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INFRASTRUCTURE

D e f ining Matters
INFRASTRUCTURE
D e f ining Matters

Co-authors

D r L ar r y B e e fe r m an D r A l l an Wai n
Director Pensions and Capital Stewardship Projec t Head of MEEMA (Middle East, Emerg ing Markets, Asia),
Labor and Worklife Prog ram, Har vard Law S chool, Hasting s Fund s Management
Har vard University

Infrastructure | Defining Matters 1


Infrastructure is critical to our economy, our community and our pursuit of a sustainable environment. But what do we
FOREWORD mean by the term infrastructure and do different understandings of that term confuse our attempts to decide on our
future investment and development priorities?

In this important paper Infrastructure Defining Matters, Drs Beeferman and Wain explore how we should consider
and define infrastructure. They focus on enterprise and people and argue that context is critical. It is an important
contribution to our thinking on this crucial topic.

They use both formal analysis and practical application to inform this different approach. A number of US Pension
Funds contributed to the analysis via a comprehensive survey.

Beeferman and Wain challenge our understanding and definition of infrastructure. They argue that understanding
infrastructures important role in our society is key to informed analysis. That this provides a context for economic
and community analysis in both developed and developing countries.

This paper is a very useful contribution to an issue that is increasingly important to economies and communities
around the world.

Sir Rod Eddington AO


Chairman
Infrastructure Australia

Infrastructure | Defining Matters 3


ABOUT THE
CO-AUTHORS

Dr Larry Beeferman Dr Allan Wain


Dr. Larry Beeferman is the Director of the Pensions & Capital Allan joined Hastings in February 2010 and is a member of the Hastings
Stewardship Project at Harvard Law Schools Labor and Worklife Program. Investment Committee.
The Project addresses key legal, policy, and other practical issues relating Prior to joining Hastings, Allan was an economics and strategy adviser to
to strengthening and extending retirement security for more households the Office of the President and Cabinet in the Middle East and the Managing
and practices, institutions, and systems of pension fund governance, Director of an investment development company. Previously Allan was at
management, and investment that encourage capital markets and BHP Petroleum where he was strategy adviser to the chief executive and
corporate policies to work more effectively for workers and the health the Principal Economist. In this role Allan was responsible for identifying,
and well-being of the larger community. evaluating and financing offshore oil and gas and related infrastructure
The Projects publications have included ones concerning pension assets. Allan was also a director of a management consulting firm.
fund investment in infrastructure, the tools for and practice of taking into Allan has studied at the University of Melbourne, Stanford University,
account social factor risks in investment decision-making, labor and private Harvard University and the University of London and has a Master of
equity, worker voice and the union role in the management of pension fund Business and PhD degrees, together with postdoctoral, postgraduate, and
assets, the Dodd-Frank financial markets reform legislation, and proposals undergraduate qualifications in economics, finance, and engineering.
for automatic enrollment in retirement plans. A forthcoming publication
on rethinking fiduciary duty will be part of a collection of essays will be
published by Cambridge University Press.
Larry W. Beeferman received a juris doctorate from Harvard Law School
and a doctorate in applied physics from Harvard University. Prior to leading
the Project he was a professor of law at the Massachusetts School of Law and
Western New England School of Law, headed up the Asset Development
Institute at Brandeis Universitys Heller School for Social Policy and
Management, and served as Associate Counsel to the Massachusetts
Special Commission Concerning State and County Buildings.

4 Infrastructure | Defining Matters


INTRODUCTION

5
We believe that pension funds will be better able to meet these dual challenges
if they can gain a deeper understanding of first, what infrastructure is or might
be thought to be; and second, the relationship of that understanding to other
ways of thinking about infrastructure and how they are ultimately linked to beliefs
and contentions about the place of infrastructure investments in their portfolios.

INTRODUCTION Pension funds are grappling with serious


challenges. Most immediately they are to invest
by the second challenge because broadly speaking
the enterprises associated with infrastructure
We believe that pension funds will be better
able to meet these dual challenges if they can gain
fund monies in ways calculated to keep promises are in that regard no different from other kinds a deeper understanding of first, what infrastruc-
to pay retirement benefits. Some of those promises of enterprises. ture is or might be thought to be; and second,
have ripened with the retirement of certain plan That being said, though, discussion about the relationship of that understanding to other
participants. Other obligations, based on the infrastructure investment is typically animated ways of thinking about infrastructure and how
experience of young, active workers or those who by a belief or perception that infrastructure is they are ultimately linked to beliefs and conten-
will become active workers, will mature only many different. That is, enterprises associated with tions about the place of infrastructure investments
decades some six, seven, or more from now. infrastructure differ from other kinds of enterprises in their portfolios.
In the more technical parlance of pension fund in terms of the goods and services they produce, Toward that end, this paper is organized
discourse there must ultimately be a match in most especially the relative importance of the as follows.
time and amount between what can be realized role those goods and services play in the life of a First we take brief note of both historical
from investments and (what are, for the most part) society. In turn, there is a sense grounded in some discourse about infrastructure and specific
long-dated liabilities. measure of historical experience, that precisely contemporary discussion as they pertain to invest-
However, the challenge of meeting that ostensi- because enterprises associated with infrastructure ment which in some measure motivates this essay.
bly purely financial objective is inevitably linked to are different the economic, political, and other More particularly we offer a short description of
how enterprises that afford the occasion for invest- arrangements according to which those enterprises the origins of the term infrastructure and how
ment operate and behave in producing goods and might be established and operate are unlike those the nature and reach of the term has changed over
services, and the impact of those operations and of others. And, in turn again, there is an impres- the years. We do so to emphasize that the choice of
behaviors.1 In other words, the investment choices sion also grounded to some extent in historical definition will be informed by the particular needs,
pension funds (and others) make, certainly at an experience that the financial characteristics of concerns, and circumstances of those who see the
aggregate level and in some cases at an individual investments which support, sustain, or drive those term relevant to interpreting their experience.
level, inevitably affect and are affected by the larger arrangements have a distinctive character. Indeed, We then look at the shifting, in some measure
society, perhaps even profoundly so. Awareness the belief often is that those characteristics are ad hoc ways in which infrastructure has been
of and attention to this second challenge may be distinctive in ways which might be particularly classified in relation to investment. We see these
relatively new, but they have grown in importance apposite with the financial needs of pension funds. variations as a signal of the lack of clarity, focus,
and likely to increase much further. At the same time, though, the ostensible special or consistency which characterizes the field and
This paper focuses on investments in infra- nature and important function in society of that needs to be addressed.
structure informed by the possibility that they are which is understood to be infrastructure may well Next, we turn to pension funds more
one valuable means by which pension funds can engender correspondingly unique problems in particularly U.S. public sector pension funds
meet the first challenge. But consideration of such responding to the larger societal implications of experience with the term from several vantage
investments in those terms implicates issues posed enterprises associated with infrastructure. points. We describe and strive fairly to interpret

6 Infrastructure | Defining Matters


PART 1 | BACKGROUND AND MOTIVATIONS
FOR A DEFINITION OF INFRASTRUCTURE

responses from a number of such funds to a survey highlight the importance of the definition to each A short history of the term infrastructure reconciled bears on whether and by whom that
we sent to them which included questions we posed different way of thinking or analysis. To afford what enterprise is thought to be fit for purpose.
Definitions are important. They lend clarity and
as to possible definitions of infrastructure, particu- we think could be a useful tool for pension funds For those reasons we start with the curious,
focus to discussions. Without such precision and
lar instances or examples of infrastructure, putative in their consideration of infrastructure, in the though somewhat uncertain, narrative of the
focus participants are likely to speak by one another
financial attributes of infrastructure investments, Appendix we distill from detailed analysis of the appearance and evolution of the word infrastruc-
or even at cross purposes. If the aim is to make a
and how respondents view such investments in main text a series of inter-related questions which ture. That history suggests, perhaps not surprisingly,
well-considered decision, especially a weighty one,
relation to their funds strategic objectives. might prove useful to the decision-making process. that which has been associated with the word,
clarity of definition is essential. This is particularly
In light of the foregoing we then propose a We conclude with a reprise of the arguments has been informed by the interests, priorities,
true for many of those who think about invest-
definition for infrastructure which we believe offered with the aim of situating the analysis in concerns, etc. of those who have chosen to include
ment in infrastructure. There is no widely shared
seems to be apt for pension funds. However, while relation to the tasks pension funds have and how it in their vocabulary. This evolution evidences in
understanding of what infrastructure is, why it is
that definition is targeted enough in those terms they might pursue them. part the adoption (and adaptation) of the word in
understood in that way, and the link between how
we fashion it broadly to capture meanings for new contexts according to which the associated
investors view it in relation to the perspectives of
others whose needs, concerns, and circumstances meanings have changed.
those who are not investors. Moreover, in some
are ones to which pension funds might well need The term seems to be of relatively recent
measure, definitions are in the eyes (or the hands)
to be alert. For several reasons, the definition vintage. It might have been derived from the word
of those who are the beholders. That is, the mean-
is anchored in a characterization of the kinds spelled the same way in French in the 19th century,
ing(s) they attribute to or associate with the word
of products and services with which provision perhaps as early as 1875 and may have been iden-
reflect the vantage point from which they view
through infrastructure is identified. One is that tified with the military. For example, according
or are situated with respect to it. Even within the
it is often the first and in certain respects easiest to one source, [t]he earliest use [in English] is in
relatively modest compass of this consideration of
way for those who venture into the infrastructure 1927 in the Oxford English Dictionary, wherein
infrastructure in relation to investment there are
space to orient themselves to the subject matter. the term was used to describe the tunnels, bridges,
multiple and overlapping perspectives and interests
Another is that as just suggested, the uses of those culverts, and infrastructure work generally of
in play: those of the ultimate users of what infra-
goods and services and their impact on others French railroads.2 Indeed, two contemporary
structure affords, government officials not only
will demand the attention of those who enter the definitions of the French word are connected
in their own names but also in the name of oth-
investment infrastructure space. Nonetheless, of with railroads.3 Usage of the word in that way was
ers whose lives might be affected by it, those most
course, the focus of funds is particularly on the associated with a descri[ption of] a sub grade, the
directly engaged in the construction and operation
calculus of financial risk and reward. original material underneath pavement or a railway
of an infrastructure enterprise, those involved in
In accord with that emphasis, in the next sec- bed. It comes from a combination of the Latin
how that enterprise is financed, and those, like
tion we identify a series of links and corresponding prefix infra, meaning below and structure,4
pension funds, who choose to be investors in such
ways of thinking which connect at one end of In the English-language context, the link to the
enterprises. The extent to which these different
the chain, infrastructure as defined, and at the military seems to have been strongly taken up
understandings (and what gives rise to them) are
other end, that financial calculus. In doing so, we in the early 1950s. An entire chapter in a report

Infrastructure | Defining Matters 7


Definitions are important. They lend clarity and focus to discussions.
Without such precision and focus participants are likely to speak by one
another or even at cross purposes. If the aim is to make a well-considered
decision, especially a weighty one, clarity of definition is essential. This is
particularly true for many of those who think about investment in infrastructure.

assessing NATOs first five years referred to [it as] but also shifted, in part driven by the interests and oversight and/or contractual provisions. In still If seeing this as a confused and problematic state
all of the fixed installations which are necessary incentives of one or another source in advancing other cases, usually involving what is termed social of affairs is warranted, then funds which seek
for the effective deployment and operations of the conversation. Indeed, insofar as those interests infrastructure (such as schools), there may be no a thoughtful and serious consideration of infra-
modern armed forces.5 However, according to one and incentives have been tied to the promotion of readily identifiable revenue stream such as a user structure certainly as would-be investors but
analysis, other usages emerged, driven by new and investment in infrastructure the understandings fee to make them attractive to would-be investors perhaps equally as providers of means for invest-
different concerns or priorities. For example the promoted have expanded. so it is provided by government. ment are ill-served by these developments
emerging academic discipline of economic devel- Some of the approaches describe infrastruc- An additional way of categorizing infrastruc- Although we believe that the brief portrayal
opment brought attention to the need, especially ture largely in functional terms; that is, in terms ture focuses on phases of the investment life cycle. above was informative we thought it important
in low income nations for the capital base upon of the uses of the facilities and services involved. For example, there are what are referred to as early to ask U.S. pension funds directly how they see
which a modern industrial society might flour- Some analysts use the category of economic stage or greenfield investments, such as new road, infrastructure and understand how their views
ish.6 With a recognition that the challenges of infrastructure in reference to toll-roads, bridges, bridge and tunnel developments for which there shape the infrastructure-related decisions they
health, education, and social organization loomed tunnels, airports, seaports, and rail networks, may be no established demand patterns. These in fact make.
equally large came the near demise[] in the use as well as common utilities such as gas distribu- are thought to provide little or no income from
of the word infrastructure. It was supplanted by tion networks, electricity and renewable energy the asset for some significant period of time, but
the term social overhead capital, which included production and distribution, and water treatment potentially high returns in the future. By contrast,
economic overhead (i.e., physical facilities) and and distribution facilities. They distinguish those growth stage investments typically are associated
social capital (human investment).7 Still later, from what they term social infrastructure, such as with expansion projects and new privatizations
the term infrastructure in American political schools, health care facilities, prisons and intra-city of existing operating assets. Here, already known
discourse was revived, spurred by a pressing need railroads. By contrast, others divide infrastructure operating track records are believed to auger
to maintain and renew existing public sector physical into three categories: transportation, utilities, and attractive growth with a reasonably consistent
plant as the basis for faster economic growth.8 social infrastructure.10 yield. Meanwhile what are designated as late stage
At the same time, there have been other, much Another method contrasts facilities that can or brownfield investments, involve assets that are
more wide-ranging definitions proposed.9 yield a reasonably privileged income stream with considered mature and proven, seen as offering
those that do not. One factor is whether the facility very predictable income stream derived from
What infrastructure is for investors today: has a true monopoly or a strongly competitive a combination of monopoly-base provision and
an uncertain and moving target position. Another relates to how the infrastructure favorable pricing, particularly in relation to infla-
Pension funds have been introduced to infra- enterprise generates income.11 tion, as a result of government prescription.
structure by trade and popular publications (and Yet another slant is based on the amenability The proliferation of definitions or characteri-
perhaps even academic ones), investment con- of the facility to or the extent of privatization. This zations reaching among other things (for some)
sultants, asset managers, among others. What might range from outright purchase or acquisition to lotteries and parking lots and meters has, in
these sources have given funds to understand in- of a long-term lease by a private enterprise to the view of one commentator, reduced infrastruc-
frastructure to be has not only been quite varied government retention of control through regulatory ture to just a buzzword, a convenient catch-all.12

8 Infrastructure | Defining Matters


PART 2 | U.S. PENSION FUNDS UNDERSTANDING The only definition which elicited a unanimous affirmative response from every
OF WHAT INFRASTRUCTURE IS...AND WHY.
person who took the survey was that which provide[s] services and support that
are basic to the functioning of a community, organization, or society and crucial
to its economic productivity (definition (b)).

