Keesa: [00:00:02] Hello and welcome to LSEGs Sustainable Growth Podcast. I'm your host Keesa Schreane. A record $627 billion in sustainable infrastructure projects in the renewable energy and nuclear sectors were announced globally in 2021. Now that's up from $275 Billion in 2020. But despite steady growth and investment, many big projects have been side-lined by a crippling combination of pandemic-related project delays, supply chain issues, geopolitical tensions, and inflationary pressures. There is a lot to get into here. So today we've got a new episode of The Green Room, our special segment, where we dive into the latest research and data to separate fact from fiction. We're talking to Darrenth Hawken, who is a director of Global Infrastructure and Sustainable Finance at London Stock Exchange Group. He's based in Hong Kong. So, let's just get right into it. So, Darrenth, could you tell us a bit about yourself and your work?
Darrenth: [00:01:11] Yeah. Hi, Keesa. Thanks for having me today. Essentially, I head up the Sustainable Infrastructure and project finance team here at Refinitiv LSEG, and essentially, we have been over the past 18 months on a journey to stitch together a series of data services that we've had available in the business, which essentially wrap themselves around the infrastructure space in a much more detailed way. Myself, I have 25 years of background experience around the capital market space, around credit bonds, loans, and project finance. And so, it's a nice new area for me to expand my own personal interest.
Keesa: [00:01:55] Great. So, let's talk a bit about the report. Potholes on the Road to Sustainable Infrastructure. First of all, love the title. Secondly, let's talk about some of the top-line information that really comes out of the latest report.
Darrenth: [00:02:10] Yeah. I think the title for us was pretty much straightforward for us once we got the data together. I think essentially what we're seeing the data shows very heavily that we are seeing an enormous amount of effort, we're seeing an enormous amount of conviction in the infrastructure space and particularly in the sustainable space, which is going to be the piece which obviously better impacts climate change and keeps us one and a half degrees cooling for the globe. And I think it shows that we're heading in that direction. But I think it's the pace of the journey that is the problem. And what we've seen is an enormous amount of money committed, an enormous amount of projects started. However, because of a number of reasons across those different projects, we've seen a very low number of those actually reach completion. And I think that is really the piece that really comes through in the report.
Keesa: [00:03:12] So let's talk about some of the reasons you said that there there's a lot of money allocated. There are a lot of projects that are started. Do you find one to two top reasons across those projects, why they aren't moved quicker to completion?
Darrenth: [00:03:28] Yeah. I think one of the first reasons is COVID. And I know that is a reason for everybody nowadays from your package being delivered late in the mail to just about everything else. But the reality of it is COVID has a dramatic has had a dramatic effect, particularly on the supply chains for these infrastructure projects. As you can imagine, a typical infrastructure project is quite sizable in its scale and in its moving pieces. Many of those pieces come from a variety of different locations around the world to a single point, and then, of course, require a lot of physical labour and construction to actually complete. So, in a certain way, COVID has impacted both the availability of the workforce to make that happen and the availability of the pieces to put that together. I think the second biggest problem we've had is essentially now around the latest situation we're seeing basically in the ramifications of the power market after Russia's invasion of Ukraine. We've obviously seen an enormous rally in the cost of natural gas and in other commodities. And unfortunately, what that's also brought is the ability to make money to profit from traditional industries, traditional ways of generating power. So, we've seen a bit of a return perhaps to some, dare I say, bad old ways, where some industries, some countries are returning to coal-fired power stations. The US for one Germany another turned on a number of coal-fired power stations in the last six months, which had essentially been mothballed and decommissioned. So, the rallying cost of those assets, of the commodity assets is definitely driving attention perhaps away from that sustainable infrastructure. And I think the third piece is around the governmental regulatory planning applications. Those are also very complicated for infrastructure projects. So, looking at the United States, one of the first offshore wind farm you currently have in the US is off the Hamptons, basically, Martha's Vineyard, obviously a very beautiful piece of real estate, some incredibly rich people, and a lot of them don't take very kindly to having an enormous offshore wind farm in their view. And so, there are naturally a lot of objections to some of these infrastructure projects being put in my backyard, so to speak. I think there's an interesting case in the United Kingdom right now where the government is currently reviewing the availability of small-scale nuclear power stations. And essentially one of the pieces of the planning application that the government is trying to push is that if you are within a certain catchment area of that nuclear power plant, your electricity will either be free or heavily discounted. So, I think those three issues really are the pieces that are holding back a lot of the projects from coming to the market and then coming to completion.
Keesa: [00:06:40] So this is interesting, Darrenth, you position the third one as being a bit of regulation in government. I also hear a bit of maybe pushback from residential folks, consumers. Is that the case?
Darrenth: [00:06:56] Absolutely. If you look into some of the markets where we've seen a much more mature infrastructure space, particularly in places like Australia, you see instances where local communities are coming together to lobby against things like bird strikes on wind farms. So according to some studies, the death toll from migratory birds across certain wind farms, across certain tracts of land has been quite high. And of course, many individuals have solid feelings about that, and that has been an issue. There's also been certain conversations around the storage of power. So obviously storing power is a big problem for us as humans, we can store pretty much every asset but power. And so, we're beginning to build batteries on a scale that could run cities. Now, essentially, there's some unsure science about the health benefits or the health concerns of those batteries. Obviously, batteries of the kind of scale that we're talking about put out a pretty serious magnetic field around them. People are concerned about the impact on their health from having those batteries in their neighbourhoods. So, I think a lot of it is, as a race, we probably all understand as an individual what needs to be done, whether or not all of us are on board and prepared to make that sacrifice, I think that remains to be seen.
