Investors urge US policymakers to be bold in crafting a massive infrastructure bill

With expectations high that a major infrastructure package will be unveiled this spring, investors on a panel at the sustainability nonprofit Ceres' conference March 25 urged the Biden administration and Congress to avoid thinking too small and incrementally as it looks to modernize the electric grid and make other clean energy investments.

"We're looking at investing in assets that have 30-, 40-, 50-[year], maybe even longer, lives ... so we need big bold policies," said Susan Nickey, executive vice president and chief client officer at Hannon Armstrong, the first US public company solely devoted to investments in climate change solutions.

Chris Newton of the Australian-based global infrastructure company IFM Investors said a colleague described the moment as America's next moonshot, with the potential to not just fix the potholes but to pave the roads.

"And I thought that was a great analogy of that incrementalism that governments around the world fall into," and end up just fixing "a little problem in a certain state or a certain city," he said. "I think this is a great opportunity for the [Biden] administration and in fact the whole [US] economy to look at the bigger picture from that perspective and not be scared of that aspect."

About $500 billion was spent last year on clean energy globally, and the energy and infrastructure transition underway needed -- to address carbon pollution and stave off the worst impacts of climate change -- will require at least $1 trillion per year in spending globally, according to Billy Gridley, a director in the Ceres investor network.

"Whether it's freezing in Houston, or fires in California, or lack of clean water in Michigan, good infrastructure is critical to the energy transition," he said, adding that public policy is needed to support that transition.

Though the coronavirus pandemic "ravaged the [US] economy, ... there is fresh hope stirring," he said. "Biden's whole-of-government and whole-of-society climate approach is a bright window of opportunity in energy and infrastructure. So we need an infrastructure blitz ... to build the new green, and green the old gray."

Build the new green

Nickey said Hannon Armstrong, which provides capital in energy efficiency, renewable energy and other sustainable infrastructure markets, had a business model focused on sustainability in building the new green.

"We invest over $1 billion a year in new capital that is focused on climate solutions ... [and] we invest exactly zero in assets that increase greenhouse gas emissions," Nickey said. "In a world increasingly defined by climate change, we will make better risk-adjusted returns investing on the right side of the climate change line."

She noted that her firm also employs "unprecedented transparency" in its public reporting of the environmental impacts of its investments, "putting a carbon count metric on every investment we make and publishing that in a report every quarter to our shareholders, so we can count how we're building the new green."

Nickey asserted that the US has never had a comprehensive energy policy or successful encouragement of public-private partnerships that have flourished in Australia, Canada and other parts of the world.

"There are a lot of different policies being debated, and increasingly we hope there's the courage and the political will to embrace an economy-wide price on carbon," she said. And the US must make the same effort it did to incentivize renewable energy, to accelerate investment in transmission and drive capital to aid the tougher to decarbonize sectors, like the cement and agriculture industries.

The government must also make strides to ensure a just transition as some communities will inevitably see job losses and their tax base diminished as fossil fuel-fired generators close, according to Nickey. She suggested that federal funds or proceeds from dividends could address, on a localized basis, the closure of a coal plant, for instance, by shoring up the community's taxes and helping to create right-paying jobs.

She also advocated for bonds and other tools to facilitate the use of private capital to work with municipalities, addressing their infrastructure needs while tapping into the capital markets.

As a bonus, she said legislation that incorporates the kinds of impactful measures she suggested would also help the economy rebound from the pandemic.

Green the old gray

Newton said IFM Investors, which manages more than $100 billion in assets, pledged last year to achieve net-zero emissions by 2050 in all four of its asset classes – infrastructure, debt, listed equities and private equities.

The company's investments into core infrastructure around the world, including seaports, airports, toll roads and bridges, aim to ensure that those assets can thrive in a low-carbon world, he said. "We don't necessarily avoid assets that have some fossil fuel exposure or combustion and so on," but rather make investments intended to reduce the impact of the assets and position them for a future in which their customers and suppliers can thrive.

He acknowledged that doing so is "really tough," and for that reason, the company relied on policymakers to create a landscape in which those sustainable investments will produce returns for investors and their beneficiaries.

"So the policy angle cannot be ignored," Newton said, "because it is easy just to continue on business as usual, and operate businesses as we have done in the past, ... but that modus operandi is yesterday, and we have to look forward to tomorrow."

As the US turns its attention to infrastructure legislation, Newton said it will be vital for policymakers "to think big, but also think local." Infrastructure addresses a set situation in a set region, and therefore state and local government officials and local community groups must be consulted and engaged before taking action, he said.

He echoed Nickey's concerns for a just transition and "making sure we're looking after those people and communities as we shift massively, hopefully, into a low-carbon future." He also advised the administration to think about "the global experience because America is not alone in this challenge," suggesting that the US could look to market designs and policy incentives that have proven fruitful elsewhere.