financial information. There are four key design features of these recommendations:

  1. They can be adopted by all organisations
  2. They are intended to be included in financial filings
  3. They are designed to solicit decision-useful, forward-looking information on financial impacts
  4. They have a strong focus on risks and opportunities related to the transition to a lower-carbon economy

As investors and asset managers consider how climate risks can be considered in their organisations, the TCFD core elements shown below provide a useful structure for getting the organisation ready to disclose the relevant financial information. The TCFD recommendations should be familiar in structure to CFOs and are reinforced by a recent opinion from IASB which recommends that IFRS reporting should include climate risk disclosure. This is almost a precursor to action on individual assets as the structure allows for a strategic approach to be systematically embedded in risk management and then embedded across all levels of the organisation, from corporate through entities / funds, investment, disposal, development and asset management processes.

EY’s ‘Global Climate Risk Disclosure Barometer’, which reviews the disclosure of 500 companies from 18 countries, shows mixed progress in 2019 in the adoption of the TCFD recommendations. Most progress has been made on ‘Metrics & Targets’ and ‘Governance’, whilst the quality of ‘Strategy’ and ‘Risk Management’ are the least developed. Their sector by sector comparison shows that the ‘Real Estate’ and ‘Asset Owners & Asset Managers’ sectors have made the least progress, in terms of coverage and quality. Suggesting that there is significant progress to be made by real estate investors and asset managers to be ready to manage and report on climate-related financial risks.

Whilst the TCFD Recommendations are voluntary, they are a precursor to mandatory disclosure in Europe resulting from the EU ‘Action Plan on Sustainable Finance’. At least for publicly listed companies and funds. Regulations which begin in 2021 will start this process of increasing disclosure.

The EU Taxonomy Regulation has set out a standard set of environmental impact categories, including Climate Mitigation and Climate Adaptation. This Regulation has established the principle of Do No Significant Harm (DNSH) and has set thresholds for what a ‘Significant’ positive impact looks like. It is expected that companies active in the EU will provide disclosure aligned to this taxonomy and it will provide investors with a common lexicon to use in global due diligence and in the scrutiny of fund performance as we experience more capital flowing into ESG funds.

3. How can a company ensure that they are prepared as an organisation to discharge their fiduciary duty?

There are clear steps that can be taken to be prepared to manage climate risks.

EVORA Global advises real estate and infrastructure investors and asset management in Europe and the USA who have global funds, with assets under management in over 30 countries. Our experience with these organisations has shown that there is a broad spectrum of Climate Risk Readiness. From the largest to the smallest they are considering how they respond to climate-related financial risks. They are having to do so now to ensure that they have access to the best capital.

To get ready, an organisation can undertake a Climate Risk Readiness Gap Analysis, which can be displayed on our EVORA Climate Risk Readiness Radar and compared to their peers. This assessment looks at the organisational readiness and is aligned with the TCFD Recommendations and upcoming regulations. It can be supplemented with fund and asset-level scoring of climate risk exposure and management readiness.

The EVORA Climate Risk Readiness Radar provides an evidence-based scoring mechanism to compare progress. Under each of the five categories – Governance; Strategy; Risk Management; Metrics & Targets; and Disclosure – there are five levels of organisational readiness, and each level has an associated set of actions. For instance, Level 1 Governance required all Board member are trained to understand their fiduciary duty regarding climate risk, including their main materials risks and disclosure responsibilities and requirements. The associated set of actions includes a risk materiality assessment of the organisation’s assets; formal training for the Board; and a declaration by the Board that all of its members have confirmed their understanding.

By understanding this gap analysis of organisational readiness, it is then possible to set out a roadmap for the coming years. This will enable the organisation to communication a clear plan to investors and other stakeholders.

Level 1 Strategy contributes to Level 1 Governance as it requires an assessment of material physical and transition risks through the use of climate scenario analysis. This should be segmented by time horizon, geography and/or sector. As this modelling is a standard requirement for getting to grips with climate risk there are several data analysis software tools now available on the market. The EVORA team has been evaluating which specialist data analysis partner to work with.

The majority of data services available today are focused on analysing physical risks, like the extreme weather impacts of heat, flooding and storms. Our approach to assessing the materiality of physical risks, and to answer the question “so what?”, is in three broad phases:

  1. A portfolio or fund screening of a range of weather hazards to prioritise a deeper investigation of the high-risk assets,
  2. An assessment of the impact pathways to create a shared understanding of how the hazard risk could impact the drivers of asset value, and
  3. A detailed investigation and assessment at asset-level of the specific, material hazards which impact value and are prioritised from 1 & 2 above.

These three phases provide a deeper understanding of risk than a high-level screening can provide. The intention is that this provides a detailed evidence base on which to define a credible, effective and appropriate climate risk strategy and the related processes for risk management. Both of these areas of climate risk management are presently considered weak in most company disclosures.

Today, there is not an existing data partner which can deliver on all three of these phases end-to-end so we collaborate with specialist partners to deliver a comprehensive Climate Risk Materiality Portfolio Assessment service for fund managers. EVORA usually extends this assessment to also cover Transition Risks, in particular forthcoming regulations which could affect value.

These two EVORA Assessments on Readiness and Materiality are essential building blocks in understanding the effort and exposure for an organisation’s preparedness on climate-related financial disclosure. The outputs will provide a clear roadmap for integration over the next few years.

Investor expectations of climate risk have moved on quickly over the last few years. Our expectation is that this acceleration in understanding and scrutiny will continue. Reinforced by new regulations, particularly the regulations flowing from the EU Action Plan on Financing Sustainable Growth and Paris’ climate mitigation goals, ever-improving climate models and continued emissions of greenhouse gases which are not in line with a Net Zero Carbon trajectory. Those investors who are not prepared are much more likely to acquire assets which are at risk, that is not aligned with science-based decarbonisation pathways and/or exposed to a changed climate. The need for organisational preparedness, embedded across all aspects of investment – i.e. asset management; acquisitions; developments; and disposal – is essential portfolio management. Good quality data and information is vital in delivering expected returns in a market which is transitioning to become low-carbon and adapted for a changed climate. 

EVORA is engaging with companies and relevant institutions to better prepare the real estate and infrastructure sectors for climate mitigation and adaptation disclosure. The approach outlined in this paper is difficult to fast-track in large organisations to ensure it is properly integrated. One of the biggest challenges which remains is solving the ‘Tragedy of the Horizon’ as this means that the actions required in an investment portfolio cannot always be taken within the investment lifecycle. The TCFD initiative is designed to address this challenge and, to be successful, this requires early and comprehensive adoption by real estate actors. We would recommend to our clients that early action on climate risk reduces the risk of Litigation or Liability Risk, as well as falling disposal values of asset exposed to Transition and Physical Risks. The steps outlined here will guide substantial and measurable progress.

EVORA’s Climate Resilience Service