Infrastructure investing, when done sustainably, can deliver significant economic benefits to a country and for generations to come, but fund managers have to take a holistic view to ensure they make investments into sustainable infrastructure projects, says financial services group Sanlam Investments head of credit Ockert Doyer.
Sanlam Investments is convinced that allocating capital to sustainable infrastructure projects will continue to result in great risk-adjusted returns for investors, while having a big positive economic impact for the country - specifically as the economy is rebuilt after Covid-19.
The National Treasury’s proposed amendments to Regulation 28 of the Pension Funds Act will open the way for local retirement funds to invest more in infrastructure in South Africa and the rest of Africa.
The proposed relaxation coincides with a notable shift in domestic and international asset allocation strategies to accommodate environmental, social and governance (ESG) opportunities and impact investing. This change will make it easier for retirement fund trustees to approve investments into infrastructure projects that deliver economic and social impact without compromising return, Doyer says.
The multi-decade lifecycle of assets delivered by big-ticket infrastructure projects is a perfect match for retirement funds’ investment time horizons, he adds.
However, to be successful and sustainable, infrastructure projects should consider the environmental sustainability of the construction materials being used, as well as the longer-term impact that the project will have on the environment within which it will operate.
“Projects must strike a balance in sharing project benefits and profits between the local community, government and investors. Perceptions of being short-changed or treated unfairly in commercial relationships can cause delays or cancellations, rendering a project unsustainable.”
Projects must also consider extensive and transparent stakeholder engagement, he notes.
“Projects are continuously assessed by society; if society deems a project to have a negative impact, it will quickly revoke the project’s social licence to operate,” Doyer says.
Simultaneously, projects must consider the long-term funding model and economic sustainability of the project. This is crucial owing to the long-term nature of infrastructure assets that often have 50-plus year lifespans. Projects that offer clear economic benefits can still fail if the accompanying commercial or financial models are neglected, he points out.
Sanlam Investments is adding to its infrastructure commitment with the launch of the Sanlam Investments Sustainable Infrastructure Fund. The fund will invest in a range of economic and social infrastructure projects, and is built on a well-established foundation of investing in renewable and conventional energy projects, information and communication technology providers, water supply and treatment facilities, hospitals, schools, transport infrastructure and more.
"South Africa will have to channel billions more into infrastructure to achieve various 2030 United Nations Sustainable Development Goals, as well as goals set out in the National Development Plan. The 2021/22 National Budget mentions more than R750-billion in infrastructure development opportunities that will be funded in part from a national Infrastructure Fund and delivered in partnership with the private sector, he says.
“Government is centralising the execution of many infrastructure projects at a senior level within the Presidency. This centralisation is aimed at achieving more efficient roll-out of infrastructure projects across departments, provinces and State-owned enterprises (SOEs).
“South Africa has the capacity to deliver viable infrastructure assets; it is a matter of getting the government to put the correct framework in place and allowing the private sector to work in partnership with them towards sustainable outcomes,” states Doyer.