FEATURED ARTICLE
European Commission, “Final Report on Social Taxonomy”, February 2022. Available at: https://commission.europa.eu/system/files/2022-03/280222-sustainable-finance-platform-finance-report-social-taxonomy.pdf
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To qualify as sustainable infrastructure, a company's products/services must help the environment or society, and it must operate in a way that reduces risks and doesn't harm the environment or society.
To distinguish "sustainable" infrastructure exposure, we must assess how each traditional infrastructure sectors contribute to sustainable development in different regions, and assign a level of impact contribution to each sector based on geography.
The investment theme of "Sustainable Infrastructure" balances economic, social, and environmental aspects. Projects are classified into 4 categories and 12 sectors based on their functionalities and benefits to society.
FEATURED ARTICLE
As a foundational part of a prosperous community, infrastructure has a positive impact on the lives of the people it serves.
Providing electricity and water, reliable transportation and access to health and education serves to improve quality of life and leads to higher productivity, resulting in economic growth that is inclusive. These social outcomes are positive, but sometimes result as an indirect consequence of infrastructure development rather than being the primary focus of the given project. In our view, the most impactful infrastructure is that which serves objectives that go beyond the provision of basic services and contributes both to long-term economic growth whilst advancing environmental and social objectives.
To qualify as sustainable infrastructure, two elements must be satisfied.
Firstly, a company’s products and/or services must make a meaningful contribution to environmental and/or social objectives. Secondly, the company must conduct its business operations in a manner that mitigates relevant environmental, social and governance risks and, accordingly, does no harm to broader environmental or social objectives.
It should be noted that the relative contribution of each company within infrastructure to environmental and/or social objectives will vary. A major element in assessing contribution is the geography of the infrastructure, specifically whether it is based in frontier, emerging or developing countries. Clearly, the installation of a brand new, economically empowering piece of infrastructure in a frontier market is more socially impactful, relatively speaking, than the upgrade of an existing piece of infrastructure in the developed world.
We define environmental objectives in accordance with the six environmental objectives of the EU Taxonomy for Sustainable Activities:
We define social objectives in accordance with the most recent (draft) report1 of the EU Taxonomy for Social Activities, released in February 2022. We caveat however that the final report is currently indefinitely delayed.
From the aforementioned social objectives, 2 and 3 are the most relevant to infrastructure projects.
Furthermore, we consider the role of infrastructure in supporting the UN Sustainable Development Goals (SDGs). Of the 17 SDGs, six have relevant links to infrastructure development, namely:
In order to distinguish a “sustainable” infrastructure exposure from a broader, traditional infrastructure exposure, the traditional sectors of infrastructure must be assessed for their relative contribution to sustainable infrastructure development, i.e. their relative contribution to economic, environmental and social objectives in the regions where infrastructure is located (i.e. developed markets, emerging markets or frontier markets respectively). The result is that each traditional infrastructure sector can be assigned a level of contribution to sustainable infrastructure development, which is minimal, moderate, significant or high, and which varies according to geography. Accordingly, with the exception of fossil fuel infrastructure, all remaining sectors of infrastructure can be expected to contribute, in varying degrees, to sustainable infrastructure development and therefore have a net positive impact on the UN SDGs and the environmental and social objectives of the EU Taxonomy.
We have identified and classified as well as scored and ranked four categories and 12 sectors of infrastructure, which are presented in the following section.
The investment theme of “Sustainable Infrastructure” aims to balance the economic, social and environmental aspects of infrastructure development.
To achieve this, infrastructure projects are classified into four categories and 12 corresponding sectors based on the functionalities and benefits they provide to society.
This Featured Article has been produced by Sustainable Market Strategies. Rize ETF Ltd make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability or suitability of the information contained in this article.
European Commission, “Final Report on Social Taxonomy”, February 2022. Available at: https://commission.europa.eu/system/files/2022-03/280222-sustainable-finance-platform-finance-report-social-taxonomy.pdf
Congressional Budget Office 2019, American Society of Civil Engineers and the National Conference of State Legislatures 2019.
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