EDHECinfra: Infrastructure investors say they need ESG data to manage climate risks first, report to stakeholder and regulators second

EDHECinfra: Infrastructure investors say they need ESG data to manage climate risks first, report to stakeholder and regulators second

June 28, 2022

Infrastructure ESG
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A new global EDHECinfra survey of 100 investors in infrastructure, entitled "Do Financial Investors Need Non-Financial Data?" aimed to understand the drivers of demand of ESG data and the most relevant ESG impacts and risks for investors. Despite the obvious pressure to better report non-financial data, portfolio risk management is the most frequently cited reason for wanting ESG data.

The three key findings of the survey are as follows:

  1. ESG risks are not priced. If ESG risks were fully priced, investors could in large part manage them through the prism of asset prices. Climate risks are extreme risks and require going beyond standard measures of risk like volatility and correlation metrics. However, not only is there a lack of robust data on tail events, but climate-related tail events are all in the future.
  2. Investors care about climate risks. Of all the ESG risks, investors in infrastructure are overwhelmingly concerned about only one class of risks: climate risks (physical and transition risks) which are ranked first or second by almost 80% of respondents. In comparison, environmental impacts and risks are reported to be the main concern of a few investors, while social acceptability and governance issues receive little attention so far.
  3. Investors need data to benchmark their non-financial risks. While infrastructure investors typically have access to non-financial asset-level data for their own assets and portfolio, they lack standardised data that can be compared to a benchmark. In effect, the amount of data to which they currently have access is too limited for them to have a view on ESG for the purpose of risk management or reporting performance on a relative basis.

Frederic Blanc-Brude, Director of EDHECinfra and a co-author of the report, said, "The creation of robust benchmarks to assess risks on the basis of non-financial data, especially climate risks, is a necessary evolution for the infrastructure investment sector. EDHECinfra intends to contribute to this evolution with the development of several benchmarks of climate risk exposures and their impact on asset value for thousands of infrastructure assets globally."

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