Survey vestments in the provision of infrastructure as 7. Fund experience with infrastructure invest- The two cases in which more than half of those
compared to investments in enterprises which ments: Each person surveyed was posed a group surveyed made choices and were nearly unanimous
Toward that end, in the late fall of 2011, we sent
provide other kinds of goods or services and why. of questions relating to his or her funds expe- in the choices involved structures, networks, etc.
out an extensive survey to all U.S. public sector
3. Financial characteristics of infrastructure invest- rience with infrastructure, namely: when such which are capital intensive/have high fixed costs
pension funds which we believed had invested in
ments: Which among twelve financial character- investment was seriously considered; whether and long economic lives and have strong links to
infrastructure or had seriously considered doing
istics the respondent thought were accurate or the fund had decided to make such investments economic development, and a tradition of public
so. It was directed to all the trustees of the pension
inaccurate in describing infrastructure invest- and if so when; the initial commitment (if any) sector involvement. (definition g)) or are essential
fund board or the members of its advisory board
ments and the reasons why. to infrastructure investment and to what type; to driving sustainable economic development and
in the case of a sole trustee as well as the top staff
4. Strategic objectives for pension fund investment in the location of the investments in the funds growth, lifting levels of productivity and boosting
executive officer of the fund. Responses were
infrastructure: Which among twenty-one strate- portfolio; the investments made; the financial employment and critical to encouraging business
received from trustees or staff from ten of the funds.
gic objectives in relation to investment in in- outcomes of those investments; whether any innovation and improving the global competitiveness
The survey covered the following topics:
frastructure were legitimate ones for a pension changes in policy with respect to infrastructure of enterprises (definition (a)).
1. Definitions of infrastructure: Which among twelve
fund to have and the reasons why; how impor- investment and the persons views on that; and By contrast, only one definition was rejected
possible definitions offered to the respondent
tant those objectives were on a scale of 0 to 5 (5 any changes the person thought should be made. by all those who made choices in that instance,
most reflected what he or she understood infra-
for the most important). Each person surveyed a slight majority. It referred to structures, networks,
structure to be; least reflected it. Each respond- Survey results and analysis
was invited to propose what he or she thought etc. which are key to managing population growth
ent was also asked what, if anything he or she
were legitimate and important objectives that Definitions of infrastructure: The only definition and meeting current and future environmental
would add to or change in the definitions to bet-
were not included. which elicited a unanimous affirmative response challenges (definition (c)).
ter reflect that persons understanding of what
5. Impacts of infrastructure and making investment from every person who took the survey was that There were weakly negative reactions because
that individual thought infrastructure to be.
decisions. Each respondent was asked if he or she which provide[s] services and support that are ba- a bare majority or fewer made choices and half or
2. Specific examples of infrastructure: Which among
thought that the impacts of investment in infra- sic to the functioning of a community, organization, fewer made the choice to structures, networks,
fifteen possible specific examples offered the re-
structure were dissimilar enough from those of or society and crucial to its economic productivity etc., that provide a platform for economic devel-
spondent would definitely include as an illus-
other kinds of investments to warrant distinctive (definition (b)). The only other definition which opment, social cohesion and stability (definition
tration of infrastructure; which he or she would
or special consideration, and if so the ways in elicited unanimous support, though from fewer (d)); facilitate the building up and maintenance of
definitely not include; and which not on the list
which the consideration would be different. than all of those who took the survey, referred to the stock of human capital, for example, health and
should be included. Each person surveyed was
6. Asset classes and infrastructure: Each respond- what are the basic physical and organizational ca- education (definition (i); facilitate the production of
asked if he or she thought that the provision of
ent was asked how his or her fund characterized, pacities and resources needed for the operation of a goods and services and the distribution of finished
infrastructure was different in significant ways
grouped, or located infrastructure in its port- society or enterprise or are necessary for an economy products to markets (definition (l)); provide social
from the provision of other kinds of products or
folio, for example, among a class termed real to function (definition (k)). (The letter references services and support private sector economic activity
services and if so why. We also inquired of the
assets, among a real estate or private equity are those of the survey questions in Appendix A.). (definition (f)); and form the underpinnings of a
respondents as to whether pension funds should
class, etc. and whether that person agreed with nations defense, a strong economy, and its health
or needed to think differently about making in-
the characterization. and safety (definition (h)).

Infrastructure | Defining Matters 9


Stepping back from these specific results it in character in their reference to society, though the last, while cast in economic terms, economic activity. For recreational facilities
seems that respondents most strongly embraced community, and organization. has a social and/or individual flavor to it. the reason may have been because they might
choices which characterized infrastructure in If these inferences have merit, the modest Several other comments were concerned not generally be viewed as a matter of private action
terms of it being basic, necessary, or crucial, number and 50-50 split of responses to choices with the role or impact of infrastructure but rather and to some degree one of individual provision.
or as the underpinnings to certain kinds of which included social services and private with where infrastructure was situated in relation Also, they might simply not be considered to be
outcomes. The choices were a bit weighted to those sector economic activity might suggest support to markets with it being characterized by inelastic as especially important, with no obvious or strong
of an economic nature. That is, they referred to for the latter and lack of it for the former. demand and being monopolistic. Another link to economic impacts. There was also weak
economic productivity, productive activity, Despite the seeming emphasis on economic deemed infrastructure to (arguably) fulfill a role support for post offices. While in the United States,
economic growth, employment, innovation, outcomes, the somewhat greater number of too broad or multifaceted for private investment. the delivery of parcels and letters has historically
competitiveness, and reducing production responses but still 50-50 split for production of It is not clear what the intent was here, as an implicit been predominantly public and has been quite
and transaction costs, and a strong economy. goods and services and distribution might be expression of the importance of infrastructure important to economic commerce, there are now
However, there was some attention to what hinted explained by the lack of reference to infrastructure requiring a dominant or exclusive public role, or major, competing private(ly) operated companies
at social outcomes such as the functioning of the being essential, necessary, crucial, etc., and hence otherwise. There seems to be a strong suggestion and post offices may just be seen as buildings
community, organization, or society, the operation the category being seen as closer to direct involve- of a function which the private sector is incapable without particularly distinctive characteristics.
of society, and more generally, the public good ment with traditional private sector activities. of or (likely?) unwilling to fulfill. A couple of other Note that the responses may also be colored by
which included public goods and services, It is not clear why the category which included comments referred to the scale of infrastructure as historical/cultural understandings of infrastruc-
environment and order and safety. the diverse sub-categories of defense and a a distinguishing characteristic, with reference to it ture, that is, what have historically been seen as
However, the somewhat more broadly phrased strong economy and the nations health and as capital intensive (and having a long life) and public works or a matter of (large scale?) public
and ostensibly non-economic outcomes relating to safety elicited a relatively weak response. Perhaps, as (a subset of) capital projects. provision. In some measure the answers suggest a
population growth and environment challenges there were trade-offs made between economic Specific Examples of Infrastructure: The conflation of, mix-up, and/or overlap of descriptive
were strongly rejected. Somewhat similarly, where outcomes with the other ones. choices from among possible specific examples or functional understandings of infrastructure
economic development was included as one of By contrast the freely offered comments to the of infrastructure were broadly consistent with with economic readings in terms of the role of the
two outcomes with social cohesion and stability, specific questions are revealing about the thinking the reactions to the first set of definition ques- market. That is they may be implicitly linked to the
there was lukewarm support suggesting it was the which informed the responses. More particularly, tions. There was a significant lack of support for importance of infrastructure to certain outcomes,
latter which was problematic. only some pertained to the role (and associated housing and recreational facilities. For housing, for example, the monopolistic nature of provision,
Along the same lines, the modest support for outcomes) of infrastructure. They referred to that this may have been because in the United States inelastic demand, capital intensity, high barriers to
human capital/health and education outcomes which was essential and a broad benefit to it is generally thought of as a matter of private entry, and related views as to the (proper) role of
might have been because they might not have society and that which would help the nation provision. Another reason could have been that government, include extent of government oversight,
been seen as directly economic and perhaps in general, spur economic growth, job creation. it is seen as a matter of individual supply despite regulation, etc.
more social. Also, these outcomes are individual These broadly worded statements are consistent the collective and/or special character of military, Comments were solicited as to why particular
in nature whereas the references in the strongly with the strongest responses described above and student, or low-income housing. It also might not examples were or were not deemed to be infrastruc-
affirmative responses noted above are collective ensur[ing] economic opportunity and mobility be thought to be (directly) related to productive ture. Most who replied made distinctions not for

10 Infrastructure | Defining Matters


There were a wide range of reactions and sharp distinctions among [respondents]
with respect to financial characteristics of infrastructure investments.

reasons of their impact on the society but rather for undertaken as a public good. However, others There was also an almost unanimous judgment valuations over the long-term) (financial
reputational or policy reasons or because of percep- emphasized market-related issues, that is, that the (but with fewer responses overall) that the charac- characteristic (i); and
tions about the relative roles of the government and provider enjoys a monopoly or oligopoly position teristics encompassed evidencing higher risk and more uncertain
the private sector. Thus one respondent did remark and that there are few or no substitutes. Still others higher levels of debt/leverage than non-infra- financial performance (because project success
that lotteries and casinos were not essential for pointed to the infrastructure being of large scale structure (because infrastructure cash flows are is dependent on multiple assured sources of
the economy to function and, hence, were not and its implications, namely that it was associated more certain than for other projects, with the capital, guarantees, and/or subsidies)(financial
infrastructure. By contrast, others excluded lot- with significant upfront capital costs and entailed result that sponsors of infrastructure projects characteristic (f)).
teries and casinos because of reputation risk; did a longer planning and financing horizon and con- are willing to accept more debt and providers Finally, there was a weak consensus as to the
not include communications systems or networks tinuous maintenance and improvements. of capital are willing to issue higher levels characteristics including
because they are almost exclusively provided by Financial Characteristics: There were a wide of debt for infrastructure) (financial character- their being hard to value (because of complexity
the private sector; would reject communications range of reactions and sharp distinctions among istic (c)); of documentation, financing, and technical
systems or networks, energy facilities, and recre- them with respect to financial characteristics of returns with a low correlation with other assets details he uncertainty of economic and
ational facilities, because they are better handled infrastructure investments. (because infrastructure returns are frequently financial conditions over the long-term, and
by the private sector; and would not include On one hand a substantial number of respond- independent of economic conditions such the absence of a market price)(financial char-
communications networks or facilities because ents were unanimous in the view that the charac- as inflation and changes in GDP)(financial acteristic (d)) and
they are almost exclusively provided by the private teristics included investments characteristic (j)); and their likely being held for a longer period than
sector. Still others would not include environmen- being relatively illiquid (because large amounts risk-return profiles which differ according to non-infrastructure assets (because non-infra-
tal-related facilities because of policies pertaining of capital are required at irregular intervals for whether the infrastructure asset is new (green- structure assets hare a more established sec-
to hazardous materials; and would bar recreational these projects, the indivisibility of these pro- field) or existing (brownfield) (because risk is ondary market and can be sold and exchanged
facilities, public safety-related facilities, and jects, and the absence of an effective secondary usually higher during the construction phase more readily)(financial characteristic (e)).
housing because they are outside policy (such as market for them)(financial characteristic (a)); of infrastructure projects than the operating Thus, in terms of anticipated financial out-
casinos) or outside policy-approved sectors. requiring large investments (because infrastruc- phase)(financial characteristic (l)). comes respondents were of the general view
Comments were also sought as to the ways, ture is generally capital intensive, with projects in By contrast, there was no or very modest that infrastructure investments offered stable,
if any, the provision of infrastructure differs from their nature being because the facilities or struc- support for the financial characteristics of predictable returns over the long term, returns
other forms of provision. Several respondents tures built and operated, such as transportation there being more possibility of financial which were not very much correlated with the
focused on societal impact, referring to infra- energy, communication, and social services, are performance problems with a project (because returns of other assets. At the same time they saw such
structures role in the supply of services that are large scale) (financial characteristic (b); and infrastructure is long-term and there is greater returns as resulting from the income streams gen-
essential or fundamental (that is, they are needed yielding income which is stable and predictable likelihood of adverse events occurring)(finan- erated and not from capital growth. Moreover,
for a society to grow and prosper versus products over the long-term (because income is frequently cial characteristic (g); they thought that the profile of investment risk and
or services that are discretionary in nature), inflation-linked, regulated, and protected by offering attractive capital growth (because the reward varied with whether the infrastructure was
noting the immense (adverse) social impact of government guarantees) (financial character- contracted revenue and costs applied to infra- new or existing. Their rejection of the statements
failure in provision, alluding to their being works istic (h)). structure projects usually provide enhanced that there might be more of a chance of financial

