Sustainable infrastructure: a paradigm shift towards greener investment – Insider Monkey

Infrastructure plays a pivotal role in addressing climate change and diverse societal needs. What is built by communities, and how it is built, can impact the progress of the world in the fight against climate change and in creating an inclusive society for all. Sustainable infrastructure investments, such as electrified public transport, form the backbone of our transition towards a future of cleaner energy sources. Additionally, reliable infrastructure, such as public transport and essential utilities, significantly enhances the standard of living for communities.

Although there are undoubtedly notable benefits of the sustainable infrastructure asset class, it continues to face a range of challenges as it journeys to maturity. Sustainable infrastructure projects often have substantial initial capital demands, lack of standardized guidelines as well as the fact that many promising sustainable technologies are still in the development phase.  Furthermore, sustainable infrastructure projects are faced with addressing the challenge of greenwashing, which can mislead investors and the general public about the genuine environmental impact of an infrastructure project.

Overview of sustainable infrastructure at both a global and EU level

The global shift towards cleaner, greener infrastructure investment stands out as nations worldwide converge towards net-zero emissions pledges. Complementing these efforts are emerging regulatory requirements and the integration mechanisms of Environmental, Social and Governance (ESG) parameters. Such factors are pushing for an increase in sustainable development and less reliance on fossil fuels.

An estimated $139 trillion is required in infrastructure globally to reach net zero by 2050

The above visual representation breaks down the dependence of our sustainable future on the global infrastructure investments industry. Much of this investment will be directed towards the development of new physical assets in the energy sector, such as grid infrastructure and renewable energies generation.

With approximately 75% of the world’s infrastructure in 2050 yet to be built, the global infrastructure sector holds significant potential for significant growth.  Coinciding with this expansion is the anticipated surge of the global green infrastructure industry, expected to reach EUR 10,000 billion by 2030.

The infrastructure asset class (for example AIFs, etc.) is subject to EU Regulations including, but not limited to, the Sustainable Finance Disclosure Regulation (SFDR) and the EU Taxonomy. The significance of these regulations becomes evident when considering that infrastructure is responsible for 79% of all greenhouse gas emissions globally, as well as 88% of all climate change adaptation costs.  There is a clear correlation between infrastructure and curbing carbon emissions. Hence, the need for greater transparency for sustainability reporting within this sector.

Regulatory framework for environmental accountability

To ensure the environmental impact of the infrastructure sector is fairly considered, the regulatory reference to highlight first is the SFDR. The intention of the SFDR is to clarify ESG disclosure content, providing guidance on the methodology in place and ensuring the presentation of information is standardized. Hence, infrastructure assets categorized as Article 8 (relating to products that promote environmental or social characteristics) or Article 9 (relating to products with sustainable investment as their objective) under SFDR must report as per the Level 2 Required Technical Standards (RTS),  which refers to the detailed rules that provide guidance on how to implement the requirements of SFDR. The RTS specifies the technical aspects and standards to which infrastructure assets, falling under Article 8 or 9, must comply regarding their sustainability reporting.

Secondly, the EU Taxonomy is a classification system established by the European Union to classify environmentally sustainable activities. It seeks to channel investments toward environmentally sustainable activities whilst simultaneously preventing greenwashing. For sectors such as green infrastructure, the Taxonomy proves critical by providing metrics to assess environmental sustainability in infrastructure investments. In doing so, the EU Taxonomy aids investors, businesses, and policymakers in identifying genuine contributions to environmental objectives. Expanding on the concrete application of the EU Taxonomy, an example would be electric mobility projects. Within the Taxonomy framework, e-mobility initiatives, encompassing electric vehicle (EV) infrastructure and charging networks, are meticulously evaluated against defined environmental criteria. The metrics provided by the Taxonomy allow investors, businesses, and policymakers to assess not only the reduction in carbon emissions from conventional vehicles but also the overall positive impact on air quality and urban sustainability. As investors seek opportunities in e-mobility projects, the EU Taxonomy serves as a robust tool, ensuring that the funded initiatives genuinely contribute to the broader environmental objectives of reducing greenhouse gas emissions, promoting cleaner air, and fostering sustainable urban development.

