Creating green investment knowledge for infrastructure investors
A lack of green infrastructure investment knowledge
In a March 2021 paper, EDHECinfra produced a comparative analysis of all the main ESG reporting schemes used by infrastructure investors and concluded that they were not designed to create investment knowledge that could support the integration of ESG impacts and risks within the portfolio.
A framework to measure ESG impacts and risks in infrastructure investments
The current demand for ESG reporting stems from two issues: a lack of knowledge regarding the ESG impacts and risks of infrastructure companies; and the fundamental uncertainty that the ESG aspects of their activity create for investors.
From the multiple standards available, we build a parsimonious taxonomy of ESG impacts and risks that, at the most general level, universally apply to any infrastructure company.
A dedicated effort to advance investment knowledge
In 2021, EDHECinfra launched a new, ambitious new project: a $10M investment in creating scientific climate and social risk and impact metrics for infrastructure investors.
With the support of the Monetary Authority of Singapore and Natixis, leveraging 6 years of experience collecting financial data and creating internationally recognised benchmarks for infrastructure investors, EDHECinfra is creating a new body of research and investment knowledge on sustainability and infrastructure investment.
with the support of
We are creating climate impact and risk metrics for infrastructure assets everywhere.
A dedicated team
Chief Data Scientist
Nishtha Manocha, Ph.D.
Senior Research Engineer
Jianyong Shen, Ph.D.
Senior Research Engineer
Zhibo Xiao, Ph.D.
Senior Research Engineer
Senior Data Engineer
Four questions to Darwin MarceloDarwin Marcelo joined EDHECinfra from the World Bank in 2021 to lead the development of a new generation of infrastructure climate impact and risk metrics
Project Director, EDHECinfra
What is the main objective of climate rIsk research at EDHECinfra?
DM: The main objective is to develop a set of indicators to accurately measure the exposure to "climate risk" of "infrastructure assets" globally. Infrastructure assets are tangible immobile structures that provide a service and, as a result, have economic and financial value (see TICCS®).
From the point of view of asset owners (and their asset managers), climate risks amount to the additional financial cost resulting from 1) transitioning assets to a lower-carbon path in response to changes in policies, technology, consumer preferences, etc. and 2) physical damage or service disruption due climatic events.
We aim to answer this demand for data to report to the regulator, stakeholders and the market by creating climate impact and risk metrics for infrastructure assets everywhere!
What are the main challenges of the project?
DM: The weakness of the existing tools, classifications, and ratings for infrastructure and climate risks is that they differ in scope, intended end-users, and definitions.
The goal of the EDHECinfra climate risk research project is to become widely adopted by private and public stakeholders and decision-makers. To do this, we will work with our partners on building a consensus on how to classify infrastructure assets, infrastructure climate risks, and define the metrics to measure them.
We are developing taxonomies - classification systems describing the properties and relations between objects, concepts, and data. A steering committee including key players in the industry helps us with the development and maintenance of these taxonomies, standards, and metrics while ensuring market validation.
There is an increasing amount of data and data sources about climate change and infrastructure assets. However, most of these data points are still scattered. Developing a smart and systematic way to consolidate data and transform it into useable information is a major challenge to create a reliable and objective set of climate risk indicators for infrastructure assets.
What will investors and governments be able to do better with the output of this project?
DM: For infrastructure companies, the indicators developed by the EDHECinfra climate risk research project will allow them to know the magnitude of their contribution to climate change (including scope 3 which is the vast majority of infrastructure emissions) the climate-related risks faced by their assets, report their contribution and exposure better and make better informed decisions to minimize the value at risk due to climate change.
For private and public investors, these new objective metrics will enable them to compare potential infrastructure investments from a climate risk angle, and optimise portfolios using objective climate risks estimations and filters.
For governments, the EDHECinfra climate risk project will significantly improve their capacity to track progress on climate change-related development goals, and will help them to better allocate resources in infrastructure considering climate change.
Why is this important?
DM: It matters because, as climate change becomes one of the central policy and societal concern of our time, infrastructure is at the heart of this issue: infrastructure assets exist so that economies can function, which in turns mean consuming energy, most of which remains sourced from fossil fuels. In other words, infrastructure is the conduit by which climate change is occuring. For investors this should be a major concern.
Of course, infrastructure is also part of the solution to reducing the carbon intensity of the economy, but this must start by better understanding the range of exposures and the scale of the contributions of different types of assets, and the trade-off that need to be made between investments and between economic activities.
Infrastructure companies' willingness and capacity to measure climate risks is still very limited. The existing information on climate risks heavily relies on voluntary and self-declared data reports including estimations using different methodological approaches.
We are working to provide a unified standard to measure climate risks and a set of objective scientific-based metrics.