At Van Lanschot Kempen, we believe strongly that ESG (Environmental, Social, and Governance) forms an integral part of the evolving toolkit for selecting resilient and risk-adjusted investments over the long term. In the investment landscape, it is crucial not to sideline the ‹S› or the Social component when discussing and analysing ESG. This component bears significant long-term financial materiality that is often overlooked. In this paper, we explain why the social component is financially material, and share our framework for assessing how this risk is addressed in Infrastructure.
Infrastructure assets serve the communities they connect (as power, transport, or communication needs are met). But throughout our multiyear experience, we have noticed the recurrence of damages and misusage of infrastructure assets caused primarily as a consequence of disadvantaged economic and social conditions of the communities surrounding the infrastructure.
Examples from the last decade, where this has been material for the infrastructure companies, include pipelines being delayed for lack of community engagement, theft of cargoes or electricity being tapped, as well as poor working conditions at subcontractors or competitors level. And this gave us an idea: we as investors see similar problems across different sectors and geographies, and we can help the companies to come up with solutions to avoid disruptions to assets in the open by fostering development of the local communities.