Keesa: [00:08:21] Now, what single data point and you can put some context around it, or piece of information did you find most compelling and maybe most shocking to you?
Darrenth: [00:08:32] Well, I think looking at the actual hard numbers, when we ran this same report in 2020, we found $275 billion of projects were launched in 2020 for the year. Looking at that exact same segment in 2021, we are now looking at just over $600 billion. So, we're looking at a more than doubling of the amount of projects in that space. The total number of projects went up, as well as the value of those projects as well. We also saw an enormous jump in the number of solar projects, again, from 442 projects to 863 projects. And some of that makes sense out of all of the traditional sustainable power generation, sustainable infrastructure spaces, solar is by far the easiest to construct and the quickest. And generally speaking, solar can be put up in a geographical location, perhaps where it's less desirable for people to live. So obviously deserts are really good for solar, obviously with the sun and obviously as a human race, not many of us populate the desert. But however, the flip side of all of those great numbers and all of that massive growth is that a mere 47 projects or around 4% were actually completed in 2021. So, a tiny number of projects versus the amount which were launched, which is to be expected to a certain extent, because obviously the complexity of some of these projects, as I mentioned earlier, they take time naturally, but not this kind of time. And particularly when you obviously in every newspaper and every media outlet, every single day, we see and hear an enormous amount about the climate crisis, be it wildfires, power supply problems both in Western Europe and in California a couple of weeks ago. So, you would imagine that the urgency is amplified, but it doesn't actually seem to be leading to any hard action as yet.
Keesa: [00:10:46] I'm wondering, what are we going to do about the, not in my backyard scenario? I know that you mentioned that with solar that's an easy fix, we can put that in the desert. But for some of these other projects, how are we going to engage with the residents there? Because it's very important. So how are we going to get that done?
Darrenth: [00:11:05] Well, I think that's going to be a very local-level conversation. Most large infrastructure projects right now have had a lot of government support, and a lot of backing from either federal or state-level government entities. However, what we're seeing much more now is a growth in what you might call community solar projects or community wind farm projects. So, these are perhaps houses or housing estates or small communities who are getting together to try to tackle the issue on their own. And what you're seeing is a kind of collective response to the problem with like-minded people in that community coming together. There's a number of initiatives active both in the Netherlands, Germany, UK and in the US, where governments are making finance available to these community farms. So, I think trying to bring people on a story on a journey is the most important thing. And actually, I have a 13-year-old daughter. Personally, never learned about sustainable infrastructure at school. However, there was a segment in her last year curriculum where they studied sustainable infrastructure. They studied power generation by wind and solar. The benefits of it versus power generated through coal. And perhaps the way we really combat this is by working on the next generation to really understand what we're trying to achieve here.
Keesa: [00:12:36] And as a first step, I suggest we have your 13-year-old on the show because it sounds like she could educate a lot of us. On this!
Darrenth: [00:12:42] It was actually the first time she's ever been interested in what her father does at work. So, it was quite funny.
Keesa: [00:12:50] Let's talk about as a final question. What is LSEG doing to further engagement on this?
Darrenth: [00:12:58] So essentially, internally we are engaged in what we call infrastructure as an asset class. So historically, infrastructure has been very much in the shadows. It was an asset class which was relatively dominated by government entities. Most governments around the world used to pay for and fund infrastructure. But of course, given the explosion of it, it has now moved out of that governmental segment and much more into the private finance market. So, for us, we see our part in that journey. So, we see bringing transparency to the market, information to the market, accessibility to the market, which are all tools and services that to LSEG we have done on a number of different asset classes over the years. And we firmly believe with that transparency, with that information, with accessibility, we will mobilize more capital. We will bring more money, more experience, more execution into this space. And I think we have a base set of tools now which we've brought together into a platform we call Infrastructure 360. And we are now launching that product out into the market, along with a series of enhancements which we believe will build a very strong workflow for both existing and, most importantly, new entrants into this market. So, bringing more individual institutions on a journey into infrastructure is really the critical part.
Keesa: [00:14:39] Excellent. Darrenth Hawken, Director of Global Infrastructure and Sustainable Finance at London Stock Exchange Group, based in Hong Kong. Darrenth, thank you so much for your time.
Darrenth: [00:14:49] Thank you. It's been a pleasure.
Keesa: [00:14:53] That's it for today. And thank you so much for listening. If you're looking for more, why not take a look back through the feed? You could check out our special summer series, Net Zero Conversations with Sustainability Leaders. Or check out our episode with Bahiyah Yasmeen Robinson from Season 6, on Driving Change in Venture Capital. Please make sure to follow us wherever you're listening right now and hit that subscribe button so you can get our episodes as soon as we release them. If you have any questions or comments, drop us a line at fmt@lseg.com. See you next week.
