Infrastructure for the New Economy: Digitization and Sustainability

Aug 30, 2021

When it comes to infrastructure, many people immediately think of bridges, roads, and tunnels. But 21^stcentury infrastructure is just as much about 5G and electric vehicles as it is about new roads. While still in its early stages, President Biden’s proposed infrastructure plan includes huge investments in EV infrastructure, the electrification of school and transit buses, as well as funds for high-speed internet and clean energy, and money to better prepare us for what climate change will ultimately bring. PGIM recently hosted a webinar to discuss the dynamic infrastructure landscape; the following are just a few highlights of the conversation:

An evolving and growing space: Infrastructure is an aging asset that needs to be transitioned and replaced, so it naturally presents new investment opportunities, including the needs and requirements for renewables and sustainable infrastructure. The growth of renewable energy sources and electric vehicle charging stations, as just two examples, has brought innovation to the sector that will play a critical role in the future of infrastructure. And sustainability is about much more than “going green”; it also includes creating reliable and consistent infrastructure that can be managed and maintained over the long term.
The role of social infrastructure: While the president’s proposed infrastructure plan does focus on climate change, it also contains two other vital elements: racial equity and good jobs for those with a high school education. All of it links back to leveraging infrastructure investment to enhance economic mobility. In the real assets sector, affordable housing and transformative development offer excellent opportunities; indeed, the social impact of stable and affordable housing and healthy communities can be quantified, and addressing inequality is a key aspect of next-generation infrastructure.

Investment implications: The opportunities will present themselves across many sectors and will be broader than many people currently think. The transition to an economy with a lower carbon footprint impacts virtually every sector and the companies that thoughtfully and meaningfully have started that journey – as opposed to those simply “checking the box” – will likely be the future winners. In US equities markets that is starting to be recognized with influences on valuations.
ESG in the spotlight: While the US continues to lag the EU in overall integration of Environmental, Social and Governance (ESG) factors, the gap is narrowing. There is more and better ESG data available, allowing investors to engage with companies in a more meaningful way. Many institutions are focusing on real asset allocations as part of their initial climate response and divesting assets and strategies considered high-risk in terms of climate exposure, while infrastructure is considered one of the asset classes with the most opportunity.