With the world grappling to combat climate change, the investment case for investing in new, net zero infrastructure, has never been stronger. From transportation networks to energy grids, industry and food production, every aspect of infrastructure plays a pivotal role in the reduction of greenhouse gas emissions and the building of a resilient, sustainable economy.

In this article, Ed Simpson, Head of Energy and Infrastructure at Gravis Capital Management, explores the climate imperative behind infrastructure investment and delves into the multifaceted business case that supports such investments.

Climate change poses a significant threat to the stability and sustainability of our planet. Extreme weather events, rising sea levels, and disruptions to ecosystems demand immediate action to mitigate and adapt to these changes. One key avenue for addressing this crisis is through strategic investments in new infrastructure that reduces carbon emissions. New sustainable infrastructure not only reduces carbon emissions, but also creates a more resilient foundation to withstand the impacts of climate change.

At Gravis, we believe that to reach net zero you need to do more than simply add more renewable energy generation to the system. Whilst renewables have been the key driver in decarbonising electricity, we need to do a lot more to decarbonise the wider economy: we need the infrastructure to facilitate cost effective investment in renewables, such as smart grid infrastructure, storage, energy efficiency and the decarbonisation of heat. We also need to work on the harder to abate sectors, such as transport, industry and food production, as well as creating business cases to remove carbon from the atmosphere through natural capital solutions.

Whilst there may be an environmental imperative to deliver new infrastructure to facilitate the transition to net zero, this must be paid for. Governments around the world are investing where infrastructure, that often provides a public good that is hard to monetise, is required. However, governments also recognise that they need to create the conditions for private investment to do the bulk of the work. They are therefore setting up incentives to support profitable private investment - through direct financial support in the form of grants, subsidies, or tax credits; or with regulations that seek to force the internalisation of external costs, such as carbon taxes or taxes on the production of waste or pollution.

Meanwhile, consumers are voting with their wallets; they are buying electric cars, sustainably produced food and making purchases from responsible suppliers that are minimising waste. This creates extra demand for new infrastructure, whilst demonstrating the risks of investing in assets that take many years to realise their value, and which may not be as sustainable as newer infrastructure.

Furthermore, sustainable infrastructure projects are less vulnerable to the volatility associated with finite resources and fluctuating commodity prices. By embracing renewable energy sources and adopting eco-friendly technologies, investors can hedge against the risks associated with fossil fuel dependency and resource scarcity. The inherent stability and predictability associated with sustainable infrastructure also contributes to a more secure investment environment.

Finally, whilst governments may need to kick-off investment in sustainable infrastructure by creating a market or demand, over time the new infrastructure has become cost competitive. For example, it is now cheaper to build new electricity generation capacity using renewables than traditional coal or gas fired power stations.

Gravis has a 14 year track record investing in new infrastructure. It is now looking to build on this experience and its networks to launch Gravis Net Zero Capital.

This new fund will make full use of Gravis’s expertise in smaller scale infrastructure, by focusing on lower mid-market projects (sub £50 million), and being a predominantly greenfield strategy with sustainability at its core. It will invest in a diversified range of infrastructure assets across the OECD that accelerate the transition to net zero, and is expected to be Article 8 under SFDR at launch.

The investment team has a strong track record of moving conservatively into new investment sectors early to capture attractive returns and then profitably exiting. For example, Gravis made its first investment in commercial solar projects in 2012 and achieved a 14.6% annual return for investors*.

The global need for infrastructure investment has reached a critical juncture. The climate imperative underscores the necessity of building resilient and sustainable infrastructure to mitigate the impacts of a changing climate. Simultaneously, the business case for infrastructure investment highlights the lower costs, reduced risks, and improved returns associated with sustainable projects, fuelled by government support and rising consumer demand.

Gravis Net Zero Capital will seek to make investments in the new infrastructure required to deliver net zero. By doing so, it will provide demonstrable positive environmental impact, alongside sustainable returns for investors. These returns will be made because of the sustainability, not despite of the impact.

*Source: Gravis, based on actual cashflows received between November 2012 and March 2018.

This article first appeared here on Net Zero Investor.

Important Information

This article has been prepared by Gravis Capital Management Ltd (the “Investment Manager” or “Gravis”) and is for information purposes only. It is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. Any recipients of this article outside the UK should inform themselves of and observe any applicable legal or regulatory requirements in their jurisdiction, and are treated as having represented that they are able to receive this article without contravention of any law or regulation in the jurisdiction in which they reside or conduct business.​

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Past performance is no guarantee of future performance.

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