Climate Change and Net-Zero Goals Need Resilient Infrastructure Investment

A report from Ashurst, an international law firm, published in December 2021, reveals the significant disruption that will take place in the infrastructure sector in the next few years.

These changes are driven by the need to respond to climate change, sustainability, energy transition, and technological advancements and will impact the industry like never before.

The report states that as corporates and businesses are recovering from the impacts of the Covid-19 pandemic, they are faced with the pressures to respond to the push for sustainability, technological change, and climate change, which continues to offer opportunities across the global economy.

The report sought answers to the following questions:

• What is the magnitude of those changes, and how significant will they be?
• What are the barriers that may prevent the market from responding to them?
• What are the implications for designing and pricing infrastructure in the future?
• Do investors, governments, regulators and others understand the changes, and are they prepared to meet the challenges and opportunities they bring?

To answer these questions, Ashurst surveyed 124 business leaders – including c-suite members, in-house legal teams and general counsels, as well as commercial and business development executives.  

The findings showed a shift in a perceived risk to the infrastructure sector, one that is “reshaping its dynamics and testing the resilience of infrastructure assets to an extent not seen in the past” driven by these top three external factors:

1. the push to reach net-zero, with more than eight out of 10 respondents saying that its impacts are either high or very high,
2. technology ranked as second with 79% affirming its significant effect,
3. and the third is climate change according to two-thirds of the respondents.

The report states that “many infrastructure investors are already analysing their capital allocation through Environmental, Social, and Governance (ESG) filter, and will only invest in assets that meet global sustainability criteria.”

Regarding climate change effects on infrastructure investments, the report says that “the risks from climate change range from the impact of rising sea levels on cities to the effect of changing rainfall patterns on agricultural economies. Financial markets – and governments – are responding by issuing Green Bonds to back infrastructure projects that mitigate the effect of global warming.”

It highlights the importance of integrating ESG in infrastructure investments decision-making. Businesses need to be cautious with any representations they make about their ESG credentials, as this is the area where future claims and litigation will likely increase, the report says.

Responding to these long-term challenges will require the infrastructure sector to design, structure, and finance and build a climate-resilient infrastructure and future-fit asset to protect itself from climate change impacts and the ever-increasing global challenges. 

The report identified the critical role of governments in either enabling or hindering sector response through stable and coherent policy frameworks which work to ensure finance continues to flow, or the lack of it, which serves as a barrier to a coordinated response between governments and private sectors.

“After all, the public sector will not itself have the resources to meet the needs of electorates: the private sector will continue to be required to provide the funding to build the resilient infrastructure needed in the future”, the report says.

These increasing global challenges – increased risk, the growing impact of technology, the drive to net zero, and climate change are causing the market participants to shift their thinking about the sector. More than 80% of them say that they changed their approach to evaluating and assessing risk because of this changing landscape.

Mark Elsey, partner and global co-head of infrastructure at Ashurst, commented:

“This report highlights both the threats and the opportunities for the infrastructure market as it transitions to meet the challenges posed by the drive to net zero, new technology and other forces of change. There is clearly a significant pressure on all market participants to shift their approach and put a greater focus on more resilient infrastructure – assets that are flexible and robust enough for this changing landscape and will meet the needs of not just today but the future.”

Click the link to read the report: