Investing in the next evolution of infrastructure

CIO of NEI Investments plugs into trillion-dollar possibilities arising from ESG awakening in traditionally defensive sector

Investing in the next evolution of infrastructure

Over the course of the past century, the world’s infrastructure has stood the test of time, effectively providing the energy needed for humanity to survive and thrive. Because of the critical role they play for society, infrastructure projects and utility companies have traditionally been a reliable source of income and returns for investors.

But according to John Bai, Chief Investment Officer at NEI Investments and Aviso Wealth, tectonic changes are needed for the tried-and-true sector.

“To avoid the worst effects of global climate change, we need to start taking stock of our existing infrastructure and ensuring that its impact on the environment is as minimal as possible,” Bai says. “So when I think about green infrastructure, I don’t think of it as a new space so much as It is an evolution of an existing space.”

To help investors encourage that evolution, NEI Investments has launched the NEI Clean Infrastructure Fund. A global strategy that focuses on impactful renewable energy companies, the fund is set to benefit from a number of mounting tailwinds.

First, there’s a growing consensus among prominent research and intelligence firms – including the International Energy Agency, Bloomberg, and the National Energy Foundation – that the world needs to double or triple its green infrastructure investments to meet its collective commitments under the Paris Agreement. That literal trillion-dollar opportunity, Bai says, should be a very appealing trend for investors to participate in.

The fund could also be appealing given the current uncertainty in the markets. Aside from record-high inflation and rising interest rates, investors are trying to assess the dangers from what could be the largest land war in Europe since World War Two. With political and economic risks stacked so high, investors are searching for ways to protect their portfolios without sacrificing returns.

“A lot of the green infrastructure plays we’re investing in through the fund have strong balance sheets and high dividend payments. We’re projecting dividend growth rates of 5%,” he adds. “So that’s a very defensive characteristic when we’re seeing lots of market volatility.”

To ensure that the fund is invested in financially strong companies, Bai says it will look at a raft of metrics like balance sheet strength, high credit quality, and strong internal rates of return. It will also select for firms with robust contractual relationships and strong cash flow generation and growth opportunities.

But beyond that, Bai says the fund will screen companies based on key ESG characteristics. Using a proprietary database, NEI Investments is able to look at companies’ carbon footprints, and where they’re going in terms of greening their energy sources. As well, the fund does a full-on assessment that ensures companies within its holdings have strong ESG characteristics not just within their own operations, but also further up and down their supply chain.

“This strategy is investing in the enablers of the green economy,” Bai says. “We require utilities to have at least 60% of their energy generation coming from renewables and sustainable sources. So the utilities in our portfolio have a very small carbon footprint compared to others out there, because we believe these are the ones that will lead the great energy transition.”

Aside from tapping into a once-in-a-generation investment opportunity, Bai says the fund is a vehicle for Canadians as they realize that it’s not just how much they make that matters, but how they make those investments – and what outcomes they are driving.

“When it comes to climate change, people feel helpless. ‘What can I do as a Canadian?’ And I think people are beginning to realize that there’s power in capital, and we can use it to actually help solve the world’s problems,” he says.