Infrastructure redefined - From railways to renewables

10 min read 29 Apr 24

Once known to serve the transportation and communication needs of an increasingly industrialised and urbanised population, infrastructure, as a sector, has evolved drastically in response to major drivers like the climate crisis and demographic change. Its current phase entails creating resilient, inclusive systems that prioritise sustainability and accommodate fundamental societal shifts. Noura Tan explores the most influential structural trends shaping future-forward opportunities across the asset class.

In recent years, a series of global disruptions have revealed deep-rooted vulnerabilities in our current infrastructure, underscoring the repercussions of shortfall investment and the consequent urgency to meet this gap. To fulfil basic infrastructure needs globally, approximately $15 trillion will be need between 2022 and 20401, while an even larger amount of $139 trillion will be required to achieve net zero targets by the same year2. It was thought that safeguarding the natural world meant slowing down infrastructural development, when in reality, addressing our most critical environmental challenges calls for us to build new things. To this end, private infrastructure markets are seeing significant growth alongside well-established public markets.

Like most other asset classes in 2023, infrastructure faced a challenging macroeconomic environment marked by high interest rates, inflationary pressures, market volatility, and an overall mixed economic outlook. Despite underperformance in select subsectors, both listed and unlisted infrastructure have demonstrated strong returns relative to equity markets while maintaining bond-like stability.

How does infrastructure measure against other asset classes?

Chart source: Listed infrastructure: FTSE Global Core Infrastructure 50/50 index in USD as of Q3 2023, Unlisted infrastructure: Burgiss Global Private Capital Performance in USD as of Q3 2023, Bonds: Bloomberg Barclays Global Aggregate index in USD as of Q3 2023, Equities: MSCI World Index in USD as of Q3 2023).

Escalating pressure to fulfil climate commitments, reshore supply chains in response to geopolitical tensions, and capitalise on major policy enablers is driving the enduring demand for infrastructure assets. Meanwhile, shifting macroeconomic dynamics and innovative business models are resulting in decentralisation across the sector, creating new pockets of opportunity in an asset class once dominated by monopolies.

How bright is the renewable future?

In light of the historic agreement at COP28 to transition away from fossil fuels and triple renewable energy capacity by 2030, investors must ensure their portfolios adapt to evolving energy needs. The demand for fossil fuels is expected to slow, with 50 oil and gas companies pledging to reach near zero methane emissions by 20303 and renewables expected to make up 80% of new power capacity in the same year4.

Ed Clarke, Co-Founder, Infracapital, elaborates: “The backdrop has not been this complex since the global financial crisis, and it has created much uncertainty. 2024 will see many major political elections across the UK, Europe, and the US, but what is evident is that infrastructure remains firmly on the agenda. The current landscape does create attractive opportunities to invest in energy infrastructure that is sustainable or to transition existing assets to cleaner solutions.”

As we transition to a new energy mix characterised by a higher share of renewable energy sources, we must confront the challenges of intermittency and variability inherent to renewables. Alongside renewable energy generation, the development of energy storage facilities and improvement of grid resilience are equally important segments in our net zero journey.

Case study
Driving decarbonisation

Accounting for about 10% of the world’s carbon emissions, the transport industry is a key focal point for decarbonisation efforts5. The last two years have seen the US and India join 31 other countries in a pledge to achieve 100% zero emission new bus sales by 20406. Today, electric buses are the most electrified road segment, excluding two/three-wheelers7.

Supporting over 1,000 electric vehicles (EV) worldwide, Zenobe has emerged as a leading UK player, operating across three key business segments: electric fleets, network infrastructure, and second-life batteries. The global EV fleet is expected to consume between 950 terawatt hours (TWh) and 1,150 TWh in 2030, which is roughly equivalent to the total electricity consumption in the Middle East in 20238,9. This surge will need to be supported by adequate energy storage facilities that can supply secure and affordable power to a resilient grid.

In a bid to save over 1 million tonnes of carbon emissions over 15 years, Zenobe’s landmark 100 megawatt Capenhurst project is the first to have a commercial contract for reactive power services and is the largest battery directly connected to the transmission network in Europe. In a dynamic energy market, investors stand to benefit from leveraging technological advancements and growing policy support to realise the broader spectrum of energy transition infrastructure needed.

Why bank on nature?

Throughout history, land has been acknowledged as one of the three factors of production, along with labour and capital. The natural world supports an estimated $44 trillion of economic value generation10, with 85% of the world’s largest companies’ direct operations being heavily dependent on nature11

Yet, the concept of ‘natural capital’ – the world’s stock of natural resources and related ecosystem services – is still an emerging theme for investors. While live opportunities exist in the space, we expect the range of investable assets to expand exponentially as natural capital is increasingly aligned with infrastructure as an integrated solution to address challenges like high capital cost and insurance risk.

Natural capital assets encompass forests, wetlands, rivers, oceans, and other biodiversity-rich areas that play a crucial role in supporting essential ecosystem services like clean air and water generation, climate regulation, and habitat preservation. 

The establishment of carbon and biodiversity markets is popularising a new investment approach known as ‘stacking’, where multiple ecosystem services are monetised from a single site. The integration of natural capital assets into infrastructure will uncover a new range of investment opportunities, spanning areas such as renewable energy generation, regenerative farming, and sustainable land management.

One example is converting organic waste generated from timber harvesting into biomass feedstock for bioenergy production. In addition to produce and renewable energy sales, cashflows can be secured through mitigation banking credits, payments for ecosystem services schemes, land leasing, and ecotourism and recreation. When structured appropriately, natural capital assets can exhibit similar defensive characteristics as infrastructure assets. 

Case study
Does money grow on trees?

As a critical ecosystem with the potential for long-term carbon capture and sequestration, forests sit at the intersection between decarbonisation and conservation efforts. Investors looking to diversify their private market allocation are increasingly considering sustainable forestry investments as an emerging opportunity that pairs the defensive risk-return profile of traditional forestry investments with innovative capital growth strategies. 

Landowners previously dependent on income from logging might now look for potential returns from carbon and biodiversity markets by enrolling into nature protection and restoration schemes. These long-term income streams can present a diversified source of revenue that is expected to become more valuable over time given the growing urgency for countries and companies to consider net zero targets. Long-term contracts with large companies and regulated markets can provide an opportunity to turn these critical ecosystems into infrastructure-like assets. These trends have sparked a noticeable surge in private deal volumes as asset owners look to leverage emerging revenue streams.

In November 2022, we witnessed the largest private conservation-focused forest investment in US history when Aurora Sustainable Lands acquired a $1.5 billion timberland portfolio. The joint venture between Anew Climate and equity investors led by Oak Hill Advisors saw the purchase of 1.5 million acres of commercial timberland sites that would be repurposed for improved forest management-based carbon credits projects.

A year since its acquisition, the company has generated and sold carbon credits representing 7.5 million tonnes of carbon emission removals. The initiative represents just one example of how private sector players are tapping into new markets and policy enablers to capture risk-adjusted returns while meeting the call for decarbonisation and conservation outcomes.

Are we ‘smartifying’ everything?

From the smart meters to the smart cities that are making up a progressively digitalised world, it seems all aspects of our lives are undergoing ‘smartification’. Modern technologies like the Internet of Things (IoT), location systems, and artificial intelligence (AI) are increasingly being integrated into physical infrastructure assets for performance optimisation. In agriculture, for example, farmers are applying data analytics to predict crop yields by collecting and analysing data on weather conditions, soil quality, and management practices. 

The pursuit of smartification across industries, accelerated by the AI boom, is securing the demand for digital infrastructure assets like fibre optic networks and data centres – of which are increasingly considered critical infrastructure.

Johnny Hughes, Investment Director, Listed Infrastructure, comments: “It’s about offering a modern approach to an ancient sector. Railroads and shipping ports have around for centuries but secure digital payment networks, data storing warehouses, financial exchanges, and fibre optics networks are now integral to the infrastructure fabric of modern societies.” Once considered high-risk assets, digital infrastructure assets are now known to generate stable, long-term cash flows, having delivered positive returns in 2023 despite macroeconomic conditions and a general transaction slowdown. 

Case study
Turning bricks into bytes

With data prized as the new oil, the demand for storage and processing facilities is on the rise. Despite a tough macroeconomic backdrop last year, the first nine months saw $80 billion injected into global digital infrastructure, of which $16 billion was allocated to data centre projects12.