Infrastructure | Defining Matters 11


problems with infrastructure projects or that the Strategic Objectives: For the respondents the The least important (that is 2.5 or less on a scale foster the renewal and expansion of infrastruc-
evidence higher risk or more uncertain financial most important (that is, more than 4.5 or more on of 5.0) strategic objectives were to ture assets (strategic objective (s))(2.8);
performance comports with their confidence in invest- a scale of 5.0) strategic objectives were to establish the funds reputation as a premier and
ments yielding the kinds of returns noted above. preserve capital (strategic objective (a))(4.5) and infrastructure investment manager and yield returns that are the result more from
With respect to the attributes of the invest- yield a long-term, high-quality, stable income investors of choice within the investment appreciation in the assets than cash returns,
ment vehicles the beliefs were that they require stream, and generate appreciation at least community (strategic objective (q))(1.6) and through operational improvements, best
large investments, are relatively illiquid, and entail commensurate with inflation (strategic objec- promote the funds standing as an investor management techniques and practices, or
higher levels of debt/leverage than non-infrastruc- tive (e)) (4.5). who takes legitimate account of stakeholder otherwise (strategic objective (c))(2.6).
ture). As noted there was no strong consensus There was fairly strong support (that is, more interests, such as those of members of the In a number of respects the strategic objectives
view as to infrastructure assets being hard to value than 3.5 but less than 4.5 on a scale of 5.0) for the communities served and affected by the infra- which respondents state they want to advance
or that they necessarily have to be held longer than following objectives: structure and workers who build or operate it through infrastructure investments are commen-
non-infrastructure assets). contribute to portfolio diversification (strategic (strategic objective (l))(2.5). surate with the perceptions they articulate about
objective (o))(4.4).
The foregoing being said, the additional There was only somewhat more than majority the financial characteristics of such investments.
yield returns that are stable and high enough
comments solicited as to why any of the proffered support (that is, above 2.5 and 3.5 or below on a For example, the two most strongly embraced
in relation to the fund benchmark (strategic
characteristics were inaccurate or not, again scale of 5.0) for the following goals: objectives, to yield a long-term, high-quality, stable
objective (b)(4.1)
largely emphasized that the financial outcomes provide investment returns which include income stream, and generate appreciation at least
provide downside protection to the investment
and attributes varied according to the kind of a substantial cash distribution component commensurate with inflation (strategic objective
fund during equity bear markets (strategic
infrastructure which was the object of investment, (strategic objective (f))(3.4); (e)) and to preserve capital (strategic objective (a))
objective (m))(4.0);
for example, brownfield/core versus greenfield. provide yields that are not only stable but also are broadly apposite with two of the most strongly
hedge against long term liabilities (strategic
Also the few responses to the question which objective (p))(4.0);
predictable cash flows (strategic objective (g)) expressed perceptions about the financial charac-
asked about financial characteristics not on the yield returns that are sufficient on a risk- (3.5); teristics, namely, strong support for the position
list did not offer any as such. Rather, a couple took adjusted basis (strategic objective (d))(3.9); yield respectable rates of return with low risk that infrastructure investments yield income which
note of factors which have a bearing on financial perform well during economic downturns (strategic objective (h))(3.2); is stable and predictable over the long-term (finan-
outcomes, namely, that the investments involved (strategic objective (u))(3.9); embody the practice of responsible invest- cial characteristic (i)) and rejection of the view
monopolistic assets and price inelasticity driven reduce the overall portfolios volatility (strategic ment, that is, efficient operation of the asset, that they offer attractive capital growth (financial
by the provision of essential services. Another sug- objective (j))(3.8); the delivery of quality services, utilization of characteristic (j)).
gested that many infrastructure investments could afford long-term inflation protection (strategic responsible labor, environmental, etc., practices Note also that several of the fairly strongly
be taken public, individually, or in combination objective (n))(3.8); (strategic objective (r))(3.1); expressed opinions on financial characteristics,
with other assets. Yet another indirectly alluded to yield high-quality, long-term, stable income offer transactions are of significant economic which place an emphasis on returns which are
liquidity issues by emphasizing the importance of streams (strategic objective (i))(3.7); and scale and magnitude, allowing an outlay of a stable, and adequate enough by some measure,
there being an exit strategy and oft the investment maintain a low correlation to other asset sizable amount of capital (strategic objective roughly correspond to a couple of the fairly
producing a steady stream of cash flow. classes (strategic objective (k))(3.6). (t))(2.9); strongly supported strategic objectives, namely

12 Infrastructure | Defining Matters


It seems clear how those with responsibility for making investment-related
decisions for plans understand what that responsibility entails whether
understood in terms of fiduciary duty or otherwise is intertwined with
how they think about investments in infrastructure (or other kinds of
investments for that matter).

to yield returns that are stable and high enough in associated with factors or considerations which precise definition of an asset class, stated that the are not in terms of the investment vehicle. That is,
relation to the fund benchmark (strategic objective might be associated with the successful operation fund treated infrastructure to be a unique one. they are among those investments which are not
(b)) and yield high-quality, long-term, stable income of the infrastructure enterprise would arguably (However, he added that it was technically a subset publicly traded equities or bonds. The same is true
streams (strategic objective (i)). Similarly the hardly be objectionable and, indeed, be thought of private markets or private equity.) Another with respect to inclusion in the narrow private
weakly embraced objective that investments yield to be highly relevant to good financial outcomes. fund apparently kept it under a general alternatives markets or private equity grouping.
returns that are the result more from appreciation By contrast, the words of (l) appear to reference category. In several cases infrastructure was linked The incorporation of infrastructure among
in the assets than cash returns, through operational the advancement of interests of those who are to real assets. That is, one fund put it in an alter- so-called real assets is curious because in certain
improvements, best management techniques and other than plan members or interests of the plan as natives portfolio, along with other real assets; respects it appears simply to push back and
practices, or otherwise (strategic objective (c)) is such which are other than financial. another situated it in a real assets grouping complicate the problem of definition further:
largely consistent with rejection of the view that These reactions are apposite with several com- along with commodities, oil & gas, farmland, and namely what are real assets? On one view the
such investments offer attractive capital growth ments solicited from respondents with regard to precious metals; and a third placed it within an category can be associated with real returns,
(financial characteristic (i)). which objectives they thought not to be legitimate inflation sensitive cluster along with TIPS, both that is, investment returns adjusted for inflation.
It is in some ways striking that the three strategic and why. Those remarks included an (exclusive) of which seemed to fall under a broader real asset On another, they may be thought of as tangible
objectives articulated in other than financial terms focus on the long-term health of the fund and categorization. Two others approached the matter assets. In the latter sense real assets are said
were not among those with significant support. what best serves its active and retired members, on a more ad hoc basis associated with ostensibly to include land, property, equipment, raw
However, it is worthy of comment that of the three, investment for the exclusive benefit of its partic- new and promising kinds of investments, one materials, infrastructure, intellectual property,
there was greater than majority endorsement of ipants and beneficiaries, and the inconsistency of placing infrastructure in an opportunistic/diversi- and real options. (Insofar as being tangible is
embodying the practice of responsible investment, objectives (i) and (q) with fiduciary responsibility. fying class and another in an opportunity funds. a touchstone for this definition, it is not evident
that is, efficient operation of the asset, the delivery (Note, though, one respondent expressed a largely In sum the responses in certain ways reflected how tangible intellectual property and real options
of quality services, utilization of responsible labor, opposing view on these issues.) It seems clear ways thinking about infrastructure linked to are.) The counterpart to a real asset in finance is
environmental, etc., practices (strategic objective how those with responsibility for making invest- categories which we explore in detail below. a financial asset, which is an ownership claim on
(r)), by contrast with establishing the funds ment-related decisions for plans understand what On one hand, the use of the terms opportunity real assets.13 For example, while CalPERS includes
reputation as a premier infrastructure investment that responsibility entails whether understood and opportunistic suggests a yet to be formulated just real estate, forest land, and infrastructure in
manager and investors of choice within the invest- in terms of fiduciary duty or otherwise is inter- coherent and compelling way to categorize a real assets class for purposes of its investment
ment community (strategic objective (q)) and twined with how they think about investments in infrastructure in a non-financial sense; on the policy, the phrase is not defined by that policy.
promoting the funds standing as an investor who infrastructure (or other kinds of investments for other, a strong belief that what are thought to However, the strategic objectives for its program
takes legitimate account of stakeholder interests, that matter.) be infrastructure investments have unique and are, not surprisingly, specified in financial terms in
such as those of members of the communities served Grouping of infrastructure within portfolios: ostensibly attractive financial characteristics (in close relation to real returns, namely to provide
and affected by the infrastructure and workers who This was quite varied, in ways suggestive of a lack terms of risk and reward). long horizon income return that is less sensitive to
build or operate it (strategic objective (l)). It is not of clarity or certainty about how investments in Reference to infrastructure in terms of alter- inflation risk and a particular real return related
clear why this distinction was made. At first blush infrastructure should be classified. One respondent, native investments simply seems to portray infra- goal.14 In this respect CalSTRS shares similar goals
the language of objective (r) for the most part while acknowledging that it might not meet the structure investments in relationship to what they with its inflation sensitive class. It is said to be

Infrastructure | Defining Matters 13


To be sure, funds are likely, in the instance, to be drawn to infrastructure spurred
by financial concerns. However, the exercise that follows for them ultimately
implicates critical matters of provision. That is, it is deeply rooted in what
infrastructure provides to or for people, arguably that which is quite important
to them and the means by or through which the effort at provision succeeds.
Both, in turn, bear considerably upon what funds choose to take on and what they
achieve as investor owners or lenders committed to keeping pension promises.

one which strives for a relatively stable return to factors which required special evaluation in for them relatively uncharted waters. They reflect
stream, with a return level between equities and a way which seemed to focus on their bearing the ways in which infrastructure has been spoken
fixed income and an overall higher correlation on ultimate financial outcomes.16 By contrast, of, ranging from the concrete and specific roles
to inflation than equity or fixed income with an only one of those who replied made (general) it plays in society expressed in everyday words,
initial portfolio will be comprised global inflation references to looking to return in other than as to the rewards it offers and risks it poses framed
linked bonds/securities and infrastructure invest- financial return, that is, the impact on (domestic) in the language of investment. It is within that
ments.15 By contrast, the fund referred to in the jobs, and the public good. context that funds have strived to locate infra-
preceding paragraph appears to identify real assets Investments made: Last, there were several structure as an investment within their portfolios
in terms of their being tangible. questions pertaining to whether and when and sought to situate their decisions in relation to
Infrastructure investment warranting different respondents funds had actually made invest- their funds objectives. In other respects, though,
or special consideration: Another group of ques- ments, what those investments were, and what the findings pose a challenge and, in turn, warrant
tions sought respondents views as to whether the financial outcomes were to date. For all but on the need to go back to basics. By that we mean
the kinds of products or services associated with one of the funds, investments had been relatively the following: To be sure, funds are likely, in the
infrastructure and their impacts and/or the finan- recent and modest in amount. Not surprisingly, instance, to be drawn to infrastructure spurred
cial characteristics of infrastructure investments then, there was little said about the track record of by financial concerns. However, the exercise that
were dissimilar enough from those identified with those investments. The small amount of informa- follows for them ultimately implicates critical
other than infrastructure to warrant different or tion afforded no meaningful opportunity to assess matters of provision. That is, it is deeply rooted
special consideration, and, if so, why. In certain whether the investments actually made by individ- in what infrastructure provides to or for people,
respects these questions were a way to explore ual funds were in fact aligned with respondents arguably that which is quite important to them
in another way how those surveyed thought perceptions about the putative financial char- and the means by or through which the effort at
of infrastructure and infrastructure investments. acteristics of infrastructure investments or the provision succeeds. Both, in turn, bear considerably
The answers were striking. More than a majority of strategic objectives with respect to infrastructure upon what funds choose to take on and what they
those who replied found no warrant for different investments they attributed to their funds. achieve as investor owners or lenders committed
consideration. Another respondent acknowledged Although the survey was of modest reach, our to keeping pension promises.
that the impacts might be different, but said that sense from popular, trade, and other literature, With that task in mind, in the following section
it did not affect decision-making. A few others reports by U.S. public sector pension funds about we propose a brief and a more elaborated definition
alluded broadly to attention to the use of sus- their experience, and what we have otherwise of infrastructure and seek to justify the choice with
tainable development methods and operational learned directly from fund trustees and staff, is that that goal and those considerations in mind.
practices and environmental sustainability though the results are consistent with the ways in which
with little indication as to their distinctive relation they think about infrastructure. In certain respects
to infrastructure as compared to other kinds of the findings are encouraging and impressive. They
investments. However, one respondent referred represent a serious effort to navigate in what are

