Chief Investment Officer Advocates for Input Investments

The Facts -

• • Sustainable infrastructure investing extends to materials needed for building large projects, driven by the need to achieve net-zero carbon emission targets.

• • Global infrastructure spending has a significant gap with spending shortfall projected at $15 trillion over the next 15 years.

• • Institutions are investing in companies focusing on resource efficiency and specialty chemicals to reduce carbon emissions across the supply chain and in outputs.

Sustainable Infrastructure Investing

Sustainable infrastructure investing is evolving beyond simply owning solar and wind farms. It now includes the materials necessary for these and other large projects. This trend is leading investors and consumers to consider a circular lifecycle of products, rather than single use outputs.

Although a niche sector, sustainable materials are gaining traction as companies, investors, and asset owners strive to meet their net-zero carbon emission targets. As the United Nations Environment Program notes, the buildings and construction sector accounts for 37% of global emissions, with a significant portion coming from the production of materials such as cement, steel, and aluminum, which utilize high heat processes.

Global Infrastructure Development

There's a global push for infrastructure development, encouraged in the U.S. by the Inflation Reduction Act and in Europe by the REPowerEU initiative. However, Dan Abbasi of Douglass Winthrop Advisors notes a gap in global infrastructure spending. According to the G20’s Global Infrastructure Outlook, this could lead to a $15 trillion shortfall over the next 15 years if it continues, potentially increasing the importance of sustainable design in construction.

Sustainable Materials Investment

Opportunities for investment in sustainable materials exist in both the public and private sectors. Experts advise institutional investors to consider the broad scope of the space, going beyond materials companies to firms focusing on resource efficiency and specialty chemicals aimed at reducing carbon emissions across the supply chain.

Improving Energy Efficiency

Despite advances in the production of sustainable materials, retrofitting existing infrastructure to improve energy efficiency remains the most effective way to reduce a building’s embodied carbon, according to Christian Hernandez of 2150. Pascal Dudle of Vontobel Asset Management concurs, noting the potential of companies such as Carrier and Johnson Controls, which focus on improving building automation.

Investment Challenges

While progress is being made in greening building materials, sectors like steel still pose challenges. Publicly traded steel producers have begun some projects, but these are not yet their core output. For instance, Linde announced a partnership with H2 Green Steel, supported by debt and equity financing, including EU subsidies.

Recycling and Reuse

The rise of circular design, which considers the entire lifecycle of a product for reuse, is crucial for reducing total carbon emissions. Examples include Safety-Kleen, a subsidiary of waste management company Clean Harbors, which creates lubricants from used oil.

The $248.5 billion New York State Common Retirement Fund is one of the investors in sustainable infrastructure and resource efficiency as part of its Climate Action Plan. Such investments include NREP, part of Urban Partners, which reduces the carbon footprint of new construction by repurposing and reusing previous construction materials.

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