This article was produced by Igneo Infrastructure Partners.
As the effects of climate change have become more apparent, there has been a noticeable acceleration in decarbonisation programmes around the world. Reducing greenhouse gas emissions and operating sustainably is particularly important for infrastructure companies, because they operate over a long time horizon and provide essential services that must remain uninterrupted. The physical impact of climate change and the issues that are occurring as we transition to a low-carbon economy create risks but also opportunities for these firms.
Improving the ESG performance of infrastructure companies is crucial in ensuring we can meet our collective net zero goals while reducing risks and generating long-term value. Many have already built detailed net zero plans that outline emissions reduction targets, incorporate climate change impact assessments in their business plans and ensure strong governance of climate-related risks and opportunities.
Although these industries are often perceived to be difficult to decarbonise, many companies in these sectors are already making significant progress. They are setting ambitious net zero targets and using innovative thinking and investment in technology to achieve them.
Moving towards clean energy generation
The transition towards cleaner energy is well underway, with renewables such as wind and solar and battery storage benefitting from favourable government policies and advances in technology. But even traditionally carbon intensive utilities are taking significant steps to set and achieve net zero targets. Some examples include:
- Nordion Energi in Sweden set a goal to become the first gas grid operator in Europe with 100% green gas. It has partnered with other local utilities to launch innovative initiatives such as the Nordic Hydrogen Route and carbon capture and storage infrastructure. The proportion of biogas in Nordion’s networks has also increased from 5% of all gas distributed in 2016 to 34% in 2021, and the company planning further biogas projects. Nordion aims to achieve net zero emissions in its own operations by 2030, and to reduce its methane emissions by 35% by 2023 (vs 2019). By 2021 the company had already reduced methane emissions by 31% through improved maintenance, inspection and leak detection and repair systems.
- MVV Energie AG is a regional integrated utility in Germany and the country’s third-largest supplier of district heating. In 2021, MVV became the first German energy company to have its emissions reduction targets validated by the Science-Based Targets initiative according to a 1.5C pathway. The company aims to achieve net zero by 2040, by replacing fossil-fuel heat generation capacity with green sources such as biomass, river heat pumps and geothermal energy to allow a full exit from coal by 2030. By the end of 2021, MVV had already reduced scope 1, 2 and 3 emissions by 20%.
- In Estonia, district heating operator Utilitas will invest €550million over the next decade to decarbonise its operations and reach net zero emissions by 2030. It has already decreased the carbon intensity of its heat production by almost 60% between 2008-2021 by replacing its natural gas and oil-fired energy production with biomass-fuelled plants, sourcing waste heat from a nearby energy-from-waste plant and refurbishing its district heating network to improve energy efficiency. Further upgrades will improve energy production and efficiency, secure green electricity supply, and implement digital solutions to reduce consumption peaks and save energy.
Sustainable waste management
Waste production causes environmental challenges that can be alleviated with more sustainable solutions that help meet net zero goals and create a circular economy. In Europe, landfill has historically been the main way of disposing of waste that can’t be reduced, reused or recycled. However, many governments in OECD countries have introduced policies to stop waste going to landfill, due to the high greenhouse gas emissions it produces. Waste-to-energy (WtE) solutions present the lowest-carbon and most sustainable solution for managing and recovering value from this residual waste, and the only proven large-scale alternative to landfill.
WtE plants have several long-term environmental benefits. In addition to diverting waste from landfill and resulting in lower greenhouse gas emissions, around half of the waste they process is organic and therefore considered renewable. They also form part of the circular economy, as by-products of the WtE process are typically reused in other sectors, such as building materials.
In the UK, enfinium, the UK’s largest pure-play waste-to-energy asset portfolio, has a total waste processing capacity of 2.3 million tonnes per annum. They have four operational assets – which are ranked amongst the most efficient in the country – and two development projects. In total, enfinium’s operations save the UK over 570,000 tonnes of greenhouse gas emissions per year when compared to landfill. Government policies aiming to reduce landfill and lower waste export volumes are leading to a strong need for such domestic UK solutions, as the amount of post-recycled waste produced locally is not matched by equivalent WtE capacity (the “capacity gap”). This is creating demand for further investment in the sector.
Innovation in maritime transport
Shipping is typically seen as a hard-to-decarbonise sector, but there are promising signs that innovative technology can achieve large reductions in emissions.
One example is Scandlines, which operates hybrid-engine ferries on two routes connecting Denmark and Germany. Since 2011, a vision to have zero emissions ferry operations has been essential to Scandlines’ strategy and they have invested more than €300 million in green and technological advances to date. By the end of 2021, Scandlines had reduced its direct emissions by almost 25% compared to 2018. It introduced ground-breaking hybrid-engine systems, which reduce ferry emissions by up to 15%, and installed other technology to increase energy efficiency. On its shorter route, Scandlines has already commissioned its first fully battery powered ship. While it is not yet possible to operate its longer routes fully on battery power, the company is looking at alternative fuels and other solutions to ensure it achieves net zero by 2040.=
While in some industries the path is less clear because technologies are not available or are in their early stages, these examples show it is possible to set ambitious emissions reduction targets and introduce measures to meet net zero targets. We expect to see further and more rapid progress as more and more infrastructure companies implement climate change mitigation or adaptation strategies, and this creates significant opportunity for investors.
Article produced by Sophie Durham, Managing Director and Head of ESG, Europe, Igneo Infrastructure Partners
Igneo’s ESG report can be downloaded by visiting their website.