Across the UK and Europe, this asset class is driving the transition to a low-carbon economy while offering investors the potential for stable, long-term returns.

Financing clean energy growth

One of the key areas where infrastructure debt is making an impact is renewable energy. In the UK, zero-carbon sources generated over 50% of the country's electricity in 2023 (1), and that percentage is set to rise as new wind and solar projects come online. According to a report by the International Energy Agency (IEA), the European Union must add over 75GW of renewable energy annually to meet its 2030 climate targets (2).

Infrastructure debt is a crucial enabler of this growth and at abrdn Investments we’ve been active in the market. Our investment in a portfolio of solar assets for CORE Portfolio Investments (an acronym for Community Owned Renewable Energy) demonstrates our commitment to deals with strong environmental, social and governance (ESG) credentials.

Not only is this portfolio of solar assets helping to decarbonise local neighbourhoods, but due to its community-ownership it ensures profits are kept within local economies, providing both an environmental and a social benefit to residents. The support of debt markets enables large-scale and small-scale renewable projects to secure the funding needed for long-term construction and operation, making clean energy more affordable and accessible.

Green rail transportation: decarbonising mobility

The decarbonisation of transport is critical to meeting climate goals, and green rail infrastructure is leading the charge. On a broad European scale, the expansion of high-speed rail networks is being heavily financed by debt markets.

The European Investment Bank (EIB) has provided almost €40 billion to modernise rail systems in countries like Italy and Spain (3). This shift towards rail is essential as transport remains responsible for about 25% of the EU’s total carbon emissions (4).

Meanwhile, in the UK, abrdn Investments has played a key part in the electrification of railway infrastructure with over £250 million debt invested in six rolling stock fleet procurement projects since 2016.

For example, we joined a consortium of lenders in 2017 to help finance 750 new electrical multiple units on the South Western franchise line. The now-operational trains offer greater peak capacity and are also lighter and more energy efficient than the previous fleet. This has reduced carbon emissions while offering customers a better overall service.

Energy-efficient buildings: sustainable living for future generations

Energy-efficient building solutions are becoming increasingly important, especially in student housing—a sector known for its high energy consumption. In the UK, initiatives like the Greening Universities program (5) have prompted universities to invest in energy-efficient student accommodations. 

Many of these projects are being funded in large part through infrastructure debt. For example, West Slope Residencies LLP – a joint venture between Balfour Beatty and the University of Sussex – began construction of 1,899 units of student accommodation in early 2024, committed to several sustainability-led initiatives. In addition to the units being built to a BREEAM Excellent accreditation* they will include green roofs, grey water recycling and low energy LED lighting. The accommodation will also benefit from campus district heating and solar arrays to lower carbon emissions. abrdn Investments was the lead investor for the transaction, supplying £123 million of inflation-linked debt.

Green building and retrofitting projects are two other areas where infrastructure debt is making a tangible difference. Europe’s building stock accounts for around 35% of carbon emissions (6), and without significant upgrades, this will be a barrier to net zero. In response, the European Union has launched the Renovation Wave strategy (7), aiming to at least double the annual rate of building retrofits by 2030.

Water security: reservoirs and sustainable water management

Water security is another critical challenge that infrastructure debt is helping to address. With increasing climate risks such as droughts and floods, the need for resilient water infrastructure has never been greater. In the UK, several reservoir projects have been backed by infrastructure debt to ensure long-term water security, particularly in areas facing rising demand and climate change pressures.

For example, the Havant Thicket Reservoir, which will secure water supplies for the South-East of England, is currently in construction, with abrdn Investments helping to finance this project through CPI-linked debt. The reservoir will increase water supply and deliver a net gain to wildlife habitats.  

The main ecological contribution is through a reduced need for water diversion from chalk streams, allowing wildlife that rely on this globally rare habitat to continue to thrive. The project also consists of an 80-hectare rewilding scheme, restoration of ancient woodlands and the creation of a sustainable wetland along the northern shore of the reservoir.

In addition to reservoirs, desalination plants and sustainable water recycling systems are being financed to improve water resilience. These projects enhance water security and reduce the energy needed to process and distribute water, contributing to broader net-zero goals.

An attractive, responsible investment

As ESG criteria become central to investment strategies, infrastructure debt is offering investors a way to align financial returns with sustainable outcomes. Demand for green infrastructure assets is rising, and debt instruments have the potential to provide the stable, long-term income that pension funds, insurers, and institutional investors seek.

According to a recent report from Preqin (8), infrastructure debt funds focused on Europe raised nearly €10 billion in the first half of 2023, underscoring the appetite for essential and climate-friendly investments. Investors are drawn not only by the possibility of attractive risk-adjusted returns but also by the opportunity to make a measurable impact on reducing emissions.

Bridging the net-zero funding gap

The International Renewable Energy Agency (IRENA) estimates that $131 trillion in investment is required globally to meet net-zero targets by 2050 (9), with Europe and the UK needing to mobilise a significant portion of that. Infrastructure debt is uniquely positioned to bridge this funding gap, channelling private capital into projects that directly contribute to the reduction of greenhouse gas emissions.

Final thoughts

In conclusion, infrastructure debt isn’t just about financing bridges and roads; it’s about building a sustainable future. By funding the critical infrastructure needed for the net-zero transition, debt markets are playing a vital role in achieving the UK and Europe’s climate goals and abrdn Investments is positioned at the forefront of this change. Investors have a real opportunity to support decarbonisation while benefiting from the resilience and long-term potential of infrastructure debt assets.