Key Takeaways
Leveraging in-depth knowledge of infrastructure as a unique asset class is the best way to fully capture sustainability in an investment process.
- 当考虑北美中游和水ocarbon infrastructure, we have revised our longer-term growth expectations for commodity volumes lower, although it is still possible to discover relative value in the space.
- Sustainability factors are deeply embedded into the regulation of the U.K. water industry, with companies properly incentivized to deliver long-term resilience against climate change, reduce environmental degradation and improve water quality.
With sustainability factors more prominent than ever in the path forward for equities, the importance of integrating environmental, social and governance (ESG) considerations when investing in real assets such as infrastructure should come as no surprise.
The features that single out infrastructure as a distinct asset class - the essential services it provides to society, its predictable long-duration cash flows and inflation-linked returns, its assets and investments exhibiting low sensitivity to economic cycles - also suggest this integration will have distinct areas of focus. Here we discuss the essential components of an integrated ESG approach to infrastructure investing and consider two case studies that illustrate how this approach may impact infrastructure portfolios.
A Three-Pillar Approach to ESG Analysis in Infrastructure
与股票一样，有许多方法可以将ESG分析纳入基础设施投资。虽然许多投资者专门依赖于第三方外部提供商来供应洞察力和分析ESG政策和实践，但我们认为利用对资产类的深入了解，是充分捕捉投资过程中可持续性的最佳方式。在分析基础设施资产的可持续性时，我们遵循三支支柱框架：
- Valuation: To understand both positive and negative risks from ESG factors, it is necessary to model cash flow impacts of sustainability and perform sensitivity analysis. Factors might include different regulatory constructs, concession agreements and contracting structures as they affect infrastructure assets across the globe.
- 风险定价或要求退货调整：可以通过调整到股权成本或障碍率，捕获无法捕获现金流量的ESG因素。专注于股权成本使得在分部门内更加强大的全球比较，并在公司的ESG配置文件中捕获改进或降级。
- Engagement or active management：基础设施投资组合的管理人员不仅应积极地与公司管理层一起使用，也应与监管机构，政策制定者和其他主要利益相关者一起实现。监测ESG争议和主动代理投票也是影响变革的关键。
This three-pillar approach to ESG analysis in infrastructure aligns with, and is an extension of, the core characteristics of the asset class. On the valuation side, given the long duration of the asset class, it is appropriate to examine both long-term trends and with what sensitivity they impact cash flows and valuations. Long-term modeling (often 30 to 40 years) captures not only short-term but longer-term ESG trends that have positive and negative impacts on cash flows of particular assets. On the risk side, there needs to be recognition that certain management teams will be better at managing ESG, and those sustainability considerations will vary by asset, geography and sector. Understanding how ESG practices will evolve is also crucial when adjusting a company’s required return, or hurdle rate. Finally, in terms of engagement, it is imperative to engage not just with company management, but also with other stakeholders such as regulators, financiers and customer advocate groups that affect infrastructure operations and outcomes.
Here we offer case studies in how ESG factors might influence infrastructure positioning in two different sectors: North American pipelines and U.K. water. The three-pillar framework not only identifies positive and negative ESG factors in these two case studies, but also allows for regular monitoring of how these sustainability factors evolve over time. Given the essential service and strategic nature of infrastructure assets globally, engagement with stakeholder networks is paramount to understanding how infrastructure companies operate on a day-to-day basis.
North American Pipelines: Pressure Will Lead to Differentiation
随着世界从高碳发光形式的转变为更加可再生的一代，试图控制气候变化，我们预计将过渡到更大的用法，并增加较低碳生成和远离更高排放的能力增长燃料源（图1）。由于天然气的碳排放量低于煤炭和石油，我们希望它是桥接燃料，有助于满足世界对碳排放相对较低的世界能源需求，而建立了更具足够的可再生能源基础设施。
Exhibit 1: Growth in Energy Generation Capacity by Type
As of Sept. 30, 2020. Source: ClearBridge Investments, Bloomberg New Energy Finance. Compound annual growth rate ranges: renewables 7%-9%; gas 1%-2%.
Some estimates would have natural gas serving as a bridge fuel for several decades. The market, however, is starting to price in a much faster transition to renewables as renewable capacity growth has consistently surprised on the upside (Exhibit 2), seeing this expressed in the higher amounts of capital expected to be invested into renewables.
Exhibit 2: Renewable Capacity Additions Continually Surprising on the Upside
As of April 30, 2020. Source: ClearBridge Investments, Bloomberg Finance.
从分配的角度来看，越来越多的曝光允许经理从这个多名多家专题中受益。在考虑北美中部地区和碳氢化合物基础设施时，我们已经修改了我们对商品量降低的长期增长期望。而不是假设碳氢化合物基础设施将是永久资产，我们制定了保守的假设，更有效地反映了贬值资产基础随着时间的推移，因为可再生能源以碳氢化合物的牺牲增加市场份额。采用卤化品，一种富含碳氢化合物的管道基础设施公司，作为一个例子，我们的液体和天然气资产基础（图表3）向下修改。
展览3A：降低天然气资产基础增长的预期（Enbridge：液体）
As of Dec 31, 2019. Source: ClearBridge Investments, Bloomberg New Energy Finance.
