“With [infrastructure] asset lives spanning several decades, understanding ESG factors is critical to mitigating risk and maximizing returns,” explained Patrick Kanters, Managing Director of Real Estate and Infrastructure at APG Asset Management (Dutch pension plan with US$470 billion AUM). A standardized ESG benchmark allows investors to systematically assess risks, compare relative performance among current and prospective infrastructure holdings and engage fund managers and asset operators to improve performance. This is increasingly relevant because many long-term investors see infrastructure as an attractive asset class matching value appreciation with long-term liabilities, serving as a hedge against inflation and often providing predictable cash flows.
Identifying ESG risks or poor performance does not mean an investment will not be undertaken or withdrawn. Rather, the benchmark enables investors to have an informed conversation with managers and operators and mitigate, price or manage risks and opportunities. The end result is increased performance. “I am a believer in market forces,” says Nils Kok, CEO of GRESB, pointing to studies demonstrating links between financial performance and ESG performance in real estate. The GRESB real estate survey has been a very important tool in facilitating this analysis which in turn has been key to the benchmark’s success.
The GRESB survey benefits infrastructure fund managers, operators and assets as well. Having one standard will reduce the work of investees who often respond to different ESG questionnaires from multiple investors. One of the largest benefits will be the sharing of best practices within the same sector and portfolios. This is something that the founding members already have experienced success with and expect more of with increased scale.
Finally, this initiative seeks to increase investments in infrastructure while improving efficiency, social performance, and climate resiliency. As noted by one attendee, infrastructure is one asset class where increased sustainable investments almost certainly leads to significant societal benefits. This is reflected by the fact that increasing resilient infrastructure is one of the UN’s 17 Sustainable Development Goals.
How it works: The best of GRESB, tailored to infrastructure sectors