Thus, the SFDR and EU Taxonomy regulatory frameworks play a significant role in ensuring accountability, providing clarity and ultimately driving the growth of the sustainable infrastructure asset class.

Luxembourg’s stance on sustainable infrastructure

Luxembourg, renowned for its investment offerings, is expecting a rise in funds focusing on green investments , specifically in green infrastructure. This emphasizes Luxembourg’s role in in the sector’s exceptional growth.

The Coalition Agreement (2023-2028)  titled “Strengthening Luxembourg for the Future” outlines ambitious commitments and measures to bolster Luxembourg’s position economically and sustainably. It recognizes the crucial role infrastructure plays in transitioning Luxembourg towards a sustainable, low-carbon future.  The commitments set out within the Agreement document Luxembourg’s roadmap towards economic resilience through sustainable development.

Integrated territorial planning and biodiversity conservation

Under the Coalition Agreement, the government outlines the plans of developing a new model for the “Greening of Public Spaces” in cities and towns. Projects related to green cities offer solutions to climate mitigation. Techniques include natural cooling and measures to enhance biodiversity within urban areas. Furthermore, these green spaces offer adaptive solutions to climate change by implementing mechanisms to address extreme weather conditions like floods, storms, and heatwaves. As such, green infrastructure, and the “Greening of Public Spaces” serves a dual purpose in contributing to climate change mitigation and adaptation.

Furthermore, the Coalition agreement outlines the Master Program for Spatial Planning 2035 defining the future orientations of the country’s territorial development by 2035 and 2050. The program consists of the concentration of territorial development in appropriate places, decreasing land artificialization and enhancing cross-border territorial cooperation.

Energy Transition and Renewable Energy:

Additionally, the Coalition agreement also outlines steps to stimulate energy efficiency renovations within the housing sector, guided by extending and adapting existing subsidies to incentivize residents to make energy efficiency efforts. The outlined initiatives align with the goal of reducing the environmental footprint of residential buildings. Such initiatives will also potentially achieve significant cost savings for homeowners. The focus of energy efficiency throughout the Coalition agreement highlights the government’s goal of enhancing energy infrastructure throughout the nation.

The Government further outlines its  ambitions in the Coalition agreement  with regard to renewable energy projects. The development of renewable energy infrastructure is a national priority for the Government. In line with this, sustainable energy project approval timelines shall be reduced.  Additionally, the Government will look into the potential of removing the building permit requirement for photovoltaic installations on residential buildings. In efforts to scale the development of renewable energies on a national level, there will be calls launched for tenders for large-scale energy projects. The Government will continue to invest in energy projects at the international level, such as offshore wind farms, photovoltaic installations in Southern Europe and hydrogen production projects.

Revolutionizing mobility and transportation:

The Government has pledged to make all public transport neutral in terms of greenhouse gas emissions by the year 2030. Commitments are also in place to enhance the current railway and tramline transport infrastructures in Luxembourg, ensuring that public transport infrastructure provides efficient, reliable and sustainable alternatives, which have a knock-on effect of reducing both traffic congestion and air pollution. In addition, the government explains its ambitions to analyze the current General Road Transport Regime (RGTR) network, with the overarching goal of completely revising public transport timetables whilst optimizing the transport availabilities in rural areas. Finally, the cycle paths will be enhanced to ensure a contiguous national cycling network is accessible to all.

Such pledges highlight the governments proactive steps in promoting sustainable urban mobility whilst emphasizing the countries movement towards decarbonization. The Government has clear commitments to align socioeconomic advancements with sustainable infrastructure investments.

Luxembourg, globally recognized for its extensive investment offerings, is actively participating in the global expansion of green investments, most notably in the emerging field of green infrastructure.  The Coalition Agreement underscores Luxembourg’s commitment to infrastructure as a catalyst for steering the nation towards a low-carbon future, reflecting the country’s substantial efforts to align with the global trend of growing green infrastructure. This transition signifies more than just infrastructure investments; it represents a transformative approach to building a sustainable future. On the other hand, this ambitious journey provides a great opportunity to private investors, such as infrastructure equity and debt asset managers, pension funds, insurance companies, etc. to navigate Luxembourg infrastructure landscape.