Diversifying stranded asset risks by investing in “green”: Mobilising institutional investment in green infrastructure

This chapter provides a survey of the role of institutional investors in financing green infrastructure. A growing body of literature examines how investors might better assess 'stranded assets risk' originating through physical, liability and transition channels, and 'rebalance or tilt' their portfolios towards green infrastructure to hedge against these risks. The regulatory environment in which institutional investors operate and the risk-return profile of investments will determine whether institutional capital can be mobilised to support infrastructure development – and whether the infrastructure in question is "green". In a low-interest-rate environment, and if governments provide a sound enabling environment, green infrastructure projects could be attractive to institutional investors. Institutional investors have driven the growth of a market for green bonds, investing in the majority of issuances while working to improve the market's structure and green integrity. To date the majority of "organic" institutional investment in green infrastructure projects has occurred predominantly in Organisation for Economic Co-operation and Development countries.