UN Report Champions Responsible Infrastructure Investment, Citing AustralianSuper as Archetype, Among Others

(October 10, 2011) — The United Nations-backed Principles for Responsible Investment (PRI) has released case studies on how a range of funds — such as AustralianSuper, APG Asset Management, and PGGM Investments — have successfully implemented responsible investment practices in infrastructure investment.

Institutional investors’ allocations to infrastructure have grown by almost 370% over the past three years, PRI Executive Director James Gifford stated in the report, which presents eight case studies that demonstrate how PRI signatories are implementing responsible investment related policies and assessing the impact of ESG issues for infrastructure investments.

The report asserted: “Infrastructure assets also have many stakeholders alongside investors, such as government regulators, lenders, communities co-located with and affected by the asset, and the public that uses or depends on their facilities. Due to the long-term nature of infrastructure assets, investors need to ensure that they take into account all possible issues that these investments might face over the long-term. The risk profile for individual assets is also affected by the overall maturity of the infrastructure market in a given country. Those nations with clear legislative and regulatory guidelines in place, a proven ability to manage stakeholder concerns, an established pipeline of new assets, and record of successful asset sales have a distinct advantage.”

Furthermore, the report asserted that investors have a fiduciary duty to act in the best interests of their beneficiaries. What differentiates exceptional investors is how well they are able to create value and mitigate risks – including environmental, social and governance (ESG) risks – in order to discharge this duty, the paper said.

Australia’s $44 billion AustralianSuper, for example, has been investing in infrastructure since 1994. In describing the scheme’s ownership of infrastructure assets, the fund commented in the report: “One of our oil pipelines in the US is currently benefiting from the foresight of the board that expected higher safety standards than required from the outset. After the BP oil spill, the regulatory requirements for safety at oil pipelines were increased. However, our asset had already invested above this level of safety, thereby reducing the need for remedial action over the years. This resulted in providing a safer environment for employees and increased profitability. Other pipelines have now had to incur an added cost to improve their safety.”

Meanwhile, PGGM Investment — another fund profiled in the report — took part in the Mercer project on climate change scenarios at the end of 2009, which showed that policymakers play a crucial role in managing climate change, highlighting the need for engagement as part of ESG integration. Henk Huizing, Head of Infrastructure at PGGM Investment, commented: “By integrating ESG into our investment decisions, we align our process with the ESG criteria of our institutional clients. We look at both the opportunity and risk side of ESG factors to deliver a financial and sustainable return.”

The Principles for Responsible Investment were launched by the UN Secretary-General at the New York Stock Exchange in April 2006.