Over the past twelve months, the world has recognised that there has been a lack of societal progress towards meeting the Paris Climate Change Goals or the UN Sustainable Development Goals (SDGs). This realisation, and the increasing sense of urgency, has brought forth more regulation, policy changes, and a renewed ambition to succeed. Many of the sustainability challenges for our energy transition ambitions globally will be met by the listed infrastructure asset class. 
Significant investment will be required for the sector to change the energy mix and facilitate greener transport, while connectivity will require additional investment in digital infrastructure. As a result, we believe that infrastructure will become one of the fastest-growing sectors in the next 30 years. The private sector will be incentivised to invest in expanding and upgrading for greener infrastructure as government balance sheets are stretched but fiscal stimulus is required for further growth.
Beyond the energy transition, which overlaps SDG 7 Affordable and Clean Energy, other SDGs are well represented in listed infrastructure, starting with SDG 9’s emphasis on Resilient Infrastructure, to SDG 6’s focus on Clean Water.
Power Generation & Distribution – renewals becoming more competitive
Over the last decade carbon emissions from the US and EU electricity sectors have declined significantly. Moving away from an over-reliance on coal means investments in renewables are becoming more common – driven by supportive regulation, and renewable energy becoming cheaper than coal to generate electricity. As we see from the chart below for the US, a decade ago the energy mix was 45 per cent coal. Last year it was “only” 25 per cent as gas and renewables gained market share.
US Power mix generation since 2010
Source: US Energy Information Administration, net generation by energy source 2010-May 2020
Gas distribution – a transition fuel, reducing water consumption 
Also from the chart above, we can see how the move from coal to gas which has less than half the CO2 of coal in power generation. According to the “Electric Power Monthly” of the International Energy Agency (IEA), in the last decade coal to gas switching “saved around 500 million tonnes of CO2, an effect equivalent to putting an extra 200 million electric vehicles (EVs) running on zero-carbon electricity on the road”. The IEA also forecasts gas capacity increases for the coming decades.
Water conservation is an overlooked benefit of coal to gas switching, as each megawatt of coal power replaced by gas, saves 39,700 litres of water. Put another way, if all US coal power were to be replaced by gas, the water savings alone would be equal to the annual volume of water used in the US. This is a significant and direct contribution to UN SDG 6 related to water.
Transportation sectors (road, rail, airports) – reward EV infrastructure
The developments observed in the utilities sector illustrate the changes we could see in the transportation sector. For example, electric vehicles are gaining market share, further reducing carbon emissions. We believe that investors will reward companies that promote electric vehicle infrastructure which has direct impacts on the rail, toll roads, airport, and ports sectors. What is more, several shifts are likely to occur including from truck to rail for freight, road to rail for commuter transport, and from plane to train where possible.
New infrastructure sectors – Significant opportunities ahead
Beyond traditional infrastructure, there are emerging areas in the sector that will also meaningfully contribute to decarbonisation. Today, we see connectivity impacting data consumption and transport. This will in turn impact data centres and communications infrastructure more broadly.
Further, tomorrow's technological breakthroughs in battery storage or carbon capture will create new opportunities for global infrastructure. As the cost curve has come down, battery storage will be used more frequently by utilities to back up wind- and solar-parks.
The coming decades will see a step up in efforts to mitigate the worst impacts of climate change, and the infrastructure sector, especially utilities, will have a key role in enabling that effort. As long-term investors, we see the risks and opportunities becoming more material in our investment opportunities – which our investment process aims to better capture to generate alpha.
Thomas van der Meij & Jags Walia are senior portfolio managers for the Kempen Listed Infrastructure Fund. The views expressed above are their own and should not be taken as investment advice.