Stars align for green infrastructure debt

Posted by Macquarie Asset Management

September 09, 2021

This article was published by Infrastructure Investor on 1 September 2021 and is reproduced here with the permission of the publication.

Unprecedented renewables deal flow is coinciding with soaring demand for responsible investment, says Macquarie Asset Management’s Tim Humphrey and Dillon Anderiesz.

What is driving the growth of the green infrastructure debt market?

Tim Humphrey (TH): To limit the impact of climate change and meet the objectives outlined in the Paris Agreement, the amount invested in renewable energy technologies each year must increase from about $US300 billion today to almost $US800 billion by 20501. We have already started seeing this step-up in investment filtering into the infrastructure debt market, with a large and growing number of renewable energy investment opportunities within our pipeline.

Based on our analysis, the renewable energy sector currently represents around half of the global infrastructure debt market by volume. The opportunity set has therefore grown to a scale that lends itself to raising a dedicated pool of capital. At the same time, there is growing investor interest in making allocations to green infrastructure debt as they seek greater exposure to more responsible and sustainable assets.

The stars have aligned for the sector, with strong investor demand coinciding with the ability to deploy capital at scale.

What is driving investor interest in green infrastructure debt?

TH: The ESG benefits of green infrastructure debt are naturally a positive feature. However, investors are ultimately drawn to the risk and return characteristics of these investments.

In particular, the sustained low interest rate environment has increased pressure on investors to seek alternatives to their traditional corporate and government bond allocations. Green infrastructure debt is able to deliver additional yield for investors who can accommodate the illiquidity and complexity of these investments.

In addition to yield enhancement, investors are attracted to the strong credit characteristics. When compared with corporate bonds of similar credit ratings, green infrastructure debt has demonstrated a lower probability of default, greater ratings stability, higher recovery rates and lower expected losses. 

“Green infrastructure debt has historically demonstrated a lower expected loss than corporate bonds of a similar credit quality.”


Tim Humphrey, Co-Head, Private Credit, Macquarie Asset Management

What do investors look for in a green strategy?

TH: Investors increasingly expect managers to demonstrate that they have robust frameworks in place to quantify the impact of their green investments. This is not always a straightforward process, and the industry is on a journey to enhance classification and reporting standards. 

We are fortunate in that Macquarie Group’s acquisition of the Green Investment Bank from the UK Government in 2017 helped to strengthen our approach, enabling us to access a team of experts with well-established reporting practices that offer our investors a lot of comfort.

We established an Article 9, or “dark green”, EU Sustainable Finance Disclosure Regulation (SFDR) compliant strategy to offer our investors greater transparency over the underlying environmental and social objectives we must measure the performance of our investments against. 

In this strategy, we assess opportunities against the EU’s Taxonomy for Sustainable Activities, which sets out the criteria of what is considered a sustainable activity. This means investments need to both mitigate the effects of climate change whilst not causing significant environmental harm. They must also comply with minimum social safeguards.

Dillon Anderiesz (DA): These factors are important as many of our investors are not just looking to invest responsibly, but also want to be able to measure and report on the impact of their investments to the diverse stakeholder groups they often represent.

We explored the possibility of launching a strategy in this space some time ago, but decided it was important to ensure our work was completely aligned with the SFDR. Understanding the regulations, adapting our processes, and building the necessary internal expertise took time. However, this thoughtful approach has been appreciated by our investors who can be confident that their money is being used for both environmental and social good.

What types of investors are green infrastructure debt strategies appealing to?

DA: Initially, we saw most interest from investors in Europe, and particularly in the Nordics. But that has now spread into the UK, parts of Asia, Australia and now, increasingly North America.

We have seen interest from both pension funds and insurance companies which includes growing interest from investors looking for alternatives that have a premium to green bonds, with attractive risk-adjusted returns and strong green credentials.

In what section of the market do you the see most opportunity?

DA: We have targeted a combination of investment grade and some sub-investment grade green infrastructure debt, to provide a balance and attractive risk-return profile for investors. That is an underserved space, because many strategies focus purely on either the investment grade or high yield sections of the market. We are pursuing an average credit quality of BBB- / BB+, with individual investments having a credit quality at origination of B+ or above. There can be attractive opportunities for investors in that crossover credit segment of the market, where the risk-return profile meets their targets.

“Given the amount of capital that needs to be invested in building new renewable energy generation, the ability to finance greenfield investments is important.”


Dillon Anderiesz, Private Credit Product Specialist 

Do investors need to sacrifice returns to pursue green investments?

TH: There have been several studies which have suggested a potential “greenium” (premium for green) that is paid in more liquid green bond markets. However, the converse is true for our green infrastructure debt strategy, which has historically outperformed other infrastructure subsectors. This is due to a focus on private market opportunities with transactions typically negotiated bilaterally or with a small club of investors. Barriers to entry are high for these transactions due to the need for specialist expertise and also the large sums of money needed from individual investors wishing to participate directly in primary market transactions. 

Which technologies and markets are you focused on?

DA: We are investing in sectors defined in the EU Taxonomy. This includes wind and solar, of course, but also hydroelectricity, energy efficiency, battery storage and bioenergy. The Taxonomy also allows for investment in other emerging sectors, such as the storage of hydrogen.

We like both brownfield and greenfield assets. We do not currently take development risk, but we do look at construction projects if the risk is appropriately mitigated, or the asset appropriately priced, to represent good value. Given the amount of capital that needs to be invested in renewable energy, the ability to finance greenfield investments is important.

In terms of geography, we are very much focused on OECD jurisdictions, particularly Europe and the US, where there is a strong pipeline of opportunities. However, we are seeing interest in opportunistic investments in less traditional markets. The Taiwanese offshore wind market is one example where we have seen attractive opportunities. There will be lots of green investment flowing into non-OECD markets over the next two to three decades and it is important to be able to access those geographies on a selective basis.

