CDPQ working on emerging markets blended finance platform with MUFG

The Canadian pension's sustainability head reveals details of a vehicle to provide $1.2bn to low-income countries for climate adaptation infrastructure projects.

Canadian pension fund Caisse de dépôt et placement du Québec (CDPQ), is working with Japanese financial giant MUFG on a blended finance lending platform aiming to provide $1.2 billion to low and low-middle income countries for adaptation infrastructure projects.

Details of the project, which is still under discussion and not yet confirmed, were revealed last week by the C$392 billion (€292 billion; $283 billion) fund’s global head of sustainability, Marc-André Blanchard. 

Speaking on an online panel convened by the Net Zero Asset Owner Alliance (NZAOA) on scaling blended finance climate solutions in emerging markets, Blanchard said: “One example of what we’re doing at the moment at CDPQ is working with MUFG Mitsubishi, the Japanese financial institution, and the Green Climate Fund (GCF) and many other partners such as FinDev Canada to create a lending platform in adaptation infrastructure.” 

GCF is the South Korea-based climate fund established in 2010 under the UN Framework Convention on Climate Change to take donations from wealthier nations to finance initiatives in less developed countries.  

FinDev Canada is a financial group created to catalyse private-sector investment in developing markets. The Montreal-based firm is a wholly owned subsidiary of Export Development Canada, Canada’s government-owned export credit agency.  

The project was described by Blanchard as a “humongous task”, one that is “almost impossible” for any institutional investor to do alone.  

“It’s unthinkable,” he said. “Just 10 years ago we were buying stocks on the public market and buying bonds and now we’re into developing projects like this.”  

When asked for more details about the platform, a spokesperson for CDPQ told Responsible Investor that the fund only comments on specific investments once they have been completed.  

But according to a document put out by MUFG in June, the “fundamental objective” of the platform – referred to as GAIA – is to “deploy its public-private financing capacity into meaningful low-carbon, climate adaptation and mitigation assets, across a range of vulnerable countries, at a scale and scope far beyond the conventional appetite of its constituent financing partners”. 

The “innovative” platform will include “a de-risking mechanism through a junior concessional debt tranche, partial credit guarantees and foreign exchange hedging, that will serve as a blueprint to scale climate finance from institutional investors in emerging markets”, the document revealed. 

Blended finance push

Last month, the NZAOA – of which CDPQ is a member – called on policymakers to do more to facilitate the scaling of blended finance structures and laid out five recommendations urgently needed to “incentivise and utilise blended finance structures at scale”. These are necessary, the initiative argued, if the world is to achieve international climate and sustainable development goals. 

Blanchard stated on the panel that one of the biggest issues CDPQ had faced when it comes to investing in emerging markets was finding “de-risking instruments for foreign exchange” and identifying “bankable projects”. This was partly the driver for the need to create the fund’s own platform, he said.  

“We are institutional investors; we’re not in that business. We know very little about that, and we need the knowledge of the [multilateral development banks] and all of those involved in this to develop bankable projects,” he told attendees.  

According to MUFG’s document, the Japanese firm would act as the project’s accredited entity and key executing entity alongside CDPQ and FinDev Canada, with the three entities “exercising control of GAIA through contractual and supervisory relationships”. 

The GCF describes accredited entities as those that partner with it to implement projects, including carrying out “a range of activities that usually include the development of funding proposals and the management and monitoring of projects and programmes”. 

Earlier in the NZAOA discussion, Blanchard stressed the need to do things differently “if we want to move from billions to trillions” when it comes to climate finance in emerging markets.  

“If you look at the last five years, we’ve gone backwards, not forwards in many ways in terms of investment flows and movement of capital,” he said.  

As to why blended finance vehicles have not taken off at scale, Blanchard raised the often-cited issue of unsuitable risk-return profiles, but he also highlighted the lack of trust between the private sector, governments and multilaterals. 

“We need to change that,” he said. “We have no time to quarrel. Let’s assume the good faith of everyone. Of course, the private sector will want to be paid for the risk it’s taking. But we’re also there because we believe that it’s necessary to better align capital with sustainable development.

“It’s about working differently and thinking that partnerships that were unthinkable a few years ago are now thinkable.”