Quarterly valuation update for the energy and infrastructure sector: navigating uncertainty - Q1 2026

Three key themes from Q1 2026

Discount rates remain under pressure

Rising government bond yields have continued to drive increases in discount rates across renewables and infrastructure investments. The valuation impact of recent geopolitical developments may not yet be fully reflected in market assumptions, leaving scope for further movement. However, increases in risk-free rates do not necessarily translate directly into higher discount rates, as some of the impact can be absorbed through lower equity risk premiums where investors retain confidence in long-term infrastructure assets.

Infrastructure resilience remains evident, but outcomes differ by sub-sector

Historical evidence suggests infrastructure can be relatively resilient during periods of market volatility, although performance varies across sub-sectors. Assets supported by regulated or contracted revenues often exhibit lower earnings volatility, while demand-driven assets are generally more exposed to economic conditions. Airports, for example, remain sensitive to passenger demand, travel patterns and fuel prices, whereas risk exposure across the energy sector can differ significantly depending on technology, regulation and merchant market dynamics.

Focus on cash flow impacts rather than automatic valuation adjustments

Valuation assessments should focus on expected cash flow impacts and asset-specific fundamentals rather than assuming automatic value reductions during periods of uncertainty. Market events can affect assets in different ways, with some experiencing negative consequences and others benefiting from changing market conditions. Consequently, understanding both direct and secondary effects remains essential. Where outcomes remain uncertain, additional risk premia may be appropriate, while the long-term investment horizon typical of infrastructure investors can help mitigate the influence of short-term market volatility.