How much have you invested in green infrastructure debt?

TH: Our private credit platform has invested over €2.7 billion across 39 green energy debt investments globally since 2014, achieving an average private credit premium of over 135 bps when compared with a liquid corporate bond benchmark. This also represents an attractive premium to returns available in green bonds.

The portfolio represents green energy generation capacity of more than 15 GW and delivers an annual CO2 emissions reduction in excess of 14 Mt CO2e. This is equivalent to powering around 7 million homes and removing around 5 million cars a year from the roads.

How are you working with the institutional investor community?

DA: A number of our large clients have been at the forefront of driving thought leadership and best practice for responsible investment strategies. We have worked closely with these investors over a number of years in building private credit portfolios, which has supported us in designing the green infrastructure debt strategy. A well publicised recent example is the partnership we formed with KLP, Norway’s largest pension manager. KLP is the cornerstone investor and a key partner for our green energy debt strategy, and we have greatly enjoyed working closely with them to ensure the strategy is accessible for other like-minded investors in the pension and insurance sectors. 

How has covid-19 impacted green infrastructure debt?

TH: Renewable energy continues to be one of the largest and more resilient infrastructure sectors following the pandemic. The sun kept shining and the wind kept blowing, and many assets could be operated remotely despite the disruption. Of course, many greenfield projects initially faced construction delays or briefly postponed financing, but borrowers quickly returned to the market. It was a good story from the perspective of credit performance, with the pandemic proving that these assets can withstand macro shocks.

By the end of 2020, the value of renewable energy deal flow had returned to pre-pandemic levels. Meanwhile, the decarbonisation agenda, which had already been gaining momentum, was accelerated further still. Building back greener to stimulate economic growth and achieve net zero should continue to be a tailwind for the sector in the years ahead.

For more information about our private credit capabilities, please contact us.

  1. International Renewable Energy Agency (IRENA)


This market commentary has been prepared for general informational purposes by the authors, who are part of Macquarie Asset Management, a business of Macquarie Group (Macquarie), and is not a product of the Macquarie Research Department. This market commentary reflects the views of the authors and statements in it may differ from the views of others in MAM or of other Macquarie divisions or groups, including Macquarie Research. This market commentary has not been prepared to comply with requirements designed to promote the independence of investment research and is accordingly not subject to any prohibition on dealing ahead of the dissemination of investment research. Nothing in this market commentary shall be construed as a solicitation to buy or sell any security or other product, or to engage in or refrain from engaging in any transaction. Macquarie conducts a global full-service, integrated investment banking, asset management, and brokerage business. Macquarie may do, and seek to do, business with any of the companies covered in this market commentary.  Macquarie has investment banking and other business relationships with a significant number of companies, which may include companies that are discussed in this commentary, and may have positions in financial instruments or other financial interests in the subject matter of this market commentary. As a result, investors should be aware that Macquarie may have a conflict of interest that could affect the objectivity of this market commentary. In preparing this market commentary, we did not take into account the investment objectives, financial situation or needs of any particular client. You should not make an investment decision on the basis of this market commentary. Before making an investment decision you need to consider, with or without the assistance of an adviser, whether the investment is appropriate in light of your particular investment needs, objectives and financial circumstances. Macquarie salespeople, traders and other professionals may provide oral or written market commentary, analysis, trading strategies or research products to Macquarie’s clients that reflect opinions which are different from or contrary to the opinions expressed in this market commentary. Macquarie’s asset management business (including MAM), principal trading desks and investing businesses may make investment decisions that are inconsistent with the views expressed in this commentary. There are risks involved in investing. The price of securities and other financial products can and does fluctuate, and an individual security or financial product may even become valueless. International investors are reminded of the additional risks inherent in international investments, such as currency fluctuations and international or local financial, market, economic, tax or regulatory conditions, which may adversely affect the value of the investment. This market commentary is based on information obtained from sources believed to be reliable, but we do not make any representation or warranty that it is accurate, complete or up to date. We accept no obligation to correct or update the information or opinions in this market commentary. Opinions, information, and data in this market commentary are as of the date indicated on the cover and subject to change without notice. No member of the Macquarie Group accepts any liability whatsoever for any direct, indirect, consequential or other loss arising from any use of this market commentary and/or further communication in relation to this market commentary. Some of the data in this market commentary may be sourced from information and materials published by government or industry bodies or agencies, however this market commentary is neither endorsed or certified by any such bodies or agencies. This market commentary does not constitute legal, tax accounting or investment advice. Recipients should independently evaluate any specific investment in consultation with their legal, tax, accounting, and investment advisors. Past performance is not indicative of future results.


 This market commentary may include forward-looking statements, forecasts, estimates, projections, opinions and investment theses, which may be identified by the use of terminology such as “anticipate”, “believe”, “estimate”, “expect”, “intend”, “may”, “can”, “plan”, “will”, “would”, “should”, “seek”, “project”, “continue”, “target” and similar expressions. No representation is made or will be made that any forward-looking statements will be achieved or will prove to be correct or that any assumptions on which such statements may be based are reasonable. A number of factors could cause actual future results and operations to vary materially and adversely from the forward-looking statements. Qualitative statements regarding political, regulatory, market and economic environments and opportunities are based on the [authors’ // relevant MAM team’s] opinion, belief and judgment.


Other than Macquarie Bank Limited ABN 46 008 583 542 (MBL), none of the entities noted in this document is an authorized deposit-taking institution for the purposes of the Banking Act 1959 (Commonwealth of Australia) or banking legislation in other jurisdictions. The obligations of these entities do not represent deposits or other liabilities of MBL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of these entities.