Thanks to Nicholaus Rohleder for penning his thoughts on the 9th WWF in Dakar. This is part two of a four-part article.
by Nicholaus Rohleder
In recent years, private infrastructure investment capital earmarked for impact investments has been aggregated at an accelerated rate. Unlisted private infrastructure assets under management stood at $639 billion in 2020, and are expected to reach $795 billion by 2025, representing a 4.5% compound annual growth rate (CAGR) over the period, per data from Preqin. Supplementary to this, further interview data from Preqin suggests that 56% of institutional investors plan to increase their exposure to unlisted infrastructure assets over the coming decade. This has the potential to accelerate further if economic conditions destabilize further, and creative structuring on behalf of infrastructure managers can yield long-term contracted yields, as is the case with most water assets. The growth in private infrastructure capital comes also at a time where there is unprecedented focus on impact investing and environmental, social, and governance (ESG). Despite the economic challenges and limited borrowing capacity developing countries are faced with, the private infrastructure market is alive and well with plenty of capital earmarked for water infrastructure, which provides a beacon of hope.
The top infrastructure investment funds now control a significant part of the private infrastructure space, with private money flowing towards water infrastructure projects in the developed and developing world. Looking at the league tables below, the top three funds each have a focus on the water sector and a corresponding significant presence in emerging and frontier markets. In order from one to three, Macquarie Asset Management has $195 billion in infrastructure capital, Brookfield Asset Management $122 billion, and Global Infrastructure Partners $60.7 billion. Each of the aforementioned firms have completely retrofitted their business models to tackle the challenge of scaling up sustainable infrastructure, translating to significant private sector involvement in the water sector, as it is enveloped in the sustainable infrastructure mandate.
However, despite the growth in private investment capital earmarked for sustainable infrastructure, bankability must be redefined. Events at the forum stressed urgency, and that the clock to make a meaningful impact on the global water situation is ticking. To achieve the investment needed at scale, innovative financing models leveraging private capital in conjunction with public policy support and risk backstops must be implemented. For example, private sector investment firms can work with governments to ensure long-term contracts for the sale of water, whether coming from a wastewater treatment facility, or a desalination plant. These contracts could then be taken to a development finance authority, such as the International Monetary Fund or The World Bank, for a credit backstop that would significantly lower the risk of the investment. Lastly, given the recent push by global insurance companies such as American International Group (AIG), Allianz, and Munich Re into climate related insurance products and sustainability in general, further risk controls could be applied through insurance products. These could include performance backstops on the physical infrastructure itself, jurisdictional and political instability insurance, and especially “counterparty” credit enhancement instruments, which are essentially third-party performance guarantees from development institutions.
Progress has been made in mobilizing capital, and in these modern times, also mobilizing philanthropic capital, but this is still just the tip of the iceberg. The stark message is that, in general, as discussed at the forum, the G20 Global Infrastructure Hub is estimating an $18 trillion infrastructure investment gap out to 2040 to meet the Sustainable Development Goals against a projected spend of $79 trillion over that period. See also: Sanitation and Hygiene Fund.
Nicholaus Rohleder is a Co-Founder of Climate Commodities, a financial technology company that operates the largest digital marketplace for offtake contracts, feedstock contracts, and insurance solutions in addition to a critical minerals mining, processing, and refining business and solar + energy storage business in the renewable power sector; Co-Founder of the New American Energy Fund, a hedge fund focused on the climate technology supply chain and energy transition; serves as an Adjunct Professor at the Earth Institute and the Climate School at Columbia University teaching a course on life cycle analysis and materials science; an Alumni Board Member at the Earth Institute at Columbia University; a member of the production team for the Energy Policy Now Podcast at the University of Pennsylvania’s Kleinman Center for Energy Policy; a member of the Energy Technology Leadership Council at Tulsa Innovation Labs; and part of an economic development initiative funded by the $4 billion dollar George Kaiser Family Foundation. Mr. Rohleder received a Master of Environmental Studies with a concentration in Environmental Engineering and Technology from the University of Pennsylvania, a Master of Science in Sustainability Management with a concentration in Environmental Finance from Columbia University, and is a former Forbes 30 Under 30 honoree.