European sustainable infrastructure: in a sweet spot
Insights

European sustainable infrastructure: in a sweet spot

  • Infrastructure is critical to a well-functioning economy and society, but not all infrastructure assets are created equal. True diversification is key to building a defensive, resilient portfolio in line with the well-established infrastructure narrative.
  • Despite the unprecedented drop in economic activity and carbon emissions, global warming is not going away. The drive to accelerate the pathway to a lower carbon future has gained renewed urgency.
  • Uncertainty is here to stay. The way we live, work, travel and consume has changed and is likely to have long-lasting impacts on what and how infrastructure is delivered.
  • We are confident that our long-term investment thesis and strategy, which prioritise the themes of technology, disruption and sustainability, are well placed for the rapid shift in the economic order.
In a turbulent 2020 infrastructure was an apparent safe haven, proving relatively resilient. However, the unprecedented shock to the asset class across all industry sectors and geographies at the same time, in a short period of time, has provided food for thought on several issues:
Firstly, infrastructure is critical to a well-functioning economy and society, but not all infrastructure assets are created equal. For example, demandbased transportation assets such as airports and toll-roads were hit the worst. Renewable energy fared well, despite a 5% annual drop in energy demand,1 whereas renewables outside the electricity sector such as biofuels, as well as conventional energy, suffered more from the impacts of the Covid-19 crisis. Contracted and regulated assets benefited from more stability, while digital emerged as a clear winner. The answer lies in the level of sensitivity to economic cycles, not in the label. This year reminded us that true diversification is key to building a defensive, resilient portfolio in line with the well-established infrastructure narrative.
Secondly, infrastructure continues to attract significant investor interest. If anything, the prospect of lower interest rates for even longer served to make assets that can deliver resilient cashflows even more attractive. Fund raising for the first nine months of 2020 reached $78.5 billion, the second highest rate for that period since 2015.2 Furthermore, sustainability as a whole is in vogue, with public market fund inflows totalling more than €50 billion in 2020’s third quarter, or 40% of all European fund flows.3
Third, despite the unprecedented drop in economic activity and carbon emissions, global warming is not going away. The drive to accelerate the pathway to a lower carbon future gained renewed urgency. At the same time the pandemic highlighted social inequalities and fragilities in our societies. The concept of business needing a social license to operate gathered momentum, fortifying investor appetite for social investing. European governments enshrined infrastructure investment as a means to stimulate the post-Covid economy via significant green fiscal packages.

The pandemic has highlighted social inequalities and fragilities in our societies. The concept of business needing a social license to operate gathered momentum, fortifying investor appetite for social investing

Fourth, uncertainty is here to stay. The way we live, work, travel and consume has changed and is likely to have long-lasting impacts on what and how infrastructure is delivered. 2020 showed that even within infrastructure transitions can happen at warp speed. Digital infrastructure is a perfect example: following the mass migration to work and study from home, demand for data proliferated. This rapidly accelerated a structural trend which has long been coming, with communication infrastructure becoming an integral part of a well-functioning economy. A survey by McKinsey4 estimates this acceleration in the order of three to four years is boosting the growth of data centres, for example.

Where do we believe we can find value in 2021 in core infrastructure? The answer is in the huge amount of investment needed to achieve Europe’s goal of a sustainable energy transition

All of which makes us confident that our long-term investment thesis and strategy, which prioritise the themes of technology, disruption and sustainability, are well placed for the rapid shift in the economic order.
So, where do we believe we can find value in 2021 in core infrastructure which is the strategy´s focus? The answer is in the huge amount of investment needed to achieve Europe’s goal of a sustainable energy transition. The EU’s Green Deal proposes to invest in excess of €750 billion5 in support of this, with initiatives focused on hydrogen, heat and buildings, electric vehicle charging, energy storage and batteries. Much of the opportunity in these sectors is naturally in the mid-market.
Many are new sectors, but importantly we believe a significant source of generating alpha is to invest in transition assets – that is to say “brown” assets which provide essential social and economic services, but which have clear and ambitious aspirations to transition to green. We are excited about the years ahead. The powerful drive for a green recovery can only strengthen our investment thesis and result in more opportunity.
14 January 2021
Ingrid Edmund
Ingrid Edmund
Senior Portfolio Manager
Share article
Share on twitter
Share on linkedin
Share on email
Key topics
Related topics
apple-podcast
Spotify
listen-on-Stitcher-badge
castbox
Share article
Share on twitter
Share on linkedin
Share on email
Key topics
Related topics

PDF

European sustainable infrastructure: in a sweet spot

1 https://www.iea.org/news/renewable-power-is-defying-the-covid-crisis-with-record-growth-this-year-and-next, November 2020.

2 Infrastructure Investor; Q3 Fundraising Report 2020. https://www.infrastructureinvestor.com/fundraising-reports/

3 Morningstar, October 2020.

4 https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/how-covid-19-has-pushed-companies-over-the-technology-tipping-point-and-transformed-business-forever, October 2020. 5 https://

5 https://www.reuters.com/article/us-eu-bonds-environment-idUSKCN24G1HD, July 2020.

Important information

The research and analysis included on this website has been produced by Columbia Threadneedle Investments for its own investment management activities, may have been acted upon prior to publication and is made available here incidentally. Any opinions expressed are made as at the date of publication but are subject to change without notice and should not be seen as investment advice. Information obtained from external sources is believed to be reliable but its accuracy or completeness cannot be guaranteed.

Related Insights

26 February 2021

Mark King

Head of Investment Content

Market Monitor - 26 February 2021

Global stock markets have endured another volatile week: while there are encouraging signs regarding the end of the pandemic with the vaccine roll-out continuing across Europe and North America, investors are growing more and more concerned about rising inflation.
Read time - 5 min
25 February 2021

Iain Richards

Head Of Responsible Investment

Climate change, net zero and the employment myth

Press headlines have suggesting that as many as 10 million UK jobs would be at risk from the UK’s transition to net zero over the next three decades. Is that really the potential implication of the UK’s decarbonisation plan?
Read time - 8 min
22 February 2021

Fixed Income Desk

In Credit - Weekly Snapshot

In Credit Weekly Snapshot - February 2021

Our fixed income team provide their weekly snapshot of market events.
Read time - 3 min

You may also like

Investment approach

Teamwork defines us and is fundamental to our investment approach, which is structured to facilitate the generation, assessment and implementation of good, strong investment ideas for our portfolios.

Funds and Prices

Columbia Threadneedle Investments has a comprehensive range of investment funds catering for a broad range of objectives.

Our Capabilities

We offer a broad range of actively managed investment strategies and solutions covering global, regional and domestic markets and asset classes.