Australian Infrastructure
Investment Report
2022

Australia remains an attractive destination for investment underpinned, by a strong reputation. The Australian infrastructure market continues to be underpinned by its strong reputation for delivering infrastructure projects, with 88 per cent of participants ‘highly likely’ to invest in Australia in the next two to three years. The attractiveness of the Australian infrastructure market is primarily driven by our track record for delivering infrastructure and sophistication of market participants and partners.

Australia’s performance in ESG is varied. ESG credentials of investments continue to be a key driver for investors, and Australia has an opportunity to catch up to more sophisticated ESG markets overseas. While 58 per cent of participants agree the country performs well in the ‘Governance’ element of ESG and 46 per cent say Australia is above average in the ‘Social’ element, just 32 per cent say the same of the ‘Environmental’ element, with 10 per cent identifying it as one of the worst markets globally. However, as ESG becomes a central driver, Australia’s investors are stepping up to the task for a range of reasons, including reputational risk, desire to drive positive change and client expectations.

Investors are keen to drive decarbonisation efforts but need policy certainty. Australia’s progress in the energy transition has been marred by a historical lack of political and regulatory certainty to drive decarbonisation of the infrastructure sector, with Australia viewed as a laggard on the international level. However, strong leadership from state and territory governments – and the private sector – has the infrastructure sector taking clear strides in decarbonisation. Investor appetite for ‘green’ infrastructure is continuing to reach record levels, with a strong attraction to renewable generation, and transmission and distribution infrastructure. There is a sense of optimism that the ‘climate wars’ are now in the rear-view mirror.

Supply chain constraints and inflationary economic conditions are challenging investors. While the Australian infrastructure market’s stability and track record for infrastructure delivery continues to bring investors to our shores, supply chain constraints, particularly in the labour and materials market, and growing uncertainty around the global economic outlook, are challenging investors.

In order to ride out a potential coming economic ‘storm’ we need to ensure we have the right settings to attract and preserve private capital. With the current record project pipeline across Australia – including an increasing number of megaprojects entering their delivery phases – the infrastructure sector will need to balance an expanding infrastructure pipeline with delivery timeframes and the sector’s capacity.

Private capital is hungry for a home and Australia must continually calibrate market settings to attract that capital. Australia remains an attractive destination for infrastructure investments, however, we risk losing our advantage if we continue with business as usual. Australia has slipped behind North America as the most attractive investment destination globally. With growing uncertainty around the effects of inflation and geopolitical issues, we risk missing out to other regions.

There is a wall of private capital hungry for a home. With the growing scale of domestic superannuation savings, Australia needs to ensure the policy and regulatory settings encourage private finance in the sector. The 2021 Your Future, Your Super reform package has generated a series of improvements, alongside some unintended consequences. Views of the materiality of these challenges vary widely amongst investors – ranging from welcome to extremely damaging. However, on average, views are neutral with a preference for evolution of the measures. With a periodic review of the reform package in the near term, there is a platform available to make positive changes.

With record infrastructure spends announced over the past few years, governments are entering a post-pandemic era where battered balance sheets and rising borrowing costs means sustaining investor appetite will require different approaches to infrastructure investments. Infrastructure Partnerships Australia has identified 67 greenfield projects across the country – representing $72.3 billion worth of opportunity – suitable for governments to engage private capital on. While these are greenfield projects today, they will be brownfield opportunities ‘tomorrow’ that investors or governments may look to recycle down the track.

Fortunately, Australia has a deep history of leveraging private capital to release funding from existing infrastructure by recycling assets, and for new infrastructure through models like Public Private Partnerships (PPPs). This year’s report shows Australia needs to re-learn some old skills and unlock the vast sums of private capital available to meet our infrastructure aspirations.

Adrian Dwyer
Chief Executive Officer | Infrastructure Partnerships Australia

David Donnelly
Partner | Allen

Kip Fitzsimon
Partner | Allens