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Phenix Capital: Clean energy continues to dominate investments by infrastructure impact funds

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Published: 8 September 2023

Funding is not going to the low and middle-income countries that most need it, says the Amsterdam-based impact investment adviser.

Phenix Capital: Almost 90% of the infrastructure impact funds target clean and affordable energy (SDG7) | Faharoni on iStock

Investment in infrastructure in the developing world is one of the most effective ways of targeting a wide range of the UN Sustainable Development Goals (SDGs), but emerging markets continue to struggle to attract fund investors in the numbers required, according to the latest report from Phenix Capital. 

In Infrastructure Funds at a Glance, the Dutch impact investment consultant reports that only 19% of the funds in its Impact Database focus on emerging market infrastructure, while the other 81% target global and developed markets.  

“The paradox that right now is reflected in the data included in this report is that across many of the low- or middle-income countries, infrastructure is inadequate, and that is where infrastructure investing is most needed, yet one of the areas of least investor focus,” Phenix said in the report.  

Infrastructure investments are defined by Phenix those in real physical assets such as roads, airports or toll bridges; assets related to energy generation and distribution, including power grids and pipelines; and social and public facilities, such as social housing, hospitals or schools. 

Infrastructure impact investing

The database includes 322 infrastructure impact funds in total, managed by different fund managers. That represents 274% growth in the number of funds on the database since 2014. Of the funds, 110 are open for investment, and there are eight new infrastructure impact funds in the pipeline.  

A key challenge for institutional investors remained finding investable infrastructure solutions at scale that have the right risk/reward/impact to make a difference to that “triple bottom line”, Phenix said. 

Almost 90% of the infrastructure impact funds target clean and affordable energy (SDG7). That figure is supported by wider objectives for impact investors, given such investments often provide investors with an opportunity to target other SDGs such as decarbonisation and climate action objectives (SDG13), or sustainable cities and communities (SDG11), as well as helping to replace fossil fuel-related investments. 

Support for clean energy and other sustainable infrastructure investment in developed countries has come from stimulus packages, notably in the US and Europe. Among them, the US Inflation Reduction Act aims to generate around $750bn in new spending and tax incentives to support infrastructure investments in clean energy, transportation and the environment. In Europe, various state and bloc-wide financial packages are helping to support post-pandemic recovery and develop sustainable infrastructure.  

Phenix also noted that that the amount of infrastructure investment in low- and middle-income countries continued to recover in 2022. Private participation in infrastructure commitments reached $91.7bn across 263 projects, a 23% increase from 2021, even if the total number of projects was still below pre-pandemic levels, according to an April World Bank report

The variety of investment opportunities available within the infrastructure category are also opening up.  

“While infrastructure impact investing will still encompass bridges, roads and buildings, today’s investor will be looking at real infrastructure asset investments in hydrogen production, storage and distribution, or electric vehicle charging networks and smart motorways, as well as 5G telecom networks,” Phenix said. 

Pension funds were the largest group on the database targeting infrastructure with 69 of them looking at sustainable infrastructure investments.  

Phenix said that pension funds understood to have allocated to the sector included AustralianSuper, UK Railways Pension, Swedish pension AP2 and the Queensland Investment Corporation.  

All of these had allocated resources to US infrastructure manager Generate Capital, which manages more than 2,000 infrastructure projects across the world, investing over $1bn in sustainable infrastructure assets covering the energy, waste, water and transport markets over the last five years, according to Phenix. 

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