14 Infrastructure | Defining Matters


PART 3 | A DEFINITION OF
INFRASTRUCTURE ... AND WHY

We propose two definitions, a shorter and a longer, Their ability to communicate or share informa- Their ready access to means by which they roles in diverse spheres of collective activity, writ
more detailed one. tion with others in person or at a distance. can be kept safe from violence, disorder, or small or large, within their society. Those spheres
Definition Short Their ability to move physical objects from one depredation by others to their persons or may well differ in nature and importance but the
Facilities, structures, equipment, or similar place to another. possessions whether within or from without social, economic, political, civic or communal, and
physical assets and the enterprises that employ Their ability to establish, operate, and expand their society. household or familial spheres are illustrative and
them that are vitally important, if not absolutely enterprises that make physical objects or provide Their ready access to sources of energy sufficient typical of most if not all societies with which we
essential, to people having the capabilities to services whether for sale or for use; and perhaps to engage in or benefit from any of the foregoing would be concerned. In all events, the vitality of
thrive as individuals and participate in social, as well to do so more efficiently and/or at lower activities. a society is contingent upon individuals within it
economic, political, civic or communal, household costs. There are several reasons for our choice of having the capabilities of fulfilling the roles which
or familial, and other roles in ways critical to their Their ability to engage in familial or house- these definitions. are part and parcel of activities within those spheres.
own well-being and that of their society, and the hold, social, communal or civic, or religious First, we squarely place the focus on people Third, and related, while it might be possible
material and other conditions which enable them activities, some of which may be critical for because the production of goods and services of to frame all needs in purely individual terms it
to exercise those capabilities to the fullest. social cohesion and stability. whatever kind is ostensibly to meet peoples needs. is probably more useful to distinguish between
Definition Long Their ready access to sufficient potable water. Whatever the modalities for such production and ones that are more a matter of satisfaction on an
Facilities, structures, networks, systems, plant, Their ready access to sufficient nourishing food. the financial or other circumstances under which essentially solely individual basis and others that
property, equipment, or physical assets and the Their ready access to shelter which is safe, that production takes place, if the result does not are addressed in a shared or collective context. It is
enterprises that employ them that are vitally comfortable, and conducive to the activities meet those needs, then broadly speaking it is a fail- in the latter sense that we refer to the material and
important, if not absolutely essential, to people which occur within it. ure. Of course, there are needs of different kinds other conditions which enable people to exercise
having the capabilities to thrive as individuals and Their ready access to means by which their (as well as diverse wants perhaps more loosely their capabilities. For example, a water treatment
participate in social, economic, political civic or health can be preserved and improved. connected to needs). It seems clear that central plant enables individual access to potable water for
communal, household or familial and other roles Their ready access to means by which to enjoy to the topic of infrastructure investment are the consumption on an individual basis. A highway
for example, as a citizen, worker, friend, neigh- their presence in the physical environment. very important, if not absolutely essential, needs of course affords individuals a person means of
bor, family or household member, or customer or Their ready access to means to be kept safe of people which infrastructure is associated movement but it is part of a network of transpor-
consumer in ways critical to their own well-be- from harm from the physical environment with meeting. tation links which enable the interconnection of
ing and that of their society, and the material and whether caused by human or other hazardous Second, we believe that needs have to be people/bind people together on a collective basis.
other conditions which enable them to exercise or toxic wastes, pollution from human activi- understood on both an individual and a collective Fourth, the historical origins of and playing
those capabilities to the fullest. Whether people ties, the effects of process operating within the basis. Obviously, people have physical needs which out of definitions and our brief characterization
can so thrive and participate depends, among natural environment, or otherwise. must be satisfied to survive in a very basic individ- of what may have stirred interest in infrastructure
other things, on: Their ready access to means by which to increase ual sense; they have other needs which, if met, can investment, facilities, structures, equipment,
Their ability to travel from one geographic place their knowledge, competencies, abilities, skills, enable them to develop and exercise a wide range or similar physical assets particularly ones of
to another. or experience needed to more fully participate of capabilities to live fuller, richer lives thrive great scale in a material sense and in terms of the
in the social or economic life of the society. on an individual basis but equally so to play economic resources required to create them have

Infrastructure | Defining Matters 15


[W]e think it is a mistake to focus exclusively on the physical assets themselves.
Rather, in the definitions we refer to the enterprises to which those physical assets
are central in the actual meeting of the kinds of needs delineated.

loomed large both literally and figuratively. We have be less important or perhaps not even pertinent assets to the enterprise, it is the enterprises success
suggested that in some measure this outcome is depending upon the context. The definitions are in provision which is key. By that we mean success
the consequence of their creation being essential to crafted to allow for this wide range of possibilities both in terms of provision literally as well as with
the means by which universal or nigh unto universal even though the kinds of infrastructure for which respect to financial outcomes from an investment
needs which are extremely important can be fully there would be interest in making investments perspective. That success depends on how well the
and effectively met. are might be of a sort identified with relatively enterprise functions. And that, in turn, is based on
Fifth, the definitions are informed by the advanced economies. a host of considerations internal as well as external
notion that the concern at its core is for people Sixth, even though it is quite easy perhaps to the enterprise. These connections arise because,
being able to thrive with their society as it is and as almost natural and typical to do so, we think of necessity, the infrastructure-associated enter-
they might make it to be. They are also grounded it is a mistake to focus exclusively on the physical prise involves and affects people on an individual
in the premise that realization of that possibility assets themselves. Rather, in the definitions we basis as well as a collective one in the form of
rests on people having the capabilities and the refer to the enterprises to which those physical families or households, other enterprises, social,
means or conditions for exercising them that are assets are central in the actual meeting of the political, civic or communal organizations, or
critical to their individual well being and that of kinds of needs delineated. (Typically if not almost government. In many respects those involvements
their larger society. Certainly, what enables people certainly those assets are of a large scale in a and effects are intimately bound up with the chain
to gain those capabilities and exercise of them physical sense and have been created at the cost of of factors detailed in the next section which link
would entail a lengthy, perhaps complex, and likely considerable economic resources.) By enterprise at one end, provision by means of a particular
contested discussion. For the purposes of this we do not necessarily mean businesses in their kind of infrastructure and at the other, the finan-
paper we start from the modest idea that among conventional sense. Rather we refer more generally cial performance of investments in enterprises
the array of things are certain physical assets to organized undertakings of diverse sorts which engaged in such provision. Moreover, because of
which are vitally important, if not absolutely have the goal of producing goods and services the potentially wide-ranging implications of these
essential in that regard. We do so alert to the fact of innumerable kinds. They may be for profit or connections, they must of necessity be attended
that while in some not inconsiderable measure not, they be private or public or something to not only in financial terms but also arguably in
what capabilities or what means or conditions in-between, the needs to be met might have a more normative ones as well. We discuss these associations
for exercising them are required might well be social, or economic, or political, or other character and their outcomes at greater length below.
common to many societies, there could be great or not, etc.
differences within and across societies in both The critical point of the reference to enterprise
space and time. To be sure, among the list (in the is that from both a general perspective and the
longer definition) of things upon which peoples narrower, though important vantage point of
ability to thrive rests, access to sufficient potable investment, the concern is with the endeavors by
water cuts across all societies whereas certain or through which particular needs are met. In
means for transport or for communication might all events whatever the centrality of the physical

16 Infrastructure | Defining Matters


PART 4 | LINKS WHICH CONNECT A DEFINITION From a practical perspective, any potential investment in an enterprise and
OF INFRASTRUCTURE TO A DECISION TO INVEST
its calculus of financial risk and reward are ultimately linked through a chain
IN INFRASTRUCTURE
of factors or considerations to the particular goods and services that are
produced and the means for doing so.

From a practical perspective, any potential invest- factors or considerations in the chain and at different not be entirely helpful or may even be confusing in commitments of materials, labor, and economic
ment in an enterprise and its calculus of financial levels of generality along it. For example, if one assessing potential investments in infrastructure. resources required to create them.
risk and reward are ultimately linked through a focuses first on modalities for investment one can We have seen in our review of the survey responses Categories based on broad-gauge societal impact
chain of factors or considerations to the particu- organize them based on whether they are publicly how the answers to the questions about financial One intermediate step in effect builds upon,
lar goods and services that are produced and the traded shares in corporations. Then one can consider characteristics reflect such interpenetration. adapts, or organizes individual examples according
means for doing so. Here, of course, the special subgroups such as publicly traded shares of cor- In the text which follows we detail a series of to an articulation of the broad gauge impact or
focus of our attention is on infrastructure-related porations which are engaged in the provision of major links which connect what is understood functional role that infrastructure associated
goods and services. what in the first instance might be characterized as to be infrastructure with outcomes identified enterprises of a certain kind are projected or
Among the factors or considerations are ones infrastructure understood in terms of the needs for with investment in infrastructure. At one end of thought to have. For example, some are concerned
related to (1) the nature of those goods and services; goods or services that might be met. However, one the chain is a definition (or characterization) of with allocative efficiency through the direct reduc-
(2) the current and projected need for them; can alternatively first consider provision of what infrastructure grounded in certain kinds of needs tion of enterprises production and transaction
(3) the current or envisioned modes for their pro- are thought to be different kinds of infrastructure which are thought vital to meet, a definition such costs. That could take a variety of forms ranging
vision (involving material, machines, technology, in terms of the needs for goods or services that as the one we propose. from the provision of new or less costly sources of
etc.); (4) the possible economic arrangements by might be met. Then one can specify subgroups of Individual Instances/suggestive or illustrative energy, or means for the delivery of materials for
which such product or service would or might be different ways to r invest in those enterprises, that is, examples production or distribution of finished products,
supplied; (5) the amenability of any mode of pro- public traded shares, partnership interests, debt, etc. As noted above, typical discussions about infra- to ways by which to communicate or exchange in-
duction to those arrangements; (6) the sources and However, because of the interrelationships structure focus in the first instance not on individ- formation within the enterprise or with those who
mechanisms for allocating resources to produc- among the factors or considerations it may not uals and the important needs of theirs to be met supply it or those who benefit from that which the
tion; (7) the costs identified with production that be easy or even possible to sharply distinguish but rather on certain kinds of facilities, structures, enterprise produces. Yet another outcome or func-
are borne by recipients of provision; (8) the ability between or among them. Hence the groupings etc., which as a matter of experience often pop- tion concerns the indirect impact on allocative
of recipients to bear those costs on their own terms may reflect a combination of factors (or an inter- ular or everyday experience are associated with efficiency through better or superior framework
as well as in relation to the costs of benefiting from penetration of categories, so-to-say). The kind the satisfaction of those needs. In many respects conditions for productive activity, often associat-
other forms of provision; (9) the costs borne by of conventional or everyday (in a broad sense) this result is not surprising. The latter are physical ed with public goods.17 Among them could be
others on their own terms and in relation to costs understandings about infrastructure to which we rather than abstract in nature. They are distinctive facilities, structures, and perhaps equipment used
of other kinds of provision they may choose or be refer above very likely reflect such a combination or specific, not broad or diffuse or vague. The facil- in connection with national defense or the main-
required to bear; (10) the claims for recompense or interpenetration. So as intimated before, layper- ities or structures are typically large and dramatic tenance of safety and order, the provision of
or more by those who allocate resources to sons or even investors initial thinking about the in appearance, perhaps even imposing. They are general public services, and environmental
production; (11) and externalities associated with subject might well entail terming something to be likely to already be in place and thus familiarly protection. A fourth might pertain to social
provision and by whom, to what extent, and in what infrastructure in light of the role it plays in meeting present in peoples lives; or if not in place, read- welfare, sometimes identified with redistribution,
manner those externalities are borne. a particular (important) need, the scale at which it ily envisioned to be so. Their current or project- and social protection, housing, and recreation.
Investments may be grouped based on their operates, whether it has been publicly provided or ed presence is or will seem to be enduring. They A fifth might have a direct or an indirect impact on
shared characteristics according to the different not, etc. Such understandings are useful but may garner great attention because of the typically vast social cohesion ranging from courts to community

