Balancing growth and net-zero goals in infrastructure

The UK government’s renewed support for a third runway at Heathrow Airport has reignited debate over the balance between economic growth and environmental commitments. As a major infrastructure project with significant climate implications, Heathrow’s expansion serves as a case study for how investors can engage with high-carbon industries and government-led infrastructure decisions to align with net-zero targets.

The investor’s dilemma: Infrastructure growth vs. net-zero goals

Chancellor Rachel Reeves argues that the expansion is vital for strengthening the UK’s position as a global trading hub. She suggests that increasing airport capacity could, paradoxically, help reduce emissions by minimising aircraft holding patterns and delays. However, environmental groups strongly oppose the plan, asserting that aviation expansion contradicts the UK’s legally binding net-zero commitments. The Climate Change Committee has cautioned that new airport capacity should only proceed if emissions reductions are achieved elsewhere to compensate.

While Heathrow’s expansion is a government-driven decision, investors play a crucial role in shaping the sustainability of infrastructure projects. Whether through direct investment in airport operations, financing associated developments such as transport links, or influencing policy through engagement, investors must navigate the intersection of economic development and climate responsibility.

How investors can engage on net-zero in infrastructure

Direct engagement with companies
Investors can push for sustainability commitments from the companies involved in infrastructure projects, ensuring that net-zero principles are integrated into their strategies:

• Engage directly with airport operators, airlines, and construction firms to assess their decarbonisation plans and carbon reduction targets.
• Advocate for enhanced climate-related disclosures, including Scope 1, 2, and 3 emissions reporting.
• Encourage alignment with science-based targets and frameworks like the Task Force on Climate-related Financial Disclosures (TCFD).

Collaborative engagement across the sector
Beyond Heathrow, investors can collaborate to influence industry-wide sustainability standards:

• Join investor coalitions such as Climate Action 100+ to collectively engage with high-emitting sectors.
• Work with industry peers to set sector-wide transition benchmarks that align with net-zero goals.
• Support research and initiatives that promote the integration of sustainable aviation fuels (SAFs) and carbon mitigation technologies.

Public policy advocacy for sustainable infrastructure
While some investors may have influence due to their crucial role in financing the project, their impact on the government's decision-making process is likely to be limited and indirect, with broader economic and strategic considerations taking precedence. Investors can neverthless shape the broader policy environment that governs such projects:

• Advocate for regulatory frameworks that ensure infrastructure expansion aligns with net-zero, such as carbon pricing mechanisms or sustainability-linked financing.
• Engage with policymakers to push for clear, long-term transition pathways that provide investment stability while meeting climate goals.
• Contribute to consultations on climate-related financial regulations to encourage investor-friendly policies that promote decarbonisation.

Proxy voting and governance influence
Investors can also use governance mechanisms to influence corporate decision-making:

• Vote in favour of shareholder resolutions that demand stronger climate action and transition planning from infrastructure-linked companies.
• Hold boards accountable by opposing re-elections where companies fail to demonstrate credible net-zero progress.
• Support executive remuneration policies tied to sustainability performance metrics.

Asset owner oversight of infrastructure investments
For institutional investors, ensuring that asset managers align portfolios with net-zero goals is critical:

• Assess asset managers’ commitments to net-zero and their engagement approach with high-carbon infrastructure investments.
• Set clear expectations for climate risk integration in infrastructure financing decisions.
• Require transparency on how portfolio emissions are managed and engagement outcomes with key stakeholders.

A short runway?

Heathrow’s expansion is just one example of the complex trade-offs involved in sustainable infrastructure investment. While governments drive large-scale infrastructure decisions, investors have a critical role in influencing both corporate and policy-level approaches to balancing economic development with climate commitments. By engaging proactively, investors can help shape infrastructure projects that support long-term economic resilience while aligning with net-zero goals.