• Investment Management

Private Infrastructure Investing and Sustainability

Infrastructure assets have the potential to derive environmental benefits from efficiencies.

Generally speaking, not every good economic decision leads to good outcomes for the environment. Industrial and commercial developments have often produced what economists call “negative externalities”—what laypeople simply call pollution. The public has grown used to the idea of business interests and environmental groups as adversaries.

This perspective, however, has increasingly become outmoded, particularly with respect to infrastructure investors and private equity firms. A key strategy among the largest investors in infrastructure—large, tangible systems that provide essential services to society, such as energy, utilities and transportation—is to add value by making upgrades, leveraging new technology and seeking efficiencies. In many cases, such improvements have yielded high standards of environmental responsibility while enhancing the operations and value of the assets.

This runs counter to how sustainability advances are usually envisioned, emphasizing environmental considerations as the priority and often viewing any economic advantages as an afterthought or a fringe benefit. Here, the equation is turned on its head, as the “fringe benefit” of the normal course of business can be significant gains for the environment.

Because infrastructure assets serve such a wide swath of the public and possess a large footprint—both geographically and carbon-related—the potential to derive environmental benefits from efficiencies is limited only by the breadth of the market. In addition, the management running privately held infrastructure investments can more easily make business decisions that have a large operational impact, including those that may result in economic advantages only over the long term.

Examples abound. In air transportation, “winglets” designed to cut fuel costs simultaneously reduce the amount of carbon emitted by the plane’s engines. The upgrading of old-fashioned single-space parking meters to electronic Pay-and-Display stations result in additional spaces and more efficient maintenance, but also reduce battery waste and automobile exhaust. Conversion of residences to natural gas cuts costs for both the provider and the consumer—and cuts CO2 pollution as well.

One takeaway from this phenomenon is that we can no longer frame sustainability as an either/or proposition. Conducting business as usual and achieving gains for the environment do not have to be at odds. As the dynamic between economic and environmental efficiencies is better understood, the rate of gains in sustainability will only accelerate.

To read the full report, “Infrastructure Management and Sustainability: The Benefits of Keeping the Horse Before the Cart,” click here.