Infrastructure | Defining Matters 17


The economic, social, environmental, or other footprint of the enterprise,
especially if it is a large, geographically concentrated one, might have potentially
significant impacts on people and the communities in which they live or work.
If so, those potentially affected might insist on a greater, dominant, or exclusive
governmental role.

meeting facilities and libraries broadly understood more likely that government would play a signif- to legitimate or justify the decision in terms of the they might enjoy beyond that. These beliefs or per-
to be certain kinds of structured public spaces. icant role in satisfying it. The role might be that similarity of the arrangements to those claimed ceptions inform judgments about how individuals
A sixth could be the indirect or long term effect much greater if there are high barriers to entry to be historically typical (as described above). socio-economic status bears on their access to the
of facilitating the maintenance or accumulation of because of the large scale/high capital costs of In addition, the concerns of those who are not users good or service, especially when access is condi-
human capital viewed broadly, ranging from the the infrastructure enterprise or because there are or consumers of the product or service as such may tioned on some payment by them for it. There are,
public schools, colleges and universities, technical potentially large economies of scale in provision. come into play. The economic, social, environmen- of course, fears about wasteful consumption if the
training institutes, and the like. Here the effects are There might be a similar effect as a result of there tal, or other footprint of the enterprise, especially if good or service is not priced in sufficient measure
of a more individual nature. Whether and how an being limited or no competitive or substitute means it is a large, geographically concentrated one, might to individual consumers, worries about moral
enterprise might be seen to fall within or straddle by which the needs served by this particular kind have potentially significant impacts on people and hazard insofar as individuals are not sufficiently
one of these categories is likely to have a bearing of infrastructure enterprise can be met. For want the communities in which they live or work. If so, encouraged or required to provide for themselves,
in some cases, a significant one on whether it is of a better phrase we refer to these factors or those potentially affected might insist on a greater, etc. Also implicated are views as to the legitimacy
seen as infrastructure in the first instance. Beyond considerations which come into play primarily dominant, or exclusive governmental role, perhaps of and necessity for the larger society shouldering
that its placement might well color judgments as to by virtue of the good or service and the material on the premise that government might more read- the costs of meeting such needs, though this posi-
its importance, the legitimate or feasible ways by conditions for its provisions as endogenous con- ily be held accountable for interruptions in supply tion is typically expressed in terms of government
which provision is thought properly or best to be straints on competition or markets or failure to avert harmful secondary impacts than policy, government as such bearing the burden, etc.
organized, the financial and other terms according The phrasing is meant to distinguish it from private enterprises. In that sense, positions as to the extent to which
to which it is operated, and correspondingly, the exogenous constraints on competition or markets. Demand, Prices, and Payment the burden might be borne in that way may well
possibilities for and attributes of investment.18 By that we largely refer to such limits as govern- The factors here have two interrelated aspects. be in tension with stances taken on the necessary
The economic basis for provision ment places on whatever market-based provision One concerns the extent to which those who are limits on government finances in general and the
Here, the focus is typically on factors or consid- might otherwise be conceivable given the nature the users/consumers of the infrastructure-related relative priority of meeting competing demands
erations that bear upon the amenability of the of the particular infrastructure enterprise.19 products or services directly bear the cost of it as on government, some perhaps equally a vital,
infrastructure enterprise to some form of mar- That is, government could require some form of provided to them. The other pertains to who in particular.
ket-based provision. At one extreme government monopoly provision, whether by itself or a private ultimately in some measure bears the cost of In certain respects the tension depends upon
could be the sole supplier and provide the product enterprise, retain ownership of the enterprise enjoyment by others of the benefit of that which what in some measure might be the overlapping
or service on other than the basis of price to the but grant a concession for provision by one or infrastructure affords. and conflicting beliefs of different publics of
user or consumer. At the other, there could be a just a few private enterprises, etc. Alternatively it The precise allocation between the two is in users of the goods or services, of the citizenry as
competitive market in which only private enterprises might allow for competition solely among private part driven by several kinds of considerations, a whole, and of particular segments of the society,
participate with government playing a very limited providers but heavily regulate it. At any given time key ones of which resonate with the terms of our whether as individuals or organized as enterprises,
regulatory role with regard to the extent, quality, the decisions in this regard will be colored by the definition. In particular, they include beliefs or civic associations, etc. each with distinctive
and price of provision. history of involvement of government and private perceptions as to how important access to a good interests apart from those relating to the good or
It seems that the more important the need parties in infrastructure-related enterprises of the or service is to the minimum requirements for service. So, for example, provision through a health
which an enterprise is thought to help meet the kind in question. That is, relevant parties will strive individuals well-being and to the quality of life care facility of a basic diet of food or immunizations

18 Infrastructure | Defining Matters


[The tension among the need for, the pricing, and the forms of payment] depends
upon what in some measure might be the overlapping and conflicting beliefs of
different publics of users of the goods or services, of the citizenry as a whole,
and of particular segments of the society, whether as individuals or organized as
enterprises, civic associations, etc. each with distinctive interests apart from
those relating to the good or service.

might be thought to be so important that it should For example, monies could, as in the United States, scenarios might well be greater. In all events, how importance of that which certain infrastructure
be supported entirely from government revenues. be collected from a tax on the cost of motor vehicle those tensions are resolved are of considerable related enterprises supply, concern about the
By contrast urban mass transit might be priced to fuel. In that case, the government would take in significance to assessments of the risk of investing potentially dire consequences of a lack of supply
users in a way which affords broad but not entirely money from those who travel by motor vehicle in the enterprise. Depending upon the scenario provides an impetus for government retaining
free access. By contrast with the latter, the need on roads other than the ones for which the use of it might be associated with what some refer to as ownership rights and the typical associated powers
for potable water might be believed to require which is subsidized. political, legal, or perhaps even contractual risk. of ultimate control. For example, the governments
relatively greater ease of if not an absolute right Clearly, then, an ostensible general commit- Supply and Enterprise Ownership and ability to act quickly under such circumstances
of access, communication by telephone less so, ment to the meeting of infrastructure-related Organization by taking over roles that a private entity has been
energy from electricity power sources even less so, needs requires specific judgments as to the terms In this and the following sub-section the focus assigned might well afford the requisite comfort or
and means of transport by air, likely not at all.20 under which individuals might in reality enjoy is on the intertwined factors and considerations confidence.
Insofar as the ultimate user or consumer access. As discussed in greater detail below, the which bear upon first, who owns the enterprise In all events, whether the government or a
does not pay the full cost of the good or service, calculus according to which an infrastructure-related and the organizational and operational means by private entity assumes such roles depends upon
questions remain as to the governments role in enterprise is financed will be shaped by those which the enterprise supplies the good or service factors noted in the previous sections as well as
determining who nominally and who ultimately judgments. This is because they are very likely to and second, how the enterprise is financed. They other ones. For example, if satisfying a particular
bears the cost. For example it can set the price at bear heavily on the nature and extent of the flow are intertwined because the ability and willingness need is vitally important, so then confidence in the
less than the full cost or even zero regardless of of revenues required to sustain the enterprise. of relevant parties to take on a financial stake in enterprises ongoing ability to supply it might war-
who the user or consumer is and pay the difference In turn, they greatly influence possible modes of the enterprise is tied to such ownership rights and rant a dominant or exclusive role by government
to the infrastructure enterprise. It can prescribe a investment in the enterprise and the prospects interests as they might have and the financial and simply because such arrangements might be seen
lower than full cost price, the precise amount of for financial reward from it. Moreover, how those other terms under which they assume such role as as ultimately more stable or enduring than most
which varies according to the users or consumers judgments are reached and how enduring they they might have in the actual supply of the good any private enterprise. Such worry about a threat
socio-economic status (where practicable). The are will reflect the ways in which the tensions or service. to provision is heightened if other factors point
subsidy could be given at any level of consumption referred to above have been resolved. For example, The precise roles which might be played will toward it being on a monopolistic rather than a
or use by an individual, up to a specific amount, over time the prospect of changes in pricing to the vary according to the nature of the need being met competitive basis. This is true especially if a large
or perhaps graduated according to the extent of user or consumer or absent that, adjustments to and the particular technical and other means by and sustained commitment of economic resources
it. The subsidy would be nominally governmental the level of any government subsidy (or whoever which the product or service is provided. Among is required in that connection. Of course the sheer
in that the monies come directly from govern- ultimately pays for it) may re-ignite tensions, the roles which are often the subject of considera- fact of government having played that role as an
ment coffers. However, who ultimately bears the inflame existing ones, or drive them to a breaking tion are ones which involve planning or designing historical matter bears upon the judgment.
expense of the subsidy depends upon where the point in ways that threaten the enterprise or the the enterprise (if it is a new one), building it, and However, these kinds of considerations are
monies drawn from government coffers originate. terms under which it operates. Arguably, insofar managing, operating, or maintaining it in whole or generally not dispositive. Clearly there are percep-
The expenditures might be made without regard as the nature of the enterprise and other factors part. It is important here to distinguish ownership, tions or beliefs as to how able private enterprises
to how the revenues come into such coffers. result in the choice of monopoly provision and/or perhaps as a formal matter, from one or another are to efficiently and effectively serve in one or
Or there could be a direct link to specific sources. heavily regulated provision, the occasion for such of these operational roles. Given the extreme more of those roles as compared to government.

Infrastructure | Defining Matters 19


The precise roles which might be played [by the public and private sector] will
vary according to the nature of the need being met and the particular technical
and other means by which the product or service is provided.

In many respects this might be thought to be a inhabitants of the community in which it is equity or debt at risk is tied, among other things, the costs nominally and ultimately fall. Decisions
purely empirical question the answer to which located and perhaps abutting or even more distant to the character and extent of the revenue stream about the application of revenues on the demand
would be found in a body of evidence of compar- communities. This is would be true at least insofar from which it can, first cover its debt service and side may be more visible than on the supply side in
ative performance. In reality, such comparisons as it is thought that in playing a particular role, the operating costs and second, return projected that they directly relate to the ability of those who
are difficult and fraught with problems. Moreover, government or a private entity might be less likely profits. That stream could be based on an agreed benefit from the good or service provided to gain
lurking behind assertions about efficiency and to cause the harms, be responsive to impacted upon schedule of user fees presumably set in access to it.
effectiveness are the means by which they are communities, ameliorate problems caused in a light of the entitys expectations as to the extent of The preceding discussion has focused on
achieved. That is, ultimately the efficiency and more timely and comprehensive way, etc. use with government payments based on use, on particular infrastructure-related enterprises which
effectiveness of the enterprise as a whole (or an The choice of ownership structure and assign- availability for use, etc. By contrast, In the case of meet specific needs and how they might be
organization which plays a role in relation to ment of roles is, of course, likely to be tied to how turnkey operations, a private entity might design financed in light of expectations on the part of
the enterprise) in meeting a need and how it the enterprise is financed, particularly insofar as and build a facility, finance all or just some of the private entities as to the risks and rewards of the
is achieved rests on the people who constitute fulfillment of the role is bound up with one or expense, and recoup its costs and earn a profit by respective financial and/or operational roles they
it. Certainly, judgments as to the appropriateness another mechanism for finance. For example, in an agreed upon transfer of the enterprise to the and government would play in provision. Such
of private and governmental roles with regard to cases in which the private role is solely in operations government after completion. discussion is closely, perhaps even very directly,
a particular infrastructure related enterprise rest and maintenance there may be little place for the We will not here canvas the large number of related to how pension funds might see investment
on how actions by and relations among the people private participation in finance. Similarly, where possible variations along these lines. Suffice it in infrastructure. In the first instance, their view of
who constitute it are linked to notions of efficiency the entitys responsibilities include designing and to say that the possible calculus which informs such investment as described in our analysis of
and effectiveness. (By use of the word constitute building facilities, structures, etc., they might be expectations about the financial risks and rewards the results of our survey is shaped in fundamen-
we primarily mean those who are employed by the financed by government and with government associated with the private entitys role in the tal ways by what their funds strategic objectives
enterprise though it might extend to others who retaining ownership and ultimate management enterprise will not only reflect its ability to raise are. (We discuss what these might be below.) Next
serve it on a contract basis, supply it with key goods control of the enterprise. However, the arrange- equity and debt capital for the enterprise, and the is how apposite those objectives are with what
or services, etc.) For example, the tasks and the ments could involve a role for the private entity in terms for doing so but also bear the imprint of the might be expected from the particular means by
terms according to which they are to be fulfilled finance. Arguably it might be solely private finance kinds of factors and considerations noted above. which funds might make an investment.
depend upon the character of the relationships of or government could provide a direct infusion of For example, the perceived importance of the need For example, at one extreme a (presumably
such people to the enterprise, the nature of their funds, lend money to the entity, perhaps at lower to be met will spur (or not) such agreement as is experienced and well resourced) pension fund
work within or with respect to it, the conditions than market rates, provide tax subsidies such as needed from government to allow the enterprise might in effect be the private entity which could
under which they do their work, and the rewards treating interest as a deductible business expense to be established in the first place. Given finite play an ostensibly direct role with respect to an
they gain from it. or not tax interest income to lenders, guarantee government revenues, governments willingness to infrastructure-related enterprise. We say ostensibly
Similar concerns might apply with respect to loans by others to the enterprise, or make an allocate them to the enterprise on the supply side because as a practical matter the fund, not having
others who are affected by the enterprise insofar as in-kind contribution (such as land). or on the demand side and how will depend the relevant expertise in-house, would no doubt
it displaces or affects the quality of life whether In all events, the willingness and degree to on judgments as to the relative importance of this contract for a wide range of the management and
in a social, environmental, or other sense of which the entity puts its money in the form of particular need in relation to others and on whom other services it requires effectively to fulfill the

