Is there a relationship between ESG and financial characteristics of private infrastructure investments?

Singapore, 20 March 2018 – Today, we are pleased to announce the launch of an empirical study of the relationship between ESG and financial characteristics in private infrastructure investments.

Promoted by the Long Term Infrastructure Investors Association (LTIIA), this study, will be based on data from GRESB Infrastructure and EDHEC Infrastructure Institute.

The study is also part of the EDHEC/LTIIA research chair in the investment characteristics of unlisted infrastructure equity investments. It will be published as an EDHEC Infrastructure Institute publication in 2019.

How ESG affects the financial performance has been an important question for many infrastructure investors. This project will help us understand better what the actual market facts are,” said Eugene Zhuchenko, Executive Director, LTIIA.

GRESB collects and analyses data on the ESG characteristics of infrastructure investments through an annual Infrastructure Assessment. Likewise, EDHECinfra collects and analyses data about the financial performance of infrastructure investments and produces performance benchmarks for private infrastructure debt and equity.

As a result, combining the data and analyses made by GRESB and EDHECinfra provides the opportunity for one of the first empirical studies of the potential relationship between the financial performance of infrastructure investments and ESG characteristics.

Frederic Blanc-Brude, Director, EDHECinfra said, “This is the first time we can match financial and ESG performance data and explore the link between these two aspects of infrastructure investment. It promises to be a fascinating study.”

Study outline

The study will begin with a review of the various theoretical underpinnings of the hypotheses to be tested i.e. why ESG and financial characteristics may or may not be related.

This will be followed by an econometric analysis of the relationship between various financial metrics and ESG characteristics.

Testing various models the study will review whether adding ESG characteristics to a model of the risk-adjusted financial performance of infrastructure investments can improve the explanatory power of the model.