Published on 21 January 2021

SUSTAINABLE FINANCE

Greening European Infrastructure: a Challenge the EU Taxonomy is not Prepared to Meet

The European transition to a greener and more sustainable model requires transforming our modes of transportation, energy production, and waste recycling networks of all kinds. The European Commission estimates that almost €500 billion is needed annually for infrastructure of this nature. This is why Novethic - with the support of ADEME - analyzed the green infrastructure funds market and published a study detailing the potential impact of the forthcoming EU Taxonomy.

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In its study "Green Infrastructure Funds Face the European Green Deal", Novethic estimates the amount of assets invested in green infrastructure funds in Europe to be more than €100 billion. There are 310 funds entirely dedicated to the environment and around 50 diversified funds with a significant green component.

This good news should be qualified because such investment is not mobilized around the overall greening of infrastructure but is, for the most part, investment in renewable energy. Renewable energy represents two-thirds of funds and one-third of the amounts raised. They are also very present in multi-sector funds or those more broadly oriented towards energy. The share of funds focused on all other sectors (transportation, waste management, etc.) is therefore much lower: only 27 funds out of nearly 400 and 15% of assets under management. 

To finance the greening of infrastructure, it is necessary to mobilize large institutional investors. The volumes they devote to this asset class - which has become more appealing due to the COVID-19 crisis - are around €388 billion, and the integration of ESG criteria is still not widespread. Three Europeans are in the Top 10: two insurers - Allianz (€35 billion) and AXA (€13 billion) - and the Dutch pension fund APG (€17 billion). All three have ambitious climate commitments and responsible investment policies but they are involved with other co-investors within the infrastructure funds market. 

New green momentum 

Among the top three in terms of asset volumes, there are two infrastructure market leaders with green finance strategies. Macquarie Infrastructure and Real Assets (MIRA), which devotes €8.7 billion to green investments, has just launched its carbon neutrality policy. Copenhagen Infrastructure Partners is the structure used by Danish pension funds to invest in the wind farms that will allow Denmark to achieve its goal of carbon neutrality.

More specialized players such as the French Mirova, the German Aquila, or the British Foresight Group also dominate this market. The latter manages nine green funds with €1.2 billion in assets under management and is the first to have certified the compatibility of one of its investments - a wind power project in Northern Europe - with the forthcoming EU Taxonomy. Novethic asked Foresight Group what the arrival of the EU Taxonomy represented for the green infrastructure fund market.

“The EU Taxonomy has clear advantages because it offers a standardized and objective way of determining whether an asset contributes to sustainability goals or not,” explained Henry Morgan and Jai Mallick. "We could be satisfied with self-reporting but since greenwashing represents a significant and often irreparable reputational risk, we considered it important to have the process validated by an independent third party," they continued.

Investors in renewable energy infrastructure are therefore calmly awaiting the EU Taxonomy. Hopefully, the EU Taxonomy will serve as an incentive for all so that infrastructure investments are up to the challenges posed by Europe's transition to a greener and more resilient economy.

Anne-Catherine Husson-Traore


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