Why future infrastructure spend is likely to have a more sustainable focus
Sustainable Infrastructure drives economic growth whilst promoting social and environmental goals, thereby having a positive and equitable impact on society. In other words, it invests in a subset of the traditional infrastructure universe and excludes assets such as fossil fuel-based infrastructure that do not adhere to these principles.
One doesn’t have to look far to find recent developments in the realm of sustainable infrastructure. The surge in AI technology necessitates expanded digital infrastructure, such as data centers powered by clean energy sources, to accommodate growing data demands and reduce carbon footprints. Environmental infrastructure is also pivotal, connecting renewable energy sources to the grid and exploring new technologies like biogas and hydrogen. Transportation infrastructure is evolving with electrification and efficiency improvements in public transport, addressing emissions and advancing global equity. Social infrastructure investment, especially in senior care, is adapting to demographic shifts, ensuring inclusive services for an aging population. In the following section we examine each of these sustainable infrastructure sectors where we expect to see significant growth.
Data and Telecom Infrastructure
The boom in A.I. has been the major theme driving markets in 2024 so far. However, for productivity gains to be truly realised, we need to build out the digital architecture with data centers, telecommunications, and fibre networks. The integration of digital technologies, particularly A.I., is expected to significantly increase the demand for data centre capacity.
Data centres, in turn, will need to increasingly source “clean” electricity, powering larger and larger Large Language Models (LLMs), thereby further accelerating investment in sustainable infrastructure. For example, in March, Amazon Web Services decided to acquire Talen, a carbon-free data centre campus sitting atop a nuclear power station!5
- Stock Example: Equinix is a global provider of data centre services, offering businesses a place to interconnect and exchange internet traffic through its network of secure data centers, facilitating the growth of digital economies and A.I. applications around the world.
Environmental Infrastructure
The decarbonisation of our energy system is a major structural trend that will span across the next few decades. Sustainable infrastructure will be key in connecting renewable energy to the grid, with investments also expanding beyond traditional renewables like solar and wind, to include emerging technologies such as biogas, energy storage, and hydrogen. This is why the energy transition is attracting unprecedented global investment, with BloombergNEF reporting a record $USD 1.8 trillion invested in 2023, up 17% from the previous year.
- Stock Example: Innergex Renewable Energy is a Canadian-based developer, owner, and operator of renewable energy power facilities, primarily focusing on hydroelectric, wind, solar, and storage projects, with a mission to increase its presence in the global shift towards clean and renewable energy sources.
Transportation Infrastructure
Since the 90s, Transportation emissions in Europe have increased by 33%, even as overall emissions fell 32%. (International Council on Clean Transportation, 2021). The policy-driven push towards electrification of public transport, alongside improvements in port and airport infrastructure, aligns with broader efforts to reduce carbon emissions and enhance efficiency in mobility. Whilst transportation infrastructure investment may be less impactful in developed markets, developing this in emerging markets is crucial to help address global inequality and promote economic growth.
- Stock Example: Taiwan High Speed Rail Corp operates Taiwan’s high-speed railway line, offering rapid and efficient transportation across the western part of the island, significantly reducing travel time and serving as a pivotal component of the country’s public transportation network.
Social Infrastructure
Addressing demographic trends particularly in developed economies will require the provision of essential services like healthcare and assisted living to foster an inclusive community that adapts to the diverse needs of an ageing population.
- Stock Example: Chartwell Retirement Residences is the largest provider of senior housing in Canada, offering a range of living options from independent to assisted living across Quebec, Ontario, Alberta, and British Columbia to over 25,000 residents.
Conclusion
An investment in sustainable infrastructure marries the benefits of an infrastructure allocation with companies that are likely to benefit from future infrastructure spend becoming more sustainable. However, it also provides access to many of the structural dynamics that are driving economic growth and that underpin thematic funds in the market. For example, the A.I. revolution and the sewing of the necessary digital architecture into the fabric of our society – or the building out of the crucial infrastructure to enable the decarbonisation of our energy system. It therefore offers many potential benefits for investors by complementing or replacing a traditional infrastructure allocation.
