Influencing the ecosystem: In conversation with Igneo Infrastructure Partners

Niall Mills, Managing Partner and Global Head of Igneo Infrastructure Partners

Sophie Durham, Managing Director, Head of Responsible Investment, Igneo Infrastructure Partners

In this Q&A interview, Niall Mills and Sophie Durham, of the leading infrastructure investor Igneo Infrastructure Partners, discuss the firm’s approach to sustainability, its "improve not exclude” approach to funding and how combining decarbonisation with circular economy initiatives generates value.

1. Igneo has repeatedly shown that sustainability is investible, leading the field in impactful infrastructure investment for nearly 30 years. Why have you adopted this approach as a business model?

Igneo’s strategy is to generate stable, long-term returns for our investors through building a diversified portfolio of mature, mid-market, unlisted, income-generating infrastructure companies.

Our portfolio companies typically operate large, physical assets, which can often have a significant impact on the environments and communities in which they operate. These companies provide essential services to the economy and to communities, so it is vital that they offer security of supply and have a strong social license to operate. Health and safety risks can be high due to the nature of the assets and the work involved. Several of our portfolio companies must also navigate energy transition risks and opportunities, as the world shifts from fossil fuels to renewable energy.

Although none of our current range of funds has an explicit sustainable investment objective or “impact” strategy, the infrastructure investments we make can only be managed successfully, maximising long-term value for our clients, if we identify and manage the material environmental, social and governance risks and opportunities. We treat these issues with equal weight as commercial, financial, legal, technical and other matters. As well as mitigating risk, improving performance can result in positive environmental and social impacts while fostering long-term value creation.

2. Responsible Investment is a cornerstone of your philosophy and you specifically call out the importance of “improvements not exclusions”. Why take this approach when other financial institutions are increasingly issuing exclusionary funding statements?

Our approach is firmly grounded in a philosophy of improving performance on environmental, social and governance issues to reduce risks and help generate long-term value, rather than excluding certain companies or industries altogether.

We will only pursue investment opportunities if we believe the business can be sustainable in the long term, and that we can make any necessary improvements during our ownership to make this happen. However, where possible, we believe that we can significantly increase long-term value and have positive environmental and social impacts.

Our investment in MVV Energie is a great example of this. MVV is a German utility that operates along the full energy supply chain. Like many of its peers, MVV has a history of over 150 years and has traditionally relied on fossil fuels to generate power and heat for its customers. This was a key area for due diligence pre-acquisition. At the time, MVV was already one of the first among its peers to recognise the importance of transitioning to net zero, with targets to phase out coal in the mid/late 2030s and reach net zero by 2050.

Working with our co-shareholder, the City of Mannheim, we have significantly accelerated progress towards these targets since investing in MVV. Our new business plan will see MVV invest €7 billion in the next decade, to phase out coal up to 10 years earlier than originally planned and achieve net zero 15 years earlier, by 2035. In fact, MVV expects to be “climate positive” at this point, capturing and permanently storing more carbon than the company emits (and generating new revenue streams in the process).

Of course, it’s about real action, not just targets, and MVV has made significant progress towards its goals. In 2024, MVV launched its innovative river heat pump on the Rhine, one of the largest of its kind in Europe. This will displace coal use at the GKM power plant and supply climate-friendly heat to around 3,500 households. MVV has also implemented its first carbon removal project: c.1,000 tonnes of CO2 per year is captured at the company’s bio-waste anaerobic digestion plant in Dresden and either used in the production process or liquified and permanently stored in demolition concrete. MVV has installed a carbon capture pilot plant at its Mannheim energy-from-waste facility, which is currently testing the capture, liquefaction and loading of CO2, for scaling up in the future. The company has also increased its proprietary electricity generation from renewable energies to 633 MW, representing 41% of all generation.

These initiatives helped to deliver a more than 25% decrease in MVV’s scope 1 and 2 emissions from 2023-24, amounting to a reduction of almost 1 million tonnes of CO2 in a single year.

An exclusionary approach might have prevented us from making the investment in MVV Energie. By going ahead, making long-term investments and focusing on improvements, we are avoiding millions of tonnes of GHG emissions. MVV has also been an extremely successful financial investment for our investors.

There are many similar examples in our portfolio – whether it’s building the world’s largest electric ferry at Scandlines, meeting almost 10% of Portugal’s total electricity production with renewable energy at Finerge, or working with our customers to prepare for more sustainable marine fuels at Evos. Every company has initiatives in place not only to manage risks but also to capitalise on the huge opportunities presented by the energy transition and other environmental and social challenges.

3. You naturally partner with the loan market to acquire liquidity for your investments. How do you communicate your sustainability commitments to the loan market?

