Infrastructure must embrace eco credentials - comment

Construction companies, engineering firms and other businesses active in the infrastructure sector stand to lose out on funding, investment and major government contracts around the world unless they take a more active role in the fight against climate change.

Companies with a large carbon footprint will have to adapt or risk being phased out, says Frew. Picture: H Campbell Photography.

A growing imperative for infrastructure businesses to demonstrate how they and their suppliers are reducing carbon emissions and operating more sustainably stems from interventions by policy makers and regulators in light of the Paris Agreement. The latter, signed by more than 190 countries, aims to limit global warming to 1.5 degrees Celsius and has been widely interpreted as requiring global carbon dioxide emissions to reach net zero by 2050.

In Europe, initiatives such as the European Green Deal have followed, while the UK government has set statutory targets to reduce the country’s greenhouse gas emissions, with Ireland set to follow suit. Many businesses have chosen to move ahead of the regulatory agenda and stepped up their own commitments to reduce their carbon footprint, including infrastructure owners and operators.

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The political momentum is likely to build further behind the decarbonisation agenda ahead of the 26th UN Climate Change Conference to be held in Glasgow next November, coinciding with the UK’s 2021 presidency of the G7. Last month, economic secretary to the UK Treasury John Glen said it is the UK government’s ambition for “interoperable global standards to drive forward the transition to net zero while providing the opportunity for UK asset managers to become global leaders in this field”.

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How businesses are seeking a more sustainable way forward

Regulation to promote sustainable finance and measures to put environmental, social and corporate governance (ESG) factors at the heart of investment decisions and the award of public contracts will only increase pressure on the infrastructure sector to take action. Infrastructure funds in particular in Europe will soon be subject to transparency and disclosure obligations.

When coupled with new requirements for trustees of UK pension schemes on climate risk governance and reporting, ESG practices will face ever-sharper scrutiny from large investors. Energy transition is critical for all infrastructure companies. As energy users,they will see increasing pressure to understand and report energy use, and to pursue active decarbonisation of their business and supply chain.

Energy transition is also a chance for them to play a leading role in decarbonising our built environment and participate in the projects needed to deliver carbon reduction and clean energy production. Stakeholder pressure will continue to fill the gap where governments may be inconsistent or slow to impose ESG requirements.

Key role

This pressure will only increase as ESG takes a central part of the credit analysis for investors and funders. Companies should assess their own carbon footprint, as well as that of their processes, services and products. This is often not straightforward, and involves analysing the carbon cost of your supply chain. However, understanding your business’ carbon footprint is only the first step, and many companies are wrestling with how to decarbonise in a financially realistic way.

That said, it’s clear that the political, social and financial cost of carbon is increasing at pace, so a longer-term view is needed – companies with a large carbon footprint will have to adapt or risk being phased out of the market. Governments and firms behind major projects are also making greater use of ways to reward companies committed to lowering carbon emissions.

Tenderers for global infrastructure projects are increasingly having to demonstrate their own low-carbon credentials, for example. Many government procurers, and large private procurers, already assess “carbon factors” in their procurements, or aim to do so in the near future. Being a low-carbon firm is becoming more than a good marketing tool – it is fast becoming essential to winning work.

Gillian Frew, partner and specialist in energy and infrastructure finance, Pinsent Masons

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