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Asset owners ask investment managers to pitch ideas for green blended finance vehicles

$5trn Net Zero Asset Owners Alliance will work with a select number to design and support products

The $5.1trn Net-Zero Asset Owner Alliance is calling for investment managers to put forward ideas for blended finance vehicles to help channel public and private assets into the climate transition.

The 33-strong Alliance includes Allianz, Aviva, CalPERS, PensionDanmark, Caisse des Dépôts, CDPQ and Storebrand. It was set up in 2019 by the UN Environment Finance Initiative and the Principles for Responsible Investment (PRI), in partnership with WWF and Global Optimism. Members must commit to having Net Zero investment portfolios by 2050, establishing intermediate targets every five years, and regularly reporting on progress.

The latest project focuses on the need for more blended finance in the climate space. Blended finance involves using public or philanthropic money to encourage private investment into risky or underdeveloped market segments, often by providing guarantees or ‘first loss’ capital to protect fiduciary investors from potential losses themselves. 

“Asset owners are looking for investment solutions and wanting to work with innovative fund managers to design the investment vehicles of the future.”

The alliance says it is needed because it “de-risks investments in climate solutions and market segments that for now do not have the appropriate risk-return profile to attract large-scale institutional capital” and is asking asset managers to submit proposal for blended finance vehicles in the range of $300-500m. 

The proposals should focus on “climate solution investments”, and “invest in financially viable and sustainable underlying business models; have strong risk (downside) mitigation mechanism for private investors; be suitable for large institutional investors in their set up; be managed and executed by experienced and established fund managers; and not hamper other Sustainable Development Goals and/or follow high ESG standards.”

Successful asset managers will work with Alliance members to design vehicles and be supported in refining their strategy to fit institutional investors’ needs. There is no fixed deadline to submit ideas, and the selection process will be open ended. 

“Asset owners are looking for investment solutions and wanting to work with innovative fund managers to design the investment vehicles of the future. Without the investment community, the transition to a zero-carbon future, will not happen with scale or the urgency that is required,” said Fiona Reynolds, CEO of PRI.

Earlier this week, Net-Zero Asset Owner Alliance backed the recommendations of the Task Force on Climate-related Financial Disclosures, including the use of an implied temperature rise metric in its forward-looking disclosure recommendations. Last month it released rules on how investors should calculate and set targets on climate in their portfolios, and allocate capital to support decarbonisation.