Exhibit 3B: Lowering Expectations of Natural Gas Asset Base Growth (Enbridge: Gas)
As of Dec 31, 2019. Source: ClearBridge Investments, Bloomberg New Energy Finance.
Consequently, the total returns we expect to receive from pipeline companies focusing on the movement of hydrocarbons is coming down. These reduced expectations have impacted up to 25% of our equity valuation of pipeline companies in North America. The primary recognition here is a diminution in value as public policy shifts toward a cleaner environment, fewer emissions and less time using natural gas as a bridging fuel.
However, it is still possible to discover relative value in the North American pipeline space, where hydrocarbon infrastructure will still be used, albeit at a lesser rate, for decades to come. Those asset owners running trunk or mainline pipelines (transmission pipelines) will likely fare better in our view, as they are difficult to replicate, and are the key conduits that connect the supply to demand centers. Those that are running some of the smaller lateral pipelines and systems (gathering and processing pipelines) face a higher risk of disruption as they have a greater sensitivity to oil and gas production volumes.
We believe it is important to understand the winners and losers in the North American pipeline sector on a relative basis. Through cash flow forecasting, scenario analysis and in-depth research, it is possible to better understand the longevity of these North American pipeline systems and where there may be valuation anomalies. In 2019 and through 2020, after conducting extensive research, having detailed stakeholder discussions with numerous North American pipeline company managements and running comprehensive scenario analysis with inputs from industry-leading research groups such as Bloomberg New Energy Finance, BP Market Outlook, the International Energy Agency and the U.S. Energy Information Administration, our infrastructure strategies materially reduced exposure to the North American midstream sector.
U.K. Water: Privatization and Regulation So Far a Good Partnership
The U.K. water sector offers an interesting counter-example to North American pipelines. In the U.K., the water regulator, Ofwat, requires water companies to meet targets of environmental sustainability and service commitments, to which it attaches incentives and penalties. It also sets principles for board leadership, transparency and governance for the sector to ensure board decisions are aligned with customer and stakeholder needs. On the social side, Ofwat assesses the quality of U.K. water companies’ engagement with its customers and their satisfaction, as well as the utility’s relationship with its community. This regulatory assessment will have an impact on the companies’ investment plans, cost of capital and forward cash flows. In addition, due to Ofwat’s efficiency challenges, customer bills have fallen (Exhibit 4). Customer satisfaction levels for the value of water and sewerage service have been high: for water, 91% of customers are satisfied with what is provided by companies, while 76% are satisfied it is “value for money.”1
展览4：U.K.水监管机构的效率挑战降低了客户账单
截至2015年10月。资料来源：国家审计报告，瓦特。数字是2014 - 15年度在五年内的平均家庭法案的变化。
There has also been substantial investment into water networks over time, and those networkshave become far more productive after being privatized in 1989. This increased productivity has helped reinforce the above-mentioned decline in bills paid by customers over the last 30 years, in real terms. In this way, privatizations have benefited customers and other stakeholders of these regulated assets.
超过长期来看，我们认为，在U.K.水资源中有很大的进一步增长空间。该部门继续部署资本以减少泄漏管，下水道洪水，供应中断和污染事件，同时执行其他必要的维护。最近，U.K.环境机构要求所有20家水资源公司在水产国家环境计划（Winep）下提供加强的环境义务。Winep旨在通过在下一个资产管理计划（2020-2025）上所做的举措来改进和保护水环境。除了Winep之外，该部门还致力于到2030年实现净零碳排放。需要在互联网上花费互联网计划，以将水从西北U.K的高降雨区移动到东南部的更大人口中心。重要的是，OFWAT认识到这些长期的可持续性挑战，并继续敦促和激励水公司采用新的做法和创新，以实现对气候变化的长期弹性，降低环境退化，提高水质。社会关税计划也适用于支持弱势客户和那些努力支付水费的人。
Sustainability factors are therefore deeply embedded into U.K. water regulation, with the sector incentivized and aligned to achieve these outcomes. Mandatory performance standards for the sector continue to rise as regulators push companies to continually improve.具有较强治理的更好的公司将受益于监管和立法，收入激励措施，以提供强大的环境和客户参与承诺，并在其潜在的资产基础上增长。因此，我们认为，我们认为其潜在资产更高效和更好的运营商的公司在我们的投资组合中举行。
ESG Analysis Integral Part of Any Infrastructure Portfolio
It is imperative to incorporate an ESG and sustainability framework into any process that analyzes infrastructure assets. Such a framework should consider how ESG factors affect cash flows and the required return, or hurdle rate, of an infrastructure asset and should involve a process for engagement with several stakeholders on material sustainability issues. As evidenced when applied to North American pipeline and U.K. water sectors, such an approach enables active managers of infrastructure portfolios to identify compelling valuation discrepancies among assets. ESG factors form an integral part of any investment thesis in the unique area of the market occupied by infrastructure.
1污水,86%满意provided by companies, while 77% are satisfied it is “value for money.” CCW Water Matters Annual Tracking Survey (6,310 total customers surveyed). Source: CCW; England and Wales, April 2019 to March 2020.