Thematic Investing

  

Infrastructure: What it is and why it's essential

March 2023 | 4 minute read | Marketing Communication

What does the word infrastructure mean to you? Does it make you think of fields of wind turbines, solar parks, and other renewable energy projects? Perhaps you picture power pipelines or the giant vats that store and preserve our food.

  
While traditionally, many of us associate infrastructure with roads, hospitals and schools, in truth it is all these things and more. It is the transmission lines, pipes and cables that send electricity and gas to people’s homes; it is also the networks that are required to treat and distribute clean water.

In short, infrastructure is the things that an economy must have in order, not just to function, but also to grow.

Rising demand

Infrastructure projects have been growing rapidly, not just by number but also by size, as the world develops and the demand for increasingly sophisticated connections between communities and societies grows.

Demand is so strong, in fact, that it far outstrips the investment being made in new projects. Why should we care? Well, infrastructure is an essential thing. We wouldn’t be able to fill our kettles or light our homes without effective networks for the supply of water and power – and we can eat with confidence when we know our food has been stored properly.

Modern infrastructure is also increasingly driven by technology, clean energy and our awareness of climate change. Many more new wind farms and solar parks will be needed, for example, if the world is to meet its ambition to reduce carbon emissions.

  

Modern infrastructure is also increasingly driven by technology, clean energy and our awareness of climate change. Many more new wind farms and solar parks will be needed, for example, if the world is to meet its ambition to reduce carbon emissions.

Demand drivers

There are a range of factors driving this demand. The world’s populations are growing and living in larger and more technologically sophisticated towns and cities. People are living longer and developing more complex needs in their older age.

There are also specific initiatives adding to the momentum. In the US, President Joe Biden, secured approval for a bold plan to spend $1.2 trillion¹ upgrading roads and bridges, and to introduce more renewable energy generation, among other things.

In the EU, a Green Deal² is aiming to make the continent climate neutral by 2050, using a variety of climate, energy, transport, and taxation policies. At last year’s COP26³ climate summit, more than 100 countries – led by the EU and the US – pledged to cut their methane gas emissions by 30% by 2030.

Investment opportunities

For investors, infrastructure has numerous attractions. As well as receiving private funding, projects tend to be backed by government money. They also seek to generate substantial and predictable amounts of cash, increasing the available returns to financial backers.

Environmentally sustainable infrastructure projects have the added incentive of being designed to make a meaningful difference: both by improving the lives of ordinary people and helping to conserve the planet.

We believe that the more the world strives to meet its goal of bringing climate change under control, the more demand for sustainable infrastructure will grow. These are challenging times, but exciting ones too for investors who are passionate about making a real difference, as well as earning attractive returns.  

Sources
[1] The Bipartisan Infrastructure Deal as at 8 November 2021 [2] European Commission, a European Green Deal 2019-2024 [3] UN Climate Change Conference UK 2021 as at November 2021

Important Information

Unless otherwise stated, all information contained in this document is from Amundi Asset Management S.A.S. and is as of March 2023. Diversification does not guarantee a profit or protect against a loss. The views expressed regarding market and economic trends are those of the author and not necessarily Amundi Asset Management S.A.S. and are subject to change at any time based on market and other conditions, and there can be no assurance that countries, markets or sectors will perform as expected. These views should not be relied upon as investment advice, a security recommendation, or as an indication of trading for any Amundi product. This material does not constitute an offer or solicitation to buy or sell any security, fund units or services. Investment involves risks, including market, political, liquidity and currency risks. Past performance is not a guarantee or indicative of future results.

Date of first use: March 2022

Doc ID: 1917705