20 Infrastructure | Defining Matters


Clearly there are perceptions or beliefs as to how able private enterprises are
to efficiently and effectively serve in one or more of those roles as compared
to government. In many respects this might be thought to be a purely empirical
question the answer to which would be found in a body of evidence of comparative
performance. In reality, such comparisons are difficult and fraught with problems.

role it has assumed. In that case its assessment In between these two extremes are a poten- this occurs), the profile of risk and reward of the e. Yield a long-term, high-quality, stable income
of the risks and rewards of making the financial tially wide variety of vehicles for investment in limited partnership will likely look quite different stream, and generate appreciation at least com-
investment which is a concomitant of that role will infrastructure-related enterprises. For example, from that of any of the individual enterprises in the mensurate with inflation
entail its evaluation of the factors and considera- there are limited partnerships in private equity portfolio. More generally, of course, the financial f. Provide investment returns which include
tions discussed above. fund-like vehicles, with the general partner play- outcomes for any particular vehicle through which a substantial cash distribution component
At the other extreme, the fund might be many ing whatever direct role it has as a concomitant a pension fund invests are rooted, among other g. Provide yields that are not only stable but
steps removed from direct involvement. On the of the investment it has made in the enterprises things, the vehicle managers criteria for crafting also predictable cash flows
equity side of the equation it might purchase pub- in the portfolio it assembles and manages. Here the portfolio, its particular choices of enterprises h. Yield respectable rates of return with low risk
licly traded shares in a company whose business it the pension fund will be concerned with whether to include in it, the attributes of the ones it selects, i. Yield high-quality, long-term, stable income
is to play a role in perhaps a numerous and chang- or not the risks and rewards of investing through the managers role with respect to the operation streams
ing array of infrastructure related enterprises. In this partnership are apposite with its strategic of those enterprises, and its ongoing oversight of j. Reduce the overall portfolios volatility
that case the fund is far distant from any actual role objectives. It would do so with an understanding the portfolio. k. Maintain a low correlation to other asset classes
in relation to any of those enterprises. The calculus that the character of those risks and rewards are
Strategic Objectives l. Promote the funds standing as an investor who
of risk and reward for it as a shareholder derives, determined not only by those of the particular
As noted above, possible pension fund invest- takes legitimate account of stakeholder inter-
among other things, from the anticipated risk and enterprises in the partnerships portfolio but also
ments in infrastructure must be in accord with the ests, such as those of members of the commu-
reward of the individual enterprises, how well the by the following: the quality of the judgments of the
funds investment policy and advance the strategic nities served and affected by the infrastructure
company chooses which enterprises in which it is general partner in choosing to invest monies and
objectives which inform that policy. Discourse and workers who build or operate it
involved, the terms on which it does so, the risks effectively fulfill certain roles with respect those
about which strategic objectives investments in m. Provide downside protection to the investment
and rewards associated with those enterprises in enterprises, its ability to manage the ensemble of
infrastructure might help to achieve includes fund during equity bear markets
light of that role, how it manages overall the array those investments and roles, the fees and other
reference to several or even many of the following n. Afford long-term inflation protection
of businesses, and its judgments of the market costs that are paid to the general partner for doing
(which were included in the survey reviewed o. Contribute to portfolio diversification
value for the companys shares. On the debt side it so, and the various ways one or another aspect of
might purchase a bond issued by the enterprise. In the principal-agent relationship between limited earlier in this paper): p. Hedge against long term liabilities
that case the fund has essential no role at all in its pension fund partners and the general partner a. To preserve capital q. Establish the funds reputation as premier infra-
operation except insofar as the terms for lending play out. (If they play out badly the consequences b. Yield returns that are stable and high enough structure investment manager and investors of
bear upon it in the future. The risk and reward of can be costly and perhaps even devastating.) in relation to the fund benchmark return choice within the investment community
the investment in a financial sense are defined by Unless the partnership focuses on a relatively c. Yield returns that are the result more from r. Embody the practice of responsible investment,
the terms of the bond subject to the expectation narrow and homogeneous category of enterprises appreciation in the assets than cash returns, that is, efficient operation of the asset, the deliv-
of interest and principal being paid in a timely in terms of the infrastructure related product or through operational improvements, best man- ery of quality services, utilization of responsible
and full fashion. An estimate of that prospect, of service being provided and the geographic area agement techniques and practices, or otherwise labor, environmental, etc., practices
course, depends upon an assessment of factors and where it is supplied (and correspondingly the eco- d. Yield returns that are sufficient on a risk- s. Foster the renewal and expansion of infrastruc-
considerations of the kind discussed above. nomic, political, social, etc. environment in which adjusted basis ture assets

Infrastructure | Defining Matters 21


[T]he array of objectives thought to be achievable by means of infrastructure
investment is fairly broad.

t. Offer transactions are of significant economic Second, not surprisingly, among the objectives quite plausibly and legitimately is indicative of the that larger community and hence its license to
scale and magnitude, allowing an outlay of a are some which might be thought to be advanced central task of pension funds of investing in ways do business.
sizable amount of capital by other kinds of investments. It is unremarkable suitably calculated to ensure that pension payment In addition, though, major failures in those
u. Perform well during economic downturns because the range of features is rather large so that promises are kept. As such, the focus is intensely other spheres will in specific instances hardly go
It is worth taking note of certain characteristics there are likely non-infrastructure related invest- (and for some perhaps exclusively) on the very unnoticed for at least two kinds of reasons. The
of these goals. ments which might well be thought to evidence end of the chain, the financial characteristics of an shortcomings will in the end almost certainly have
First, the array of objectives thought to be some of them. investment in a particular infrastructure-related negative financial consequences as the result of
achievable by means of infrastructure investment Third, some objectives overlap with one enterprise. (As noted, in practice, the focus may misjudgments about and/or realization of risks
is fairly broad. There are probably several reasons another. In part this is because some goals are well be on the financial characteristics of invest- associated with one or another of the linked
for this breadth. In some measure it simply reflects almost synonymous with others and in part, ment by means of a particular investment vehicle. stages to which we have referred. But behind the
uncertainty as to what is understood to be that because some might well appear to be achieved That vehicle has financial characteristics rooted in descriptive language for each cast in terms of risk
infrastructure which is an object of investment. in tandem with others, that is if one is present, those of the infrastructure-related enterprises with lie the needs, concerns, and aspirations of those
It may be so because a potentially wide variety the other is likely to be as well. respect to which it makes investments.) who have that direct stake in or who experience an
of such objectives might be thought to fall under Fourth, in certain respects, some goals conflict However, other objectives (such as l, q, r, and s) impact from the infrastructure-related enterprise,
the same rubric but be associated with an ability with others. This is in part because the aims place manifest awareness that pension fund investments Of course, the immediate object of criticism will
to advance diverse goals. In certain respects it a different emphasis on aspects of reward and are a potential subject of intense scrutiny by plan be the enterprise as such. But the greater and
mirrors the variety of outcomes some promoters dimensions of risk. Insofar as there are connections members and in many cases by the larger public as potentially more visible a pension funds role as
of infrastructure investment have asserted might between reward and risk, then the ability to well. Of course, that close attention may be spurred an investor in relation to the enterprise the more
be achieved. To some degree it simply is a conse- achieve one objective necessarily implies a lesser by the financial outcomes of investment decisions likely it might become an object of disapproval or
quence of vagueness about what are the putative ability to attain another. (especially large, adverse ones). But there is also even censure as well.
financial attributes of even relatively narrow Fifth, while a good many purposes are cast a recognition indeed, a growing one among Moreover, in making decisions calculated to
categories of infrastructure investment. To be in terms of financial outcomes some appear to pension funds (and other institutional investors) ensure keeping pension extending far into the
sure, this is likely to be in part an artifact of the relate to other sorts of results or consequences. that serious inquiry may or even must be made not future, requires funds to have clearly in mind what
lack of data in scope and quality as to outcomes The inclusion of these other kinds of outcomes only into the financial attributes of the enterprises the state of world will be and how that should shape
of such investments. But as suggested by the text has its origin in the different points of intersection in which they invest, but also into how well they its decisions over the long term. Stakeholders in
above, the multiplicity of links which connect between what is thought to be the pension funds succeed in the production of goods and services as and those impacted by the enterprises that are the
such categories ultimately to the characteristics of overarching mission with one or more of the stages such and the nature and quality of the relationships objects of investment are likely to vigorously artic-
what are typically seen as of most importance to which link the needs which are met by infrastruc- they maintain with those who have a direct stake ulate what are apt to be strongly held views about
pension funds and the array of factors and consid- ture-related enterprises to the ostensible financial in the enterprise or are otherwise affected by it. the how enterprise acts in response to their needs,
erations which constitute the ties at each stage of outcomes of an investment in a particular kind In part this is simply a matter though a very concerns, and aspirations. Those demonstrations
connection, make for a potentially wide range of of such enterprise. The large number of financial critical matter of the funds reputation in a of disappointment, dismay, anger, and the like
characteristics being identified with that category. characteristics in the list of strategic objectives general sense in the eyes of its members and may be manifest openly. They may be expressed

22 Infrastructure | Defining Matters


[W]e believe and hope that the definition we propose, the modes of thinking about
infrastructure so defined, and the interrelated aspects of the process for deciding
upon investment in enterprises associated with provision of infrastructure
so understood will prove valuable to what funds choose do. We say hopeful
because a necessary if not sufficient condition for prudent decisions
is being fully alert to all the implications of what those decisions entail.

silently through a holding back of purchases of a matter of provision of extraordinary importance. cause some good or benefit? This poses disputed That being said, we offer in Appendix B a series
products and services, concerted action within Of necessity then, it may well require especially questions as to whether regardless of such norms of related questions which funds might address
the enterprise, or organized efforts in the civic or informed and thoughtful judgments about whether or values, account has to be taken of those harms in their decisions about whether to invest in
even in the public sphere (leading to legislative and how a fund makes an investment decision with and benefits because over the nearer or longer infrastructure and if so, how. Seeking answers to
or regulatory action). In a number of these cases respect to infrastructure. term they may imperil what pension funds need these questions might spur alertness to the factors
those expressions are signals of the occurrence of We think there is warrant for our narrative and hope to achieve, or because the larger society, and considerations we have discussed at some
important and perhaps even fundamental changes of the series of connections which link provision sooner or later, may simply not tolerate the ways length above. In turn, that may serve as a useful
in the world as people experience and understand associated with the infrastructure ultimately to funds decisions may implicate them in having tool for funds thinking comprehensively and
or anticipate them. As such they may offer critical financial decisions about investment in enterprises caused those harms or having failed to produce cogently on the subject. We note that the focus
insights into the world of the future to which engaged in provision. If so, then even the seemingly that good. of the schematic process is essentially on relevant
pension funds as long term investors must be alert more straightforward task of reaching a conclusion We do not here take on the task of offering substantive criteria. But decision-making is about
and for which they must plan. based on a credible and perhaps even convincing a prescription for the decisions which any par- not only such criteria but also the institutions and
How, precisely, any particular pension fund pure calculus of financial risk and reward requires ticular pension fund might make in light of that processes by which judgments are made. That is,
takes account of these considerations will be a mat- careful examination and serious reflection. But at debate. As a practical matter what any given fund investors need to consider first how attending to
ter of judgments made in light of an ongoing debate least such an exercise has a familiar feel. Rather chooses to do will be determined by the terms of certain issues is embedded in their own processes
about a funds proper role and responsibilities. more challenging is whether and how the calculus its own plan, the expectations and perhaps even for decision-making and second, whether and
In the first instance they concern plan members of decision needs to be different, perhaps broader the demands of members, and what the fund how stakeholders and others affected by the
interest in receiving promised benefits. But how- or richer in character.21 We do not here offer a understands its place to be within the larger com- enterprise are engaged or otherwise brought into
ever important those benefits are to plan members prescription for what any given fund should do. munity which mandates and/or sanctions its very that process.22 Indeed, this position is arguably
they have other interests some quite important The debate to which we refer may be serious but existence and the standards that community sets true both for the individuals in whose names or
ones which extend beyond those critical benefits. confined to largely traditional discourse, confront- for the funds conduct. However, we believe and on whose behalf investments are made (to keep
Moreover, as should be implicit from the preceding ing established views about how financial markets hope that the definition we propose, the modes pension promises) and for those whose needs are
narrative, most likely any pension fund investment function in general, the ways in which certain ones of thinking about infrastructure so defined, and met by the enterprises in which those investments
in most any form of provision has potentially operate in particular, and the actions of pension the interrelated aspects of the process for deciding are made and how those enterprises act in meeting
serious import not only for the interests of the funds within and on those markets. However, the upon investment in enterprises associated with that need.23
immediate recipients of provision but also for those arguments to which we refer extend further to provision of infrastructure so understood will
engaged in the enterprise and affected by it. In some contested claims about whether decisions need to prove valuable to what funds choose do. We say
cases that import may readily be evident and have be informed by certain norms or values whether hopeful because a necessary if not sufficient
consequences only in the distant future. But insofar embodied on understandings of fiduciary duty or condition for prudent decisions in the sense of
as judgments are made in relation to what is under- otherwise and if so, in what ways. For example, decisions with foresight and judgment is being
stood to be infrastructure, if the definitions we offer should or must funds follow the dictum to strive fully alert to all the implications of what those
above are of merit they suggest that infrastructure is to do no harm or go further and act to create or decisions entail.

