Climate change is the defining issue of our time, and we are at a critical moment. Rising temperatures are already having a tangible impact on the global economy, on ecosystems and on society as a whole. The International Energy Agency estimates that investment in clean energy alone must reach USD 4 trillion annually by 20301 if we are to achieve net zero by 2050 and prevent catastrophic changes to health, livelihoods, water supply, food security, human security and economies.
These investment needs cannot be met by public funding alone: private capital has a huge role to play. One urgent challenge is to build the infrastructure that will be fundamental to the transition to a low-carbon economy – from clean energy production and storage capabilities to electric vehicle charging stations. As a result, infrastructure debt is an asset class at the forefront of the energy transition.
Resilience of the asset class
Infrastructure debt involves the financing of essential assets and services that benefit from high barriers to entry, predictability of cash flows, supportive regulatory framework and strong contractual frameworks. These characteristics mean the asset class has displayed resilience through economic cycles and offers an attractive risk-return profile with inflation-linked features. For institutional investors with the ability to lock money away for longer periods, it can serve as a useful portfolio diversifier, offering low volatility, a low correlation with public markets, stable income, and access to an illiquidity premium.
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