The 2024 investment case for global sustainable infrastructure

As we advance into 2024, the call for sustainable infrastructure investment is unprecedented, fuelled by global initiatives towards decarbonisation, technological advancements and significant demographic shifts. The urgency for a sustainable future is paralleled by the tangible economic returns and resilience these investments offer, especially in the face of global economic uncertainties and environmental challenges, says Rahul Bhushan, managing director and global head of index at ARK Invest Europe.

Resilience amidst global volatility

The past few years have underscored the robustness of sustainable infrastructure as a defensive yet progressive investment. The US, for instance, witnessed a record-breaking surge in construction spending for manufacturing, topping $150 billion in 2022—as interest rates were rising—with a further leap to $201 billion in the first two quarters of 2023 alone. This increase highlights the growing emphasis on energy security and sustainable manufacturing practices.

Surge in digital infrastructure and energy security investment

The digital revolution, intensified by the advent and adoption of power-intensive generative AI, has ushered in a new era for data centres. The sector saw a 50% boost in global capacity, signalling not just growth but a seismic shift in how we approach digital infrastructures’ sustainability. Gartner forecasts an 8% uptick in IT spending, which will drive hardware consumption while organisations look towards practical benefits from AI such as streamlining and productivity.

This trend is pivotal, as it intersects with the increasing strain on electrical grids and the urgent need for innovative and sustainable power generation solutions. The imperative for energy efficiency is clear as geopolitical factors and climate reporting legislation drive the sector towards granular operational transparency.

Policy frameworks play a crucial role in steering the investment currents. The Inflation Reduction Act and the Bipartisan Infrastructure Law exemplify the US’ commitment, channelling billions into clean energy, long duration battery storage and EV acceptance. This legislative backing is crucial as we navigate the complexities of global geopolitics and supply chain diversification, spurred by the necessity for better energy security and reliability through decentralisation of manufacturing bases in places such as Mexico and Vietnam.

The decarbonisation drive and market dynamics

The global endeavour to shift away from fossil fuels towards renewable energy sources is a strategic economic transition. The market dynamics in 2024 are set to favour sustainable infrastructure projects as we see stabilisation in interest rates, enhancing the financing landscape for green projects.

Additionally, with global equities rising, the landscape for fundraising is becoming more favourable, mitigating previous challenges and paving the way for a surge in investments in renewable energy, energy-efficient buildings and EV infrastructure.

Diversified investment opportunities across sectors

The landscape presents a range of opportunities beyond traditional renewables. The spotlight shines on biogas, energy storage and hydrogen as pivotal elements in the energy transition puzzle.

Transport infrastructure is getting a transformation with increased investments in the electrification of public systems and the development of sustainable port and airport facilities.

Moreover, the digital realm demands attention with substantial growth in fibre networks, data towers and the burgeoning need for energy-efficient data centres, driven by the relentless pace of digital transformation and AI.

The evolving nature of infrastructure investment

Infrastructure is transforming from a niche asset class to a cornerstone of institutional investment portfolios, offering stable returns, yield and inflation protection. The sector’s evolution is marked by an expected rebound from the denominator effect , with infrastructure poised for significant growth, backed by a compound annual growth rate of 13.3% until 2027. This shift underscores the sector’s increasing relevance and potential for substantial impact on global sustainability goals.

Conclusion

The time for action is now. The confluence of economic incentives, robust policy support and escalating market demand for sustainable solutions presents an unparalleled opportunity for investors.

The 2024 landscape for global sustainable infrastructure is ripe for investment, offering a chance not only for financial returns but for contributing to a resilient, sustainable global future.

For investors seeking not only returns but a chance to be part of a sustainable transformation, the moment to act is unequivocally now.

By Rahul Bhushan, managing director and global head of index at ARK Invest Europe

 

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