Prima facie, the answer to the first question might be expected to be the reporting of ESG performance and the characteristics of infrastructure investments. In our survey, we find that reporting to regulators and stakeholders is indeed high on investors’ list of reasons for requiring nonfinancial data to be disclosed. However, the main driver of this demand everywhere is portfolio risk management.

Climate risks are the most important, and they are not priced
This finding suggests that ESG risks are not fully reflected in asset prices today. Indeed, if these risks were fully priced, investors could in large part manage them through the prism of asset prices. Climate risks are extreme risks and require going beyond standard measures of risk like volatility and correlation metrics. However, not only is there a lack of robust data on tail events, but climate-related tail events are all in the future. There is no time series of realised price information in the event of significant shifts in the climate.

The survey also finds that of all the ESG risks, investors in infrastructure are overwhelmingly concerned about only one class of risks: climate risks (physical and transition risks) which are ranked first or second by almost 80% of respondents. In comparison, environmental impacts and risks are reported to be the main concern of a few investors, while social acceptability and governance issues have received little attention so far.

Investors need non-financial benchmarks

Finally, it transpires from survey responses that while infrastructure investors typically have access to the asset-level non-financial data for their own assets and portfolio, they lack standardised data that can be compared to a benchmark. In effect, the amount of data to which they currently have access to is too limited for them to have a view on ESG for the purpose of risk management or reporting performance on a relative basis.

Download the survey findings to read more.