Infrastructure | Defining Matters 23


APPENDIX A

24
APPENDIX A Definitions of infrastructure posed in survey: i. facilitate the building up and maintenance of
the stock of human capital, for example, health
d. Educational facilities, such as schools, colleges,
or universities, or libraries
Facilities, structures, networks, systems, plant,
and education e. Environmental-related facilities, such as for
property, equipment, or assets that
j. create the framework conditions for productive hazardous or toxic waste storage and disposal
a. are essential to driving sustainable economic
activity, public good: defense, general public f. Public buildings,
development and growth, lifting levels of
goods or services, environment, and order g. Water-related facilities, such as for storage,
productivity and boosting employment and
and safety or have direct impact by reducing purification/treatment, and distribution; waste
critical to encouraging business innovation
enterprises production and transaction costs water collection, desalinization
and improving the global competitiveness
k. are the basic physical and organizational h. Water control-related facilities, such as dams
of enterprises
capacities and resources needed for the and levees
b. provide services and support that are basic to the
operation of a society or enterprise or are i. Solid waste collection and disposal facilities
functioning of a community, organization, or
necessary for an economy to function j. Post offices
society and crucial to its economic productivity
l. facilitate the production of goods and services and k. Recreational facilities, such as parks, bike
c. are key to managing population growth and
the distribution of finished products to markets or running pathways, stadiums, lotteries,
meeting current and future environmental
casinos, lotteries
challenges. Specific examples of infrastructure posed in survey l. Health facilities, such as hospitals and health
d. provide a platform for economic development,
a. Transportation-related systems, such as tunnels care centers
social cohesion and stability.
and bridge, road systems, intercity and metro m. Public safety facilities, such as police and fire
e. provide primary services which are crucial
rail systems, railway rolling stock, airports, and military stations
to the success of economic development in
seaports, terminals, and barges; traffic control n. Public safety-related facilities such as prisons/
society in that their absence or their less than
facilities; parking garages or metered parking correctional institutions or facilities
optimal performance would severely hamper
b. Communications systems or networks, such o. Housing, such as military, student, and
its productivity and growth.
as TV/telephone transmitters, satellites, cable low-income/public housing
f. provide social services and support private
or broadband networks; wire or wireless phone
sector economic activity. Financial characteristics of infrastructure
towers; fiber optic or copper cable
g. are capital intensive/have high fixed costs posed in survey:
c. Energy facilities, such as energy storage
and long economic lives and have strong links
facilities for natural gas and oil, facilities for a. Relatively illiquid, because large amounts
to economic development, and a tradition of
power, i.e., hydrocarbon, gas, geothermal, of capital are required at irregular intervals
public sector involvement.
wind-generated, water-generated, and nuclear for these projects, the indivisibility of these
h. form the underpinnings of a nations defense,
energy, transmission and distribution; projects, and the absence of an effective
a strong economy, and its health and safety
renewable/clean energy projects secondary market for them.

Infrastructure | Defining Matters 25


b. Require large investments, because h. Yields income which is stable and predictable
infrastructure is generally capital intensive, over the long-term, because income is frequently
with projects in their nature being because the inflation-linked, regulated, and protected
facilities or structures built and operated, such by government guarantees.
as transportation, energy, communication, and i. Offers capital growth which is attractive, because
social services, are large scale. the contracted revenue and costs applied to
c. Higher levels of debt/leverage than non- infrastructure projects usually provide enhanced
infrastructure projects, because infrastructure valuations over the long-term.
cash-flows are more certain than for other j. Returns with a low correlation with other assets,
projects, with the result that sponsors of because infrastructure returns are frequently
infrastructure projects are willing to accept independent of economic conditions such as
more debt and providers of capital are willing inflation and changes in GDP.
to issue higher levels of debt for infrastructure. k. Returns that are lower than for infrastructure
d. Relatively hard to value, because of the investment but still acceptable and also less
complexity of documentation, financing, and volatile, because revenues are usually regulated
technical details, the uncertainty of economic and inflation-linked.
and financial conditions over the long-term, l. Risk-return profiles which differ according
and the absence of a market price. to whether the infrastructure asset is new
e. Investments are likely to be held for a longer (greenfield) or existing (brownfield), because
period than for non-infrastructure assets, risk is usually higher during the construction
because non-infrastructure projects have a phase of infrastructure projects than the
more established secondary market and can operating phase.
be sold and exchanged more readily.
f. Higher risk and more uncertain financial NOTE: There was an error in the phrasing of
performance, because project success is choice k so even though many respondents
dependent on multiple assured sources of appear to have understood its intent results for
capital, guarantees, and/or subsidies. responses were not tabulated.
g. More possibility of financial performance
problems with a project, because infrastructure
is long-term and there is greater likelihood
of adverse events occurring.

26 Infrastructure | Defining Matters


APPENDIX B

27
APPENDIX B Questions pension funds need to address
in making decisions about investments in
That process could be described in the
following terms:
financial sense. A highway would be large
scale with the possibility of being able to bar
infrastructure at the enterprise level 1. What need for the infrastructure-related good access to it. By contrast, the benefit (in terms
or service does the enterprise which is the of quality) of a new or improved large scale
Ultimately, pension funds are about making the
ultimate object of investment ostensibly meet water purification works would be available
best decisions not only in light of their most
or satisfy? to all (who otherwise had access to the water
immediate task of keeping pension promises but
2. How important is meeting that need to the supply). The clean air benefit of a wind-farm
also in view of the roles they must or choose to
people who would benefit from its provision in the place of a dirty coal fired plant would
take on as investor owners of and/or lenders to
by the enterprise? go to all who lived in the vicinity; access to the
enterprises in pursuit of that goal. Those roles
3. How is the nature of that need understood in energy supplied would be a different story.)
also require thoughtful decisions in other terms
broad societal terms by elected officials and 6. What is the physical footprint of the enterprise
because, of necessity, they are closely linked not
other governmental policy makers? By others that provides or is envisioned to provide the
only to whether those enterprises succeed in the
who might have a significant interest arising good or service? At that scale what are the
provision of that which is important in peoples
from provision to meet it? How important is to actual or projected demands or impacts on the
lives but also to how they succeed in doing so.
them that it be met and in what ways? enterprise in full operation on the natural
We offer below what might be termed a
4. What is the nature and size of the population environment? On communities in proximity
series of suggestive and in some measure stylized
that currently has a need for this particular to the enterprise?
questions that are important to making those
good or service? How might that population 7. What is the footprint of the enterprise in terms
decisions. They are suggestive because we do not
and its need in that regard change in the future? of the resources material, financial, and
presume to have the definitive answers to all the
5. Is provision of the good or service individual otherwise which must be amassed, organized
questions which the main text poses for thinking
or collective? That is, does each individual and applied to establish the enterprise? Insofar
about what infrastructure is and how precisely
receive or get the benefit of his or her own as that is translated into a cost to establish the
that should inform what might be done. They
good or service or do many individuals get enterprise, what is it?
are stylized because the particular process will
access to or the benefit of the same good or 8. What are the ongoing resources required
depend on how any individual fund views its
service? (This is arguably just a different way of for the ongoing operation of the enterprise?
responsibilities to plan members and others.
referring to whether the benefit takes the form Insofar as they are translated into the ongoing
A decision-making process for a pension fund
of a public good in that enjoying the benefit cost of it operation, what is the cost?
considering investment in what might be deemed
of the good or service by one individual does 9. What is the total cost of provision at different
to be an infrastructure-related enterprise can be
not reduce availability of it for consumption levels of operation of the enterprise?
formulated in a way guided by the chain of linked
by others. Whether it is non-excludible as well 10. How might the cost change with time whether
sets of factors and considerations detailed above.24
is another issue. The former is likely to by virtue of the expense of finance, supplies,
bear on questions of scale in a physical and labor, ongoing maintenance and repair, etc.?

28 Infrastructure | Defining Matters


11. In light of the need for the good or service and 14. To what extent does the enterprise as it operates Note that the degree to which the enterprise
other considerations, or as it is to be built and operated have a direct must or can elect to internalize such impacts will
a. Will it be provided for free or will those and potentially negative economic, social, depend upon at least two things. One is whether
who benefit from provision bear some or environmental, or other adverse impact as a matter of law it is obliged or permitted to do
all of the costs of such provision? on those with a direct or other stake in the so. Another is whether by virtue of the identity of
b. If those who benefit will bear some of the enterprise such as the investor in the enterprise it must or might do
cost, how much of it and how? a. Those who ostensibly are the object of so. The identity of the investor refers to situations
c. Insofar as some or all of the cost of provision provision of the product or service? in which the decision maker acts on behalf of
will be borne by those who benefit, how will b. Those who work in the enterprise which others who are the ultimate source of the monies
demand for it change with the cost borne produces the product or service? for investment and who ultimately enjoy the
in that way and other considerations (such c. Those who are suppliers to the enterprise? financial rewards and bear the financial risks of
as the cost and necessity of other goods and d. Those who live or work near the enterprise? the decisions. These situations are two-fold: first,
services, substitutes, if any, for the particular e. Those who do or might provide a while beneficiaries might benefit in a financial
good or service, etc.)? competing or substitute product or service? sense, as workers in or suppliers to the enterprise,
12. By reason of its scale and cost or other reasons, 15. Insofar as the government assumes some or all as residents in the community of the enterprise,
by reason of law or otherwise, is this good or of the cost of establishing the enterprise or the etc., they would suffer harms from establishment
service being provided by or will this good or costs that otherwise might be borne by those or operation of the enterprise. Second, those who
service be provided by a single enterprise or who are the object of provision of the good are not beneficiaries, in any of the same roles or
more than one. If the latter, how many? On or service, who, by virtue of that government circumstances, suffer the harm.
what permissible or mandatory terms? role, ultimately bear the cost?
13. What are the precise roles of the government and 16. To what extent must or might the enterprise
the private sector in relation to the enterprise? be required to internalize any of the negative
For example, what are their role(s) in impacts referred to above?
a. Owning it? 17. Insofar as the enterprise is or may be required
b. Building it? to internalize such negative impacts what are
c. Operating it? the consequences, financial or otherwise, for the
d. Maintaining it? establishment or operation of the enterprise?
e. Regulating it?
f. Financing it?
g. Bearing the costs of provision that might
otherwise be borne by those who benefit?
h. Otherwise?

