Investment in infrastructure has long been a cornerstone of economic development. It has also been an interesting choice for investors, historically offering stable, predictable cash flows through long-term, inflation-linked contracts, as well as essential services that maintain demand even during economic downturns.
At the Crossroads of Multiple Driving Forces
In the wake of aging assets worldwide, ongoing climate challenges and an artificial intelligence-led digital revolution, the case for infrastructure investment today is more critical than ever. The current interest rate environment also provides useful context, as lower financing costs facilitate larger-scale projects. The U.S. Federal Reserve cut interest rates by 50 bps in September 2024, representing the first cut in four years, with more cuts anticipated throughout the remainder of 2024.1
Global Infrastructure Assets: Updates Available
Many infrastructure assets around the world such as roads, bridges and water systems are reaching the end of their useful lives. In the U.S., for example, the average age of a bridge is 44 years, while the average lifespan for significant pipes and dams is 45 and 57 years, respectively.2The same applies to Europe’s infrastructure, much of which was built during post-war periods. Aging water infrastructure in the U.K. is responsible for approximately 3 billion liters of daily water loss due to leaky pipes.3 Most of the continent’s nuclear reactors—a key source of energy in countries like France—were built in the 1970s and 1980s and were commissioned to last about 30 years.4 There is renewed interest in nuclear energy and other energy infrastructure to power the rising demand for artificial intelligence.Governments worldwide face pressure to act by replacing worn-out assets and adopting advanced technology to extend asset life and improve efficiency. In the U.S., the Bipartisan Infrastructure Law, which was signed in 2021 and authorized USD1.2 trillion for transportation and infrastructure spending, has helped fund improvements on over 165,000 miles of roads, while also financing over 1,400 drinking water and wastewater projects across the country to ensure access to clean water.5, 6
The Multi-Trillion-Dollar Gap
Global infrastructure is currently facing a considerable investment shortfall, with previous estimates suggesting a USD15 trillion gap by 2040 to meet worldwide infrastructure needs and achieve the UN Sustainable Development Goals (SDGs) for universal water and electricity access.7 A joint effort between public and private sectors is essential, harnessing the strengths of both channels to build resilient infrastructure—a basic tenet for a well-functioning and modern society.
Tracking Global Infrastructure with S&P DJI Indices
Typically, market participants invest directly in infrastructure assets or through the listed route in the form of publicly traded infrastructure companies.The measures the performance of publicly traded companies from around the world that are chosen to represent the listed infrastructure industry. The measures the performance of pure-play infrastructure companies domiciled globally. To be eligible for inclusion, a company must derive more than 70% of its estimated cash flows (based on publicly available information) from infrastructure assets (see Exhibit 1).(Click on image to enlarge)
Both indices have a global focus, measuring companies from around the world that are listed in developed markets to enhance tradability. While developed markets contend with aging infrastructure and modernization needs, emerging markets face added challenges related to population growth and urbanization.The infrastructure theme encompasses multiple sectors of the global economy, providing a diversified view of activities related to this topic (see Exhibit 2).(Click on image to enlarge)
Feeling the Heat: the Climate-Infrastructure Nexus
Climate change is another challenge, harming infrastructure through severe weather and rising sea levels, and leading to damage and higher repair costs. To address this, infrastructure must be purpose-built, in order to better handle climate challenges and reduce environmental harm.The measures the performance of selected securities from the , a curated universe designed to focus on thematic purity, while considering tradability.8 The former gives due consideration to measures of physical risk, total impact and reduced greenhouse gas (GHG) emissions. The index also features exclusions for companies involved in specific controversial business activities, for example, fossil fuel operations and power generation. Overall, it seeks to track the underlying index while aiming to improve selected index-level ESG characteristics; for example, targeting at least a 30% reduction in GHG emissions and an improved S&P Global ESG Score by excluding the lowest 25% of performers. As of Oct. 31, 2024, it included 73 of the 129 constituents from the underlying index.(Click on image to enlarge)
The critical need for infrastructure investment presents a unique opportunity sitting at the intersection of several fundamental global issues. The Dow Jones Brookfield Global Green Infrastructure Index tracks pure-play infrastructure companies worldwide, while adhering to strict tradability rules and criteria that highlight selected companies and targets an improved ESG profile at the index level.1 Reuters (2024). “Federal Reserve to cut rates by 25 basis points at next two meetings: Reuters poll.” Available at: 2 Madden, J. (2024). “America’s Aging Infrastructure.” Blueprint. Available at: 3 Muggleton, J. (2023). “The UK’s water pipe upgrade has made it harder to detect leaks – now the race is on to discover new ways to find them.” The Conversation. Available at: 4 Ferreira, V. G. (2024). “Strategic autonomy and the future of nuclear energy in the EU.” European Parliamentary Research Service (EPRS), February. Available at: 5 Pipeline and Hazardous Materials Safety Administration. (2023). “Bipartisan Infrastructure Law (BIL) / Infrastructure Investment and Jobs Act (IIJA).” United States Department of Transportation. Available at: 6 The White House. (2024). “FACT SHEET: Biden-Harris Administration Kicks Off Infrastructure Week by Highlighting Historic Results Spurred by President Biden’s Investing in America Agenda.” The White House. Available at: 7 George, A., Kaldany, R.-R., & Losavio, J. (2019). “The world is facing a $15 trillion infrastructure gap by 2040. Here’s how to bridge it.” World Economic Forum. Available at: 8 The Dow Jones Brookfield Global Infrastructure Plus Index is designed to measure the performance of companies from the Dow Jones Brookfield Global Infrastructure Index and the S&P Global Infrastructure Index. The index is subject to a 75% floor on the weight of all constituents selected from the Dow Jones Brookfield Global Infrastructure Index to focus on thematic purity whilst considering tradability. For more information, please see the .More By This Author:
Seeing Green: The Next Infrastructure Wave
