RT Journal Article
SR Electronic
T1 Portfolio Construction and New Energy Infrastructure Investing
JF The Journal of Impact and ESG Investing
FD PMR
SP jesg.2021.1.033
DO 10.3905/jesg.2021.1.033
A1 Christian Andersson
A1 Christian Broberg
A1 Kerim Kaskal
A1 Martin Sonesson
YR 2021
UL https://pm-research.com/content/early/2021/10/27/jesg.2021.1.033.abstract
AB In light of the increasingly severe consequences of climate change, an increasing number of institutional investors want their investments to replicate their ethical values. This article identifies the decarbonization of global power generation as an opportunity for those investors requiring sustainable impact while enhancing the risk-adjusted returns for, and future-proofing of, their portfolios. After analyzing the worsening state of financial markets, with high equity valuations and record-low bond yields, the authors demonstrate the added benefit of economic resilience of sustainable infrastructure assets. A move into sustainable infrastructure is bolstered by global political tailwinds earmarking fiscal stimulus to upgrade existing and new green infrastructure, as well as regulators increasingly enforcing disclosure of progress. Finally, by delving deeper into portfolio construction, the authors argue for the benefits of diversifying into the adjacent renewable-energy technologies needed to sustain the forthcoming renewable-power networks to optimize the risk–return profile of portfolios.Key Findings▪ Pension funds and life insurers make long-term investment decisions to match the fiduciary responsibilities defined by their liabilities. As the impact of climate change has long-term implications for asset performance, allocating capital to sectors mitigating it is judicious.▪ The need for capital to decarbonize the power sector marries the needs for long-term and stable returns and action on climate change. The renewable-energy infrastructure sector is economically resilient and has matured to meet investments in scale.▪ The timing to shift asset allocations toward unlisted and sustainable infrastructure assets appears favorable, as equities are trading at cyclically high levels and several bond markets are offering a negative yield. Now is the time to do it.