Simon Holman, partner of investment management at Castlefield, noted that infrastructure had become increasingly popular in recent years, a move he warned investors should be wary of given the wider trend of sectors "delivering more meagre returns to those late to the party".
But Holman was still positive on the area, adding it was "mature enough" that investors can "afford to be choosy" and pick high quality options.
Alan Burnett, director of the ThomasLloyd Energy Impact trust, also drew attention to the growth in the popularity of infrastructure, adding that as it continues to grow, "key ESG elements within such a diverse sector take on greater importance".
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Burnett drew particular attention to employment laws and standards, noting that infrastructure lends itself to employment across multiple skill sets and generates social impact at a local level more than many other asset classes.
As employment law varies between countries, establishing a set ESG risk framework is "crucial", Burnett said, especially in developing countries where political systems can be more confusing, and regulation can fail to meet developed economy standards.
Areas such as the supply chain for plant and equipment, investigating the potential for child labour in the extraction of materials, and how well are these procedures documented, adhered to and were enforceable were all key points to examine, he said.
Burnett added that understanding the actions of governments was also essential for infrastructure investment, not only on the sector itself, but also the ways that governments manage inflation and energy security challenges.
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Paris Jordan, senior multi-asset analyst at Waverton, agreed there were "many challenges" to embedding ESG into the multi-asset and alternative investing processes.
She argued that while investors may want to simply screen out infrastructure opportunities due to sector exposure or ESG scores, they should instead consider ESG in the same way as all other elements of a firm are deliberated when investing.
This way, she said, ESG considerations can be fully integrated as part of ongoing research into a company, allowing them to appropriately value the risks and improvements that could be made.
Jordan explained that infrastructure assets are assessed by their relevant Global Industry Classification Standard sector, which then enables investors to identify key ESG factors for the firm and analyse how these risks are being managed.
She added: "Where significant risks are identified, it is important to understand whether those risks are being mitigated or transformed i.e. via transition R&D."
Climate change and energy
All analysts drew attention to the challenges and the opportunities that infrastructure will face as climate change grows as an issue for the world.
ThomasLloyd's Burnett said infrastructure plays a key role in decarbonisation, both in managing the potential negative environmental impacts development could have, and the positive impact sustainable infrastructure can bring.
Nick Langley, portfolio manager for ClearBridge Investments, agreed, stating that decarbonisation is a major driver for infrastructure, especially for utilities. He pointed to US utility firm Entergy as a noteworthy example, which operates primarily on the Gulf Coast.
The firm serves residential customers but also industrials, with customers such as US Steel, Exxon and Cheniere Energy, which Langley described as "part of the backbone of the US economy".
As industrials seek to decarbonise their businesses, he said, Entergy's focus on renewable energy is a key tailwind for the firm, as it adds solar capacity "at a healthy pace".
He added the firm's focus on hydrogen could also be a boon as the theme develops due to clean energy and fertiliser applications, allowing it to be a "longer-term beneficiary" of the evolving sector.
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Langley also pointed to a case in which ESG and regulation had caused a negative shift in investment sentiment, with the example of Canadian utility Emera.
He explained that in 2022, the firm struggled after the Premier of Nova Scotia introduced legislation that places a cap on electricity rates.
This higher regulatory risk, along with the social impact of higher energy prices, caused Langley to exit his position in the firm.
However, he concluded: "While social risks from higher energy prices will continue, ultimately, we think regulatory frameworks will hold in general, and on the other side, we can use these volatility events as trading opportunities."
Funds
Looking to specific funds, Castlefield's Holman highlighted three specialist renewable energy infrastructure trusts: Greencoat UK Wind, The Renewables Infrastructure Group (TRIG) and Gresham House Energy Storage.
He has invested in all three since launch, which all sit in the IT Renewable Energy Infrastructure sector.
Holman said he expected all three trusts to "continue to deliver good returns", while stressing the importance of the funds for portfolios for targeting climate change.
Greencoat UK Wind launched in 2013, and has returned 68.7% in the last five years, compared to a sector average of 36.2%, according to data from FE fundinfo.
The Renewables Infrastructure Group, which also launched in 2013, has also outperformed the sector average, returning 54.3% in the last five years.
Finally, Gresham House Energy Storage launched in November 2019, has returned 78.8% over the last three years, compared to a sector average of 10.2%.
Holman argued that the three trusts were "well-established" and new entrants would find it difficult to built a similar level of credibility, as well as access similarly high quality investment opportunities.
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He also pointed to two global listed funds: the First Sentier Responsible Listed Infrastructure and Foresight Global Responsible Infrastructure funds.
Launching in 2021, the First Sentier Responsible Listed Infrastructure fund has returned 1.5% versus an IA Infrastructure average of 4%, according to data from FE fundinfo.
Meanwhile, Foresight Global Responsible Infrastructure fund launched in 2019 and has returned 5.3% over three years, compared to the IA Infrastructure average of 15.1%.
Holman argued the two funds "offer complementary strategies capturing a broad mix of global exposures".
He stressed the importance of geographical diversification as a way to mitigate regulatory risk from a narrow country focus, while adding that technology and sector diversification was equally important, through both renewable energy exposure and sectors such as healthcare and transportation.