Infrastructure benchmark pioneers create research chair to gauge how ESG factors are affecting infrastructure investments
EDHECinfra, the same team that created an unlisted infrastructure indexing platform, launches its new three-year research project today. With the support of Natixis, the project’s aim is to create usable, comparable documented measures of the impact and risk profile of social and environmental factors on infrastructure investments.
ESG – growing in importance, growing in impact
ESG – environmental, social and governance – refers to the central factors in measuring the sustainability and ethical impact of an investment in a company or business. Despite its relevance to today’s financial world, few holistic and systematic measures exist to help investors to track ESG outcomes and related risks. Because these shortfalls act as a deterrent to investment, EDHECinfra is determined to tackle them.
“Infrastructure investments have value because they are useful over long periods of time,” says Frederic Blanc-Brude, director of EDHECinfra. “Social and environmental factors significantly impact this long-term value, but today we do not know how or on what scale.”
“We want to find out what the impact of better-designed, more resilient infrastructure can be for the economy and for investors, focusing on the first-order problems, like climate risk and social acceptability, over the life of these investments,” explains Anne-Christine Champion, Global Head of Real Assets at Natixis.
“Together, we can build a new area of applied knowledge,” adds Blanc-Brude. “We will be putting together existing datasets with new ones created using artificial intelligence, combined with the depth of knowledge on infrastructure assets and investment shared between EDHECinfra and Natixis.”
Vital indices are the ultimate goal
Initially, the first aim of the Research Chair will be to produce a comprehensive but compact analysis of ESG reporting standards. Next, we will be taking the perspective of infrastructure companies and aiming to provide an exhaustive set of potential ESG impacts and risks. Following on from that and using machine learning, the team will create new datasets on ESG risks and impacts in infrastructure investments. The ultimate goal is that these will lead to the development of an infrastructure social acceptability index. We will also be seeking measures of economic impact and of the climate risk exposure of infrastructure assets.
“Ultimately, our understanding of resilience and ESG’ impact in infrastructure investment will impact investors’ selection criteria and the prudential treatment when investing in the asset class,” says Champion.
About the Natixis/EDHECinfra Research Chair
This long-term partnership between Natixis and EDHEC began in 2012. Over the subsequent seven years, they have jointly generated a number of key research findings and industrial applications thanks to the strong link between academia and practitioners. Along with the support of Natixis, the EDHECinfra research institute delivered new ways to understand and model credit risk in private infrastructure debt. We have also created series of financial benchmarks that track 20 years of investment in the asset class, leading to a better integration of this asset class in prudential regimes such as Solvency-II.
History of the Natixis/EDHECinfra Research Chair
In 2012, Natixis endowed a Research Chair at EDHEC to focus on the definition, nature and risk-adjusted performance measurement of private infrastructure debt, with a focus on project financing debt. Over the subsequent seven years, they have jointly generated a number of key research findings and industrial applications thanks to the strong link between academia and practitioners, including:
- The first structural credit risk approach to unlisted, illiquid debt;
- The first calibration of credit risk metrics for infrastructure projects finance that does not rely on reported events of default but uses cash flow dynamics to measure distance to default;
- The first and only analysis of the nature of idiosyncratic construction risk in infrastructure project finance;
- The first analysis of the diversification benefits of using both greenfield and brownfield investments in a single portfolio;
- The first-ever risk-adjusted performance benchmarking of private infrastructure debt investments in Europe going back 15 years;
- The first dynamic risk factor analysis of credit spreads in private infrastructure debt, compared to corporate debt going back 20 years.
- Since 2016, the research of the Chair is also delivered to Natixis’ friends and partners in the context of a dedicated annual Masterclass.
Along with the support of Natixis, the EDHECinfra research institute delivered new ways to understand and model credit risk in private infrastructure debt. We have also created series of financial benchmarks that track 20 years of investment in the asset class, leading to a better integration of this asset class in prudential regimes such as Solvency-II.
Natixis is a French multinational financial services firm specialised in asset & wealth management, corporate & investment banking, insurance and payments. A subsidiary of Groupe BPCE, the second-largest banking group in France through its two retail banking networks, Banque Populaire and Caisse d’Epargne, Natixis counts nearly 16,000 employees across 38 countries. Its clients include corporations, financial institutions, sovereign and supranational organisations, as well as the customers of Groupe BPCE’s networks. Listed on the Paris stock exchange, Natixis has a solid financial base with a CET1 capital under Basel 3(1) of €11.1 billion, a Basel 3 CET1 Ratio(1) of 11.5% and quality long-term ratings (Standard & Poor’s: A+ / Moody’s: A1 / Fitch Ratings: A+).
(1) Based on CRR-CRD4 rules as reported on 26 June 2013, including the Danish compromise – without phase-in. See note on methodology in the 2Q19 earnings material.
Figures as of 30 June 2019
EDHECinfra exists to answer one simple question: why does infrastructure have value? We collect data, develop methodologies and produce research and tools to help explore the solution, and identify the financial, economic and social value of infrastructure. In 2019, we launched a series of global indices and benchmarks capturing the risk-adjusted performance of private investments in infrastructure equity and debt. We have built the largest database of infrastructure investment data in the world, as well as created cutting-edge asset pricing technology to determine the fair value of illiquid assets. EDHECinfra has become the premier knowledge repository for infrastructure investors. We are also developing tools to gauge the current and evolving risks and impacts that ESG brings to infrastructure investment. These encompass social acceptability, physical risks, and the usefulness of infrastructure assets, all things which determine their current and future value.