Our commitment to sustainability is a key driver of our success, even without explicit sustainable investment or transition labelling.

Our financing approach aligns with our goal to support the transition and sustainability strategies of our investee companies by using debt products that provide additional incentives to improve their sustainability KPIs. We have set ourselves an ambitious target to incorporate green financing frameworks, green loans, or sustainability-linked loans into the capital structure of our investee companies, to the extent feasible and accepted by the lending market within their respective sectors.

In response to evolving expectations from the lending community, infrastructure issuers who adopt these products are now expected to adhere to more stringent criteria and ensure that any targets outlined in the lending documentation are sufficiently ambitious to demonstrate a serious commitment to reducing environmental impact, enhancing sustainability and improving conditions for the communities in which they operate.

These targets and their measurements, once deal-specific and self-assessed, are becoming more standardised and require external definition and verification. We welcome this trend and we are committed to support it as it enables more certain comparisons across asset classes and sets clear and ambitious thresholds for the entire industry.

Currently, four of our European assets have implemented a combination of these financing products, and we are dedicated to applying this approach to virtually all of our assets as they come up for refinancing.

4. Looking specifically at some of your projects. Not only are you bringing about accelerated decarbonisation pathways, but also implementing circular lifecycles of assets. Can you share examples and explain how this is intrinsically linked to value creation?

Our UK energy-from-waste business is a fantastic example of combining decarbonisation with circular economy initiatives and generating real, sustainable value in the process.

enfinium is a leading British energy from waste operator. The company converts residual, non-recyclable household and industrial waste into heat and reliable baseload power for the electricity grid. It processes around 2.3 million tonnes of waste per year, equivalent to the “black bin” bags produced by more than two million UK households annually. The only other options for dealing with this waste are to export it (making it someone else’s problem) or send it to climate-damaging landfill. By using it to generate electricity, we are reducing GHG emissions and extracting the maximum value and energy potential of the waste. Generating value from key by-products of the combustion process also contribute to the circular economy: enfinium recycles all of its incinerator bottom ash (IBA), for example, to recover ferrous metal scrap, which is recycled into new steel and aggregates for use in construction.

In 2024, enfinium took a major additional step, releasing a Net Zero Transition Plan that will see the company invest c.£1.7 billion achieve net zero in its operations by 2033 and deliver the net removal of up to 1.2 million tonnes of carbon from the atmosphere per year by 2039. The plan shows how, by installing carbon capture technology at all enfinium sites, the company can capture and remove carbon from both the fossil and the biogenic content of the waste it processes – neutralising enfinium’s Scope 1 emissions and also generating high-quality carbon removals, which could be traded and generate a new revenue stream for the business. The vision is to transform enfinium from a waste management company into a carbon removals business powered by unrecyclable waste.

enfinium is already making progress to implement its net zero plan, including a £200m investment commitment to install CCS at its Parc Adfer site in North Wales. enfinium has also launched the UK’s first energy from waste carbon capture pilot at its Ferrybridge 1&2 facilities, which will commence operations this summer (similar to MVV’s pilot project). Other ongoing investments to decarbonise enfinium’s operations include the installation of gale breakers at the Ferrybridge 1 site to significantly enhance the energy efficiency of operations. In February, enfinium’s carbon capture project for Ferrybridge 1 and 2 was designated a “Project of National Significance” by the Secretary of State for Energy Security and Net Zero.

5. Finally, sustainability is more than a focus on the environment, it is also a focus on people. How have you integrated the social factor into your decision-making processes?

While the environmental element of ESG gets a lot of attention, social factors are critical.

As part of Igneo’s Five Minimum Standards, we prioritise key practices around health and safety, diversity, good governance and employee engagement (with climate change forming the fifth minimum standard).

Health and safety is our immediate priority following new investments.

Our portfolio companies employ over 20,000 people globally and around 11,000 more as contractors. We have a responsibility to foster a culture where risks to their health and well-being are actively managed and mitigated. We are proud that when you look across our global portfolio, the average portfolio company Accident Frequency Rate has decreased by 60% within three years of Igneo ownership.

When it comes to diversity, our aim is to see at least 30% female representation across the board in our portfolio companies, and we are now very close to this among our companies’ board representatives and senior management teams in particular (as well as now reaching 45% female representation in Igneo’s own team).

Finally, labour rights and modern slavery have been a key area of focus, particularly in the supply chains of our portfolio companies. Forced labour risks in solar panel supply chains are a priority. We first issued guidance on this topic for our portfolio companies in 2022, including suppliers that should be avoided due to a heightened level of risk and additional due diligence and mitigation measures we expect our companies to take when procuring panels. We will be updating our guidance in 2024 to reflect new research, our collaboration with a leading international NGO working on this topic, and best practice from our portfolio.