The need for data centres is leading to higher revenue growth and better pricing power for data centre operators like Equinix which own and operate 242 of the world’s data centres. The company also sits at the forefront of data centre sustainability, having achieved over 96% renewable energy coverage for its global portfolio in 2022 and being the first data centre operator to commit to using 100% clean and renewable energy. 

However, the availability of sufficient power and cooling infrastructure to support greater loads poses a challenge to the expansion of new supply. Data centre operators like Equinix, which have integrated energy efficiency considerations into well-developed pipelines, are well-positioned to unlock significant earnings growth. 

Mapping the new terrain

As a relatively young asset class responding to an evolving sector, a more nuanced understanding of infrastructure assets is required. Between forests and data centres, the universe of investable assets across public and private infrastructure markets has expanded rapidly, creating confusion around what qualifies as an infrastructure asset these days. 

What characterises an infrastructure asset is not necessarily its physical attributes, but its risk-return profile as an essential service provider, as Anish Majmudar, Head of Real Assets, Impact and Private Equity, points out: “As an infrastructure investor, you’re always thinking about characteristics like hard asset protection, high inelasticity of revenue, preferably with inflation linkage, the essentiality of those assets to a particular ecosystem, so that overall you’ve got a resilient asset with defensive characteristics that can perform across market cycles.” In this view, including infrastructure assets as part of a wider investment portfolio continues to offer stability, diversification, and long-term returns.

Despite encompassing a vast range of themes, these remain interconnected opportunities where a whole supply chain approach across regions and sub-sectors can unlock diverse entry points for investors. Martin Lennon, Co-Founder, Infracapital, speaks to this: “We have the benefit of owning quite a large and diverse portfolio of businesses.” 

“Whilst some of these might be in the same sectors, they could be in different countries. We can bring that experience and knowledge together as we do periodically to really share best knowledge and ideas and try to ensure that we act as more than a bunch of individual investments, but as a collective infrastructure community, if I can put it that way. I think that’s the best way forward to address some of these quite challenging systemic issues that we face and to identify the opportunities present in the market.”

From railways to renewables, the sector’s continued evolution means that the asset class has never benefitted from as much diversification underpinned by robust market fundamentals. The current scenario is giving rise to future-forward opportunities that embrace innovation while retaining the defensive characteristics historically associated with the asset class. With the volume of new infrastructure that needs to be developed, the asset class not only offers a hedge against uncertain market cycles, but also significant return potential by supporting its growth. The opportunity – and responsibility – to redefine our landscape now lies with us. 

1Amin Mohseni-Cheraghlou and Naomi Aladekoba, “The global infrastructure financing gap: Where sovereign wealth funds and pension funds can play a role”, (, October 2022.

2International Federation of Consulting Engineers (FIDIC) and Ernst & Young (EY), “Closing the sustainable infrastructure gap to achieve net zero”, (, June 2023.

3Eklavya Gupte, Claudia Carpenter, Ivy Yin, and Jennifer Gnana. “COP28: Fifty oil and gas companies sign net zero, methane pledges”, (, December 2023.

4International Energy Agency (IEA), “World Energy Outlook 2030”, (, October 2023.

5International Energy Agency (IEA), “Breakthrough Agenda Report 2023”, (, September 2023.

6Global Commercial Vehicle Drive to Zero, “Memorandum of Understanding (MOU) on Zero-Emission Medium- and Heavy-Duty Vehicles”, (

7International Energy Agency (IEA), “Global EV Outlook 2023”, (, April 2023.

8International Energy Agency (IEA), “Global EV Outlook 2023”, (, April 2023.

9International Energy Agency (IEA), “Electricity Market Report Update”, (, July 2023.

10World Economic Forum, “Nature Risk Rising: Why the Crisis Engulfing Nature Matters for Business and the Economy”, (, January 2020.

11S&P Global Sustainable 1, “How the world’s largest companies depend on nature and biodiversity”, (, May 2023.

12Linklaters, “Data centre momentum continues as $16bn is invested in first nine months of 2023”, (, November 2023.

The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. Past performance is not a guide to future performance.