But how do major infrastructure investors ensure their portfolio meets both sustainability needs and their financial objectives?
In our latest Sustainability Inspires podcast, Ruairi Revell, Head of Sustainability, and Maciej Tarasiuk, Head of Investments for abrdn’s economic infrastructure business, discuss how they select, engage with, and manage infrastructure investments to achieve optimal outcomes for abrdn investors and society.
Long-term cashflows
As Ruairi and Maciej explain, their strategy covers both ‘core’ infrastructure and ‘core-plus’ infrastructure. They invest in four key sectors: regulated utilities, energy (including renewable generation), transportation, and digital infrastructure.
By investing directly and for the long term in small and mid-cap infrastructure companies across Europe, they aim to capture stable cashflows and enhanced risk-adjusted returns. Through a hands-on collaborative approach, opportunities for growth and efficiency can also be pursued to enhance value over time.
Sustainability as an investment factor
Ruairi and Maciej are keen to stress that delivering sustainable outcomes is not currently an objective of their funds in its own right. Instead, sustainability considerations are just one set of factors that are relevant to creating long-term value for investors.
Nonetheless, they are excited about the role that infrastructure plays in the world. “We’re investing new capital directly into assets that are providing vital services to society – that keep the economy going,” says Ruairi.
“We’re not going to resolve big challenges like climate change without more and better infrastructure.”
Direct control
What makes their infrastructure strategy different from other types of investment, such as listed equities and fixed income, is the level of direct control that the abrdn team has. The team sits on the Board of each investment they make and sets the business plan with management. They can apply their experience from one investment to other assets in the portfolio.
This can be especially helpful to the younger companies that the team often works with – especially when it comes to developing environmental, social and governance (ESG) policies for the first time and driving value by taking an active approach.
A focus on small and mid-cap companies can also mean the team gets involved in a sector at a very early stage. For example, the team first started to engage with Poland’s nascent solar PV sector in 2018, when there was only around 400MW of capacity in the whole market.
As one of the first large international investors in solar power in Poland, abrdn was instrumental in enabling the market to develop. Through incremental investments, abrdn has built a portfolio of around 400MW, effectively doubling the national capacity and encouraging the market to reach around 20GW in 2024.
But that’s not only been good from a sustainability perspective and cutting Poland’s greenhouse gas emissions. By being an early entrant, says Maciej, the team has also been able to invest on terms that generated superior returns to those generally available to later entrants as the market has become more commoditised.
Win-win situation
The team is clear that one of the satisfactions of infrastructure investing is being able to collaborate every day with companies. We help to improve efficiencies in areas like district heating, develop new and better technologies, and even enable fossil-fuel-based infrastructure to transition to green energy.
All of this allows abrdn – as Maciej puts it – to deploy capital in a more value-accretive way. “It’s a kind of win-win situation where what we do benefits the climate. But it also benefits our investors by being able to generate additional value through more efficient operations,” he says.
For Ruairi, it’s very much about delivering valuable long-term assets that are fit for the future.
“We can get these big sustainability challenges and cold hard commercial reality to come together to work. And that’s really where we find value and what we enjoy doing every day.”