For sustainable development investing to flourish as an institutional asset class, the project’s investment proposition must meet the hurdle return rates needed to fund long-term liabilities. We believe infrastructure investment can help institutional investors reach their goals. Some of the potential benefits include attractive risk-adjusted returns, low correlation to other asset classes, stable cash yield, long-lived physical assets, barriers to entry for competitors, and a measure of inflation protection.
The shift that is occurring in infrastructure investment and project finance is profound: No longer will investors have to make a trade-off between sustainability characteristics and financial returns.
Within the context of a global consensus for sustainability, long-term investors can maximize value by delivering sustainable infrastructure solutions, which may reduce risk, and enhance political and social feasibility. As public interest in the sustainability of future infrastructure development grows, lack of consideration for a project’s sustainability may even hurt long-term financial returns. The cost of remediation—reverse-engineering a project to address overlooked sustainability issues—can be much higher than meeting sustainability standards from the project’s inception, again threatening the long-term profitability of a project.
As more institutional investors build such factors into their analysis and begin to allocate more of their long-term investments to sustainable development, financing will increasingly depend not only on the health of the environment or community in which the development is taking place, but on the long-term health of the development itself. It will be incumbent on project planners, sponsors, and stakeholders to ensure that the sustainability of a project is also viewed through the perspective of delivering institutional-class returns on long-term investments.
Guggenheim Investments. All rights reserved.
Guggenheim Investments represents the following affiliated investment management businesses of Guggenheim Partners, LLC: Guggenheim Partners Investment Management, LLC, Security Investors, LLC, Guggenheim Funds Investment Advisors, LLC, Guggenheim Funds Distributors, LLC, GS GAMMA Advisors, LLC, Guggenheim Partners Europe Limited and Guggenheim Partners India Management.