Poised for Transformation
Ben Howard-Cooper, Head of ESG Analytics and Research at Infranity, explains how the emerging ‘impact in infrastructure’ space is delivering impact alongside returns.
In a world where generic ESG investment strategies face increasing challenges, infrastructure – especially impact-driven infrastructure – stands out as an approach that delivers stable returns and meaningful sustainability outcomes. In general, infrastructure assets demonstrate resilience against market headwinds due to their strategic importance to society. From the electricity that powers our homes and industries to the transit systems that connect our societies, infrastructure sits at the nexus of economic growth, environmental stewardship, and social well-being. This makes it uniquely positioned to tackle many of the world’s most pressing challenges and provides investors with a compelling opportunity to drive capital towards meaningful projects, while investing in an asset class renowned for its secured cash flows.
Defining impact in infrastructure
There are several different approaches and strategies that general partners (GPs) can take within the ‘impact in infrastructure’ space. Formal impact strategies that rely on additionality, intentionality, and measurability, and prioritise non-financial outcomes alongside returns, have proven to be well aligned with the infrastructure sector. The inherent measurability of infrastructure, a key feature of dedicated impact strategies, has meant that the investment class has delivered compelling investment opportunities, particularly as reporting frameworks and measurement systems have consolidated to provide the market with a clear basis for comparison.
Indeed, even within a sustainable investment strategy not explicitly dedicated to delivering impact alongside returns, GPs can identify the projects that use positive impact tools to identify and make the most of market opportunities. This approach supports an authentic and clear investment narrative within the sustainable investing space, where broad themes untethered to real-life outcomes have fallen out of favor with many limited partners (LPs). It acknowledges and seeks to maximise the non-financial benefits of investing without imposing formal impact methodologies, distinguishing it from funds that specifically target impact returns alongside financial gains. Both approaches can appeal to LP appetite, and there is a strong overlap between the concepts.
The global impact investing market has experienced remarkable growth, with assets under management surpassing US$1.5 trillion in 2024 as noted by the Global Impact Investing Network. Infrastructure plays a crucial role in this market, driven by increasing interest from institutional investors aiming to align their portfolios with specific sustainability goals, some linked to net zero targets and the UN Sustainable Development Goals. While renewable energy remains a flagship sector, emerging areas like decarbonised transport and energy storage are gaining momentum, offering diverse opportunities for investors.
The balance of risk, return and impact
In impact infrastructure investment, success relies on a delicate balance between risk, return, and impact – three interconnected pillars that together drive both financial performance and societal progress. While these concepts have traditionally been viewed as separate or even conflicting, a modern investment approach demonstrates that they are not only compatible but mutually reinforcing. By aligning capital with projects that offer stable cash flows and significant positive outcomes, investors can achieve a synergy that enhances both financial performance and impact.
Infrastructure’s defensive characteristics – such as stable cash flows, long-term contracts, substantial asset bases, and lower correlation to economic cycles – make it an attractive option for investors seeking impact without compromising returns. In fact, within infrastructure, one can argue that impact is additive to returns – with some of the most impactful projects providing the securest place to deploy capital
A strategy that over-emphasises any single pillar risks undermining the others. Focusing solely on returns can ignore societal risks that jeopardise long-term performance. Prioritising impact without regard to financial returns limits the ability to attract mainstream capital. Instead, a balanced approach that considers all three dimensions enables investors to build robust portfolios that achieve financial and impact goals alongside one another. When risk, return, and impact work together, the result is not compromise but synergy – a strategy that redefines what infrastructure investing can achieve.
Mainstreaming impact
A critical driver of this transformation is the increasing participation of LPs who represent institutional capital, such as pension funds, insurers, and retail-focused wealth managers. These institutions manage assets on behalf of ‘Main Street’ investors – working individuals, retirees, and everyday savers – who seek competitive, risk-adjusted returns to meet their long-term financial goals. These asset owners and managers have the fiduciary duty to ensure that they are focused on generating returns for their clients. Like the philanthropy driven pioneers of impact investing, the new LPs are deeply committed to generating positive non-financial impact through their capital. However, these LPs cannot afford to prioritise impact at the expense of returns, necessitating an investment approach that intentionally delivers both. This shift has redefined impact investing from a niche pursuit to a sophisticated strategy that aligns financial and societal objectives.
The mass amounts of capital these LPs can deploy provide an even greater opportunity to generate impact in absolute values. And indeed, the scale is massive – in February 2024, a North American asset manager announced the launch of a US$10 billion fund dedicated to the climate transition, with no indication that changing political winds will influence their investment strategy. At the institutional level, PGGM, a large Dutch pension fund, has recently adopted and is implementing a ‘3D model’ to achieve its institutional goals. With this model, all investments across all asset classes will be evaluated on three dimensions: risk, return, and impact.
The mainstreaming of impact also raises the bar for transparency and accountability. LPs expect robust frameworks for measuring and reporting impact outcomes, akin to traditional financial performance metrics. They require clear evidence that investments contribute to systemic improvements – whether in renewable energy capacity, enhanced social equity, or climate resilience – without compromising the fiduciary responsibility to deliver competitive returns.
While the impact intensity (the amount of impact generated for each euro of investment) might indeed be higher in the ‘impact first’ investment strategies, the smaller pool of investable funds limits the ability to generate impact at scale. However, for LPs looking for impact within traditional investment vehicles, the emerging impact in infrastructure space aims to provide a true balance between delivering impact alongside returns. The tripod of risk-return-impact therefore becomes a compelling investment framework that maximises outcomes across a range of objectives.
Innovative strategies
Looking ahead, the impact infrastructure sector is poised for significant transformation. Innovative investment strategies will continue to evolve, addressing the interconnected nature of social, environmental, and economic challenges. Transition finance will play a key role in helping carbon-intensive industries shift towards sustainability, while investments in social infrastructure will address critical needs in healthcare, education, and housing.
As GPs, it is critical that we get this moment right. Ensuring that as investors we are clear in our intentions, diligent in our application and transparent in our measurement will support the continued growth of the sector. Clearly defining how impact is used in sustainable investing strategies, and creating a clear delineation between the colloquial use of impact versus formal impact investing strategies is critical. As a result, LPs will have a clear range of investment opportunities to reach target returns while delivering on real-world impact.
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