Infrastructure | Defining Matters 29


ENDNOTES

1 4
Here we use the word enterprise for the most part in the http://www.answers.com/topic/infrastructure#History_of_ wires. It is by definition invisible, part of the background electricity generation and transmission, gas and water
broad sense articulated by the (online) Oxford dictionary the_term (Accessed: February 20, 2012). for other kinds of work it is a fundamentally relational distribution, sewage treatment, broadcast and wireless towers,
definition of an enterprise, which refers to it as a project 5
See Batt, supra, at p. 2 referring to the chapter on NATO concept, becoming real infrastructure in relation to telecommunication, cable networks, and satellite networks.
or undertaking, especially a bold or complex one and as common Infrastructure in NATO: The First Five Years organized practices and goes on to define in terms of The third covers courthouses, hospitals, schools, correctional
a word having its origin in late Middle English: from Old 1949-1954.) variety of properties including the following among others): facilities, stadiums, and subsidized housing.
French, something undertaken. http://oxforddictionaries. A recent definition of infrastructure by the U.S. military is as embeddedness, that is, [i]nfrastrucure is sunk into 11
For example, some projects derive revenues from user-based
com/definition/enterprise (Accessed April 2, 2012). That is, follows: All building and permanent installations necessary and inside of other structures, social arrangements, and fees linked to benefits provided and costs incurred. In other
infrastructure is associated with a project or undertaking for the support, redeployment, and military forces operations technologies; transparency, that is, [i]nfrastructure is cases, tax revenues or subsidies may be part of the mix.
which entails the creation or construction of certain physical (e.g., barracks, headquarters, airfields, communications, transparent to use, in the sense that it does not have to be 12
The definition of infrastructure is being applied to a
structures, facilities, etc. in connection with commencing facilities, stores, port installations, and maintenance stations). reinvented each time or assembled for each task, but invisibly broader range of assets, many with a tenuous link, such as
and operating an ongoing endeavor to provide particular Department of Defense Dictionary of Military and Associated supports those tasks; and links with conventions of practice, airports and German service stations. Infrastructure at
important products and services. As suggested in the Terms, Joint Publication 1-02, Joint Chiefs of Staff, The that is, [i]nfrastructure both shapes and is shaped by the Crossroads, by Ian Fraser, Financial News Online, May 14,
foregoing text, such an endeavor is typically of large scale Pentagon, Washington, DC, April 12, 2001 (As Amended conventions of a community of practice. The Ethnography 2008. Available at http://www.ianfraser.org/infrastructure-at-
and complex. As such, the definition is largely neutral or Through August 31, 2005). of Infrastructure, by Susan Leigh Star, American Behavioral crossroads/ (Accessed July 20, 2012). The original concept
indifferent to the particular organizational form the endeavor Scientists, Vol. 3, No. 3, November/December 1999, pp. 377- of infrastructure investment meant investment in individual
http://www.dtic.mil/cgi-bin/GetTRDoc?AD=
might take, whether for profit or not, where involving solely 391, at 380-381. http://abs.sagepub.com/content/43/3/377.full. projects such as roads, bridges, and tunnels that have
ADA439918&Location=U2&doc=GetTRDoc.pdf
governmental action or one or another mix of roles for private pdf+html (Accessed February 21, 2012). clear sources of revenue. That has been broadened to public
(Accessed February 17, 2012).
and governmental action, the particular forms of each form of 6 Also, one recent dictionary entry offers one more narrow, private partnerships schools, prisons and hospitals and
action, for example, action by an arm of government, an semi- Infrastructure: Etymology and Import, by H. William Batt,
traditional definition and another more general and expansive latterly into quoted companies that are not involved in single
autonomous agency created by government, a corporation, Journal of Professional Issues in Engineering Education and
one: The basic facilities, services, and installations needed projects or even baskets of projects. My worry is that it
partnership, etc. Practice, Volume 110, Issue 1, January 1984, p. 2.
7
for the functioning of a community or society, such as has become just a buzzword, a convenient catch-all.
2
Infrastructure: Etymology and Import, by H. William Batt, Id. at 3-4. transportation and communications systems, water and power
8
Id. (quoting Nicola Ralston, director of consulting firm
Journal of Professional Issues in Engineering Education and Id. at 4. lines, and public institutions including schools, post offices, Liability Solutions, Ltd.) See also The Next Asset Bubble,
9
Practice, Volume 110, Issue 1, January 1984, p. 2. See also For example in a U.S. government supported study on what and prisons and An underlying base or foundation especially by Kit R. Roane, Portfolio.com, February 4, 2008. Available at
NATO: the First Five Years 1949-1954 by Lord Ismay, NATO, was referred to as public works infrastructure, the authors for an organization or system, respectively. In its discussion http://upstart.bizjournals.com/news-markets/national-news/
November, 1954 (The word infrastructure comes from asserted that of usage it adds: portfolio/2008/02/04/Infrastructure-Investment-Bubble.html
France, where it has long been used to denote all the work [a] comprehension of infrastructure spans not only these Perhaps because of the words technical sound, people (Accessed July 20, 2012)
that is necessary before a railway track can be laid, such as public works facilities, but also the operating procedures, now use infrastructure to refer to any substructure or (noting the flood of new infrastructure funds and new
embankments, bridges, tunnels, etc.) http://www.nato.int/ management practices, and development policies that underlying system. Big corporations are said to have ideas [that] involve less-traditional assets like lotteries, gas
archives/1st5years/chapters/10.htm (Accessed on interact together with societal demand and the physical their own financial infrastructure of smaller businesses, stations, and old folks homes)
February 20, 2012). world to facilitate the transport o people and goods, for example, and political organizations to have their 13
REAL ASSETS IN INSTITUTIONAL PORTFOLIOS: THE
3
See the following current definition of the word infrastructure provision of water for drinking and a variety of other uses, infrastructure of groups, committees, and admirers. ROLE OF COMMODITIES, ALTERNATIVE INVESTMENT
in French: safe disposal of societys waste products, provision of energy The latter sense may have originated during the Vietnam ANALYTICS LLC, December 10, 2007, p. 5.
1. ensemble des travaux ncessaires pour crer la plate-forme where it is needed, and transmission of information within War in the use of the word by military intelligence officers,
http://www.bache.com/media/managed/RealAssetsin
dune voie de chemin de fer ou dune route and between communities. whose task it was to delineate the structure of the enemys
InstitutionalPortfolios.pdf (Accessed March 19, 2012).
2. ensemble des installations ncessaires au fonctionnement Infrastructure for the 21st Century: Framework for a Research shadowy organizations. 14
dun service de transport CALIFORNIA PUBLIC EMPLOYEES RETIREMENT
Agenda, The National Academy of Sciences, 1987. Note 1, The American Heritage Dictionary of the English Language,
3. ensemble des quipements conomiques et techniques SYSTEM STATEMENT OF INVESTMENT POLICY FOR
p. 4. (http://www.nap.edu/catalog.php?record_id=798#toc Fourth Edition, Houghton Mifflin Company, Updated in
dune socit REAL ASSETS, August 15, 2011, p. 1. http://www.calpers.
(Accessed February 21, 2012). 2009. http://education.yahoo.com/reference/dictionary/
4. ce qui sous-tend quelque chose de visible ca.gov/eip-docs/investments/policies/inv-asset-classes/real-
According to an even more expansive approach to entry/infrastructure (Accessed February 21, 2012).
estate/real-assets-full-policy.pdf (Accessed March 19, 2012).
http://dictionary.reverso.net/french-definition/infrastructure infrastructure note that although [p]eople commonly 10
The first category includes toll roads, bridges, tunnels,
(Accessed February 17, 2012). envision infrastructure as a system of substrates railroad parking facilities, railroads, rapid transit links, airports,
lines, pipes and plumbing, electrical power plants , and refueling facilities, seaports. The second encompasses

30 Infrastructure | Defining Matters


15
Teachers Retirement Board Policy Manual, CalSTRS, the borrower will not or is unable to comply with their About Us, Principles for Responsible Investment (bold italics Harvard Law School, January 2012. (describing key
(Updated February 2012), p. A-15. http://www.calstrs. respective social and environmental policies and procedures added) http://www.unpri.org/about/ (Accessed April 15, 2012) performance indicator that [Supplier] Company Affiliate
com/about%20calstrs/Teachers%20Retirement%20Board/ that implement the EPs. (bold italics added). establishes and maintains relationships with labor non-
BoardPolicyManual.pdf (Accessed March 19, 2012). Here At the outset these principles are described as The same sentiments are reflected in the opening paragraph governmental organizations, trade unions and other civil
commodities appear to be located in a distinct, innovative a credit risk management framework for determining, of the Principles: society institutions). http://www.law.harvard.edu/programs/
Policy Portfolio. akin to the opportunity/opportunistic assessing and managing environmental and social risk As institutional investors, we have a duty to act in the best lwp/pensions/publications/FINAL%20Summary%20
categories referred to in the main text. Id. at O-2. in project finance transactions...The EPs are primarily long-term interests of our beneficiaries. In this fiduciary Report%20Dec%202011.pdf (Accessed April 15, 2012).
16
That respondent stated that environmental/climate impact, intended to provide a minimum standard for due diligence role, we believe that environmental, social, and corporate See also In China, Human Costs Are Built Into an iPad,
local job creation, cultural legal; differences, reputational risk, to support responsible risk decision-making. governance (ESG) issues can affect the performance of by Charles Duhigg and David Barboza, The New York Times,
political risk, and the long-term nature of the transaction investment portfolios (to varying degrees across companies, January 25, 2012. http://www.nytimes.com/2012/01/26/
About the Equator Principles (bold italics added) http://
requires special evaluation. sectors, regions, asset classes and through time). We also business/ieconomy-apples-ipad-and-the-human-costs-
www.equator-principles.com/index.php/about-ep/about.
17
That is, goods sometimes referred to as non-excludible recognise that applying these Principles may better align for-workers-in-china.html?pagewanted=all (Accessed
(Accessed April 15, 2012)(bold italics added). By contrast
goods which are of such a nature that affording access to investors with broader objectives of society. April 16, 2012)
the 2006 preamble to the Equator Principle states that they
23
them to any individual necessarily entails providing access have been adopted The Principles for Responsible Investment, Principles for Precisely how to attend to both matters is hardly clear or
to any other individual. Responsible Investment, http://www.unpri.org/principles/ without controversy. With respect to the latter and pension
in order to ensure that the projects we finance are
18
This discussion is informed by Composition of government (Accessed April 15, 2012)(bold italics added). funds it concerns in part the importance of plan member
developed in a manner that is socially responsible and
investment in Europe: Some forensic Evidence, by Juan representation in the governing structure and/or consultation
reflect sound environmental management practices. By In other words, for both, the principles are broadly speaking a
Gonzalez Alegre, Andreas Kappeler, Atanas Kolev, and Timo with members. (The matter of consultation is discussed
doing so, negative impacts on project-affected ecosystems means of risk management, in the service of better investment
Vlil in Infrastructure investment, growth and cohesion at some length in From Fiduciary Duties to Fiduciary
and communities should be avoided where possible, and decision-making from a financial perspective but with (1)
Public investment: Composition, growth effects and fiscal Relationships for Socially Responsible Investing: Responding
if these impacts are unavoidable, they should be reduced, a recognition that decisions so made might be thought to be
constraints, European Investment Bank Papers Volume 13. to the Will of Beneficiaries by Benjamin J. Richardson,
mitigated and/or compensated for appropriately. We believe responsible in that it reflects awareness of and takes account
No. 1, 2008, pp. 26-27. http://www.eib.org/attachments/efs/ Journal of Sustainable Finance & Investment, Vol. 1, No. 1,
that adoption of and adherence to these Principles offers of the import of those decisions for other than investors and
eibpapers/eibpapers_2008_v13_n01_en.pdf (Accessed pp. 5-19. http://docserver.ingentaconnect.com/deliver/
significant benefits to ourselves, our borrowers and local (2) an acknowledgment that it does not necessarily imply that
March 23, 2012). connect/earthscan/20430795/v1n1/s2.pdf?expires=
stakeholders through our borrowers engagement with such decisions are fully aligned with larger social objectives.
19 1334591169&id=68319092&titleid=75007106&
Despite the distinction this is not to ignore the reality that locally affected communities. We therefore recognise that 22
For example, the standards of the International Finance accname=Harvard+University&checksum=
markets themselves are enabled and constituted by various our role as financiers affords us opportunities to promote Corporation which inform the practices of those who CBE85F5ED8A142141D1E947551AB2228
forms of social action, including by government (through law responsible environmental stewardship and socially commit to abide by the Equator Principles, stresses the (Accessed April 15, 2012)
and other means). And, of course, even where market-based responsible development. importance of ....effective community engagement 24
provision might seem both feasible and appropriate, certain Note, here we almost exclusively focus on decision-making
The Equator Principles, June 2006, Equator Principles. through disclosure of project-related information and
market participants might find it in their interest to limit or at the enterprise level, that is, with respect to any particular
http://www.equator-principles.com/resources/equator_ consultation with local communities on matters that directly
skew competition. infrastructure-related enterprise. As the main text emphasizes,
principles.pdf (Accessed April 15, 2012)(bold italics added). affect them. Performance Standards on Environmental
20 there are a host of additional considerations at the level of
With regard water as a human right, see More Than a The other, the Principles for Responsible Investment, and Social Sustainability, International Finance
any investment vehicle through or by which a pension fund
Resource: Water, Business, and Human Right, Institute is a broader voluntary endeavor by investors informed Corporation, January 1, 2012, p. i. http://www1.ifc.org/
might make an investment, a vehicle which might entail
for Human Rights and Business, August 2011. http://www. by the view that environmental, social and corporate wps/wcm/connect/115482804a0255db96fbffd1a5d13d27/
investment with respect to a multiplicity of infrastructure-
ihrb.org/pdf/More_than_a_resource_Water_business_and_ governance (ESG) issues can affect the performance PS_English_2012_Full-Document.pdf?MOD=AJPERES
related enterprises.
human_rights.pdf (Accessed July 19, 2012). of investment portfolios and therefore must be given (Accessed April 15, 2012). A similar theme is clear in the
21
Two major and important initiatives provide examples of appropriate consideration by investors if they are to related but very different context of investments with regard
investors taking on these issues, though efforts which reflect fulfill their fiduciary (or equivalent) duty and offers to manufacturing supply chain issues whch has received
the challenge they face in specifying the precise rationale for a voluntary framework by which all investors can a great deal of attention. See Key Performance Indicator
the approaches being taken. incorporate ESG issues into their decision-making and for Investors to Assess Labor & Human Rights Risks Faced
One, the Equator Principles (EP) are standards voluntarily ownership practices and so better align their objectives by Global Corporations in Supply chains: Stage 1 Report,
adopted by Equator Principles Financial Institutions with those of society at large. The Fair Labor Association and The Pensions and Capital
(EPFIs) commit to not providing loans to projects where Stewardship Project, School, Labor and Worklife Program,

Infrastructure | Defining Matters 31


Contact:
Larry W. Beeferman,
Director, Pensions and Capital Stewardship Project
Labor and Worklife Program
Harvard Law School
Tel: 617.495.9265; Fax: 617.496.7359
Email: lwb@law.harvard.edu

32 Infrastructure | Defining Matters

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