Public authorities need to develop regulatory frameworks that create incentives and provide policy support in order to attract long-term private capital for infrastructure needed for the ongoing energy transition, the Fiduciary investors Symposium at Stanford University has heard.
The discussion considered how a wealthy economy like the US state of California has struggled to address the under-resourcing of infrastructure during an increasingly urgent climate crisis, and what could be done to attract adequate funding.
“You can’t just throw money at the problem. There needs to be some thoughtful analysis in assessing whether or not these policies are really working,” said Malia Cohen, the Controller for California, who is the state’s chief fiscal officer and responsible for its financial resources.
Cohen said a major hindrance has been the democratic process, because you have to solicit feedback from everyone. While these are very important policy discussions, what slows the process down is the solicitation, the feedback, the thought process, and sometimes even inflexible rules for how things get built or torn down, she said.
The policies continue to be strict and old, and are not dynamic, which affects public entities’ ability to make changes.
“When that changes, I think you will start to see a fundamental change on how projects get built, how money and investment, particularly investment in infrastructure, is also moving. It’s very political on who, what companies, what countries we’re partnering it with,” Cohen said.
Private Success
IFM Investors’ chief strategy officer, Luba Nikulina, said her organisation is an example of how pools of private capital can successfully work with governments on policymaking to try and shake the inflexible, rigid, old structures.
IFM was formed decades ago when 27 Australian superannuation funds came together to participate in the privatisation of airports in the country. The group now manages more than $200 billion and holds infrastructure assets in more than 20 countries.
Nikulina said IFM is actively engaged in dealing with another big challenge of energy transition in Australia, one of the most carbon-intensive countries in the world.
“For private capital, especially the superannuation industry, to engage with the government, with policymakers, and essentially help the country to figure out how to transition to a low carbon future, but also do it in a socially responsible way ensuring that no one is left behind in this transition, is incredibly important,” she said.
IFM is doing this by helping develop the energy transition blueprint for the country, which defines priorities where, if and how the government steps in; then private investors, including IFM’s owner funds, will be prepared to provide capital, while maintaining fiduciary responsibility for the retirement savings of working people.
One interesting example has been the development of a sustainable aviation fuel industry in Australia, to reduce the carbon footprint by using fuel produced from agricultural waste.
IFM, which is also a major infrastructure investor in the UK, is also looking to transport its Australia experience and energy blueprint to the UK, the London-based Nikulina said, adding she had met new British Prime Minister Keir Starmer during his first week in office.
The fund is also building the second-largest solar plant in the US, in Chicago.
Public Policy, Education are Crucial
Cohen said it is important that public entities provide policy and regulatory support by developing a regulatory framework, by creating incentives that will encourage the private sector to come in to the conversation.
“What does that actually look like? That could be subsidies. It could be grants, it can be tax credits. And these are all things that the government has done in the state of California to a certain degree,” she said.
“What we have not done is applied it to lofty goals such as reducing our carbon footprint.”
The other important parts of the conversation are equity and eduction.
Inequity is important because there have been people who have been injured by many policies that business and government have inflicted upon them in the past, Cohen says.
Similarly, when initiatives are put in front of voters, on, it is crucial those voters are educated on why it is on the ballot and why or how it is important to them personally and the society at large, she said.
Nikulina said, as an investor, the critical ingredient will vary, depending on the industry.
“I wish there were a silver bullet where I could say, here is the solution, please use it,” she said.
“Unfortunately, it requires engagement pretty much sector by sector, company by company. And this is what we are doing in Australia, in the UK.”
