Ensuring the sustainability of infrastructure assets over their lifetime is one of today’s great challenges. The primary purpose of infrastructure is to provide a public service to society and thereby to improve life conditions for local communities. As such, it is strongly interlinked with both its immediate environmental and societal surroundings. The long-term consequences of non-sustainable infrastructure can be severe on many levels, environmentally, financially, and/or reputational.
While a commonly agreed definition may be impossible to formulate, our understanding of sustainability adheres to the broadly accepted definition of sustainable development as suggested in the Brundtland Report:
“Sustainable development is development that meets the needs of the present without compromising the needs of future generations to meet their own needs”.
The duty of infrastructure investors is thus to ensure that new infrastructure assets will be built sustainably, resilient to external challenges, and with a long-term perspective. Sustainable infrastructure should have at least a net neutral, and ideally a net positive impact on the environment, economy and/or society. This means that over its entire lifetime, a sustainable infrastructure asset must remain equitable for the economy and society, viable for the environment and the economy as well as acceptable for society and the environment. B Capital is committed to invest only where these three aspects of sustainability are met.
A systemic approach to sustainability
Sustainability is often broken down into environmental (E), social (S) and governance (G) factors. ESG factors can have a significant impact on the business case of an infrastructure asset – positive (opportunities) and negative (risks) – and hence, can impact its long-term resilience, financial viability, as well as its corporate reputation if and when these risks/opportunities materialise. Throughout the entire investment cycle - from development, to construction, to operations all the way through to the decommissioning phase – ESG risks and opportunities influence asset performance. The asset likewise impacts, positively or negatively, its surroundings. The asset type, sector, size, geographic location, and stage in the life cycle determine the magnitude of this mutual interaction.
Examples of ESG risks/opportunities having an impact ON the infrastructure asset can be: physical risks such as flooding affecting the asset’s technical ability to operate or regulatory changes, such as policies implemented to stimulate renewable energy production.
Examples of impacts, positive or negative, FROM the asset on its surroundings include: damage to the ecosystem, improved water quality for the local communities following restoration work or generation of employment opportunities.
A systemic approach to identifying risks and opportunities, from an early stage, is of paramount importance as part of the acquisition process, as well as ongoing monitoring post-transaction. The materiality, likelihood, and potential monetary consequence of the identified risks needs to be assessed, ideally quantified, and, if appropriate and possible, mitigated. To this end, B Capital has integrated sustainability due diligence and risk management into its standard investment process, which also englobes ongoing monitoring and reporting as well as value enhancement activities during operations. All of this is part of B Capital’s investment culture.