Coronavirus Update

 

Whitechurch Investment Update: Infrastructure - not just for income

1st October 2020

As we approach the final quarter of the year, we consider how the events of 2020 have impacted the sector so far, as well as the ever-evolving need for sustainable investment. 

It has been six months since the World Health Organisation (WHO) officially declared COVID-19 a global pandemic. There was something somewhat era-defining about Director-General Dr. Tedros Adhanom Ghebreyesus’ words “this is not just a public health crisis; it is a crisis that will touch every sector”. Given the unprecedented nature of the outbreak, governments across the world have been ultimately tasked with a rebalancing of priorities and more stringent budgeting measures. With healthcare, education and employment naturally dominating the headlines since the outbreak, one could be forgiven for thinking infrastructure won’t have been on the agenda for world leaders during 2020 at all. However, now with Q4 on the horizon, we can say without doubt that COVID-19 has and is redefining infrastructure investment as we know it.

The upshot is that depleted levels of public funding for both existing and future infrastructure projects has been propelled into the spotlight, as countries begin to count the cost of the pandemic on their respective economies. The UK is no exception, with a strong retort coming from Prime Minister, Boris Johnson, which has seen him countlessly reiterate previous promises of the government’s commitment to infrastructure delivery. As a reminder, the agenda announced in March contained plans to spend in excess of £600 billion on infrastructure over the next five years, as well as also promising to address the inequality between different parts of the UK through a programme of infrastructure, education, skill and scientific research and development. As optimistic as they may sound, both the initial vision and more recent rallying cries have generally been well received and have acted as a much needed tonic for businesses, who themselves have had to make their own difficult decisions throughout the pandemic in an effort to shore up balance sheets.

The Prime Minister’s ambitious plans have also attracted the attention of the Confederation of British Industry (CBI). A recent report highlights that the UK must “develop a world-class environment for private investment in infrastructure” in order to combat the economic damage caused by the pandemic, estimating that for every £1 spent on construction activity, a value of £2.92 is added to the wider economy. The report sets out specific steps the government should take in order to attract and facilitate more private investment into the UK infrastructure market, such as extending regulators’ powers beyond pricing controls in order to prevent under-investment in future projects, encouraging the use of better long-term alternatives, and the creation of a UK ‘infrastructure bank’. Ultimately, the paper, Investing in Infrastructure aims to ensure that the government can actually deliver on its promise to meet the social and economic needs of the country.

Also key to the government’s plans is the transition to a fairer and more sustainable economy, with a promise to provide a national ‘net-zero’ emission infrastructure environment by 2050. Unlike many historic and more conventional infrastructure programmes, green infrastructure aims to not only promote a range of environmental, social, climate change and biodiversity benefits, but also to focus on a cleaner and more efficient, multifunction experience from initial design through to end user. As highlighted in our recent blog, the #buildbackbetter theme has been trending on social media throughout the pandemic, as changing behavioural habits and technological advances have helped drive more Socially Responsible Investment. The record inflows into ESG funds over more traditional vehicles of late has also highlighted the shift in sentiment.

There is no doubt that the government’s quandary revolves around financing, namely to what extent the pandemic will hinder the levels of investment required to meet its targets. From existing short-term projects to repair dilapidated rail and road networks to bolder long-term plans, it seems both private and green finance will be integral to success. As such, the government are now also thought to be concocting a series of proposed measures to incentivise companies to invest in green capital and ultimately fast-track decarbonisation efforts. Given that, like many others, the UK government is currently not on-track to meet their net-zero objective, the package would surely come at a welcome time. After all, the International Renewable Energy Agency’s estimates that green finance could stimulate global GDP gains of $100 trillion by 2050, whilst cutting CO2 emissions in the energy industry by 70% and quadrupling job growth in green sectors in the process.


FOR UK FINANCIAL ADVISERS ONLY, NOT APPROVED FOR USE BY RETAIL CUSTOMERS AND SHOULDN’T BE RELIED UPON BY ANY OTHER PERSON   

This publication is issued and approved by Whitechurch Securities Limited which is authorised and regulated by the Financial Conduct Authority. The views and opinions expressed in this publication are those of the Whitechurch Securities Investment Managers. Opinions are based upon information Whitechurch consider correct and reliable but are subject to change without notice. This publication is intended to provide information of a general nature and you should not treat any opinion expressed as a specific recommendation to make a particular investment or follow a particular strategy. We have made great efforts to ensure contents of the publication are correct at the date of printing and do not accept any responsibility for errors or omissions. Past performance is not a guide to future performance. Value of investments can fall and investors may get back less than they invested. All investments can incur losses of capital whilst income may fluctuate and cannot be guaranteed.

Tim Jones

FP3079