The European Bank for Reconstruction and Development (EBRD) and Dutch pension fund PGGM have formed a partnership to jointly mobilise €250 million of European pension fund capital.
The investments will support the transition to more sustainable, low-carbon economies across the EBRD’s regions of operation, which cover Central and Eastern Europe, the Middle East and North Africa. They will also focus on climate finance and areas that support the Paris Agreement goals.
PGGM will provide capital on behalf of Pensioenfonds Zorg en Welzijn to invest in climate finance over the next three years, with the goal of scaling up its exposure to the asset class.
The announcement comes as multilateral development banks (MDBs) come under pressure to increase their engagement with institutional investors in order to scale up transition and adaptation financing for developing economies.
Daniel Borrego-Cubero, EBRD’s head of debt mobilisation product development, oversaw the partnership with PGGM.
“We are looking to maximise private sector participation on the funding side,” he told Responsible Investor. “One of the ways that MDBs are doing this is by working with more private sector institutional investors, in particular pension funds.”
The EBRD entered into a similar partnership with Dutch fund manager ILX Management in January. The two organisations launched an institutional co-investment programme to mobilise €500 million of European pension fund capital.
ILX invested on behalf of European pension providers, such as APG Asset Management. The investments were aimed at climate finance as well as other areas supporting the UN’s Sustainable Development Goals.
The EBRD’s partnership with PGGM will work in a similar way to that with ILX, with the pension fund investing in B loans arranged by the bank.
“The EBRD signs between €750 million and €1.2 billion B loans per year, and we know where we typically generate those assets in terms of sectors and countries, as well as which of them generate investor interest,” said Borrego-Cubero. “We’ll be showing those assets to PGGM as the pipeline develops.”
On the arrangement with PGGM, Borrego-Cubero said: “We thought they would be a perfect partner for us to engage in this initiative. They have long-term assets that they’re looking to invest, and there’s high stakeholder drive for more impact investing in the Netherlands.”
He added that the EBRD wanted to exploit the pension fund’s drive for impact assets, since it is similar to the type of activity MDBs engage with.
“We’ve known PGGM for a while – they’ve participated in B loans in the past and we wanted to ensure that there was increased collaboration between the two institutions, both internally and externally,” he said. “We want others to see what we’ve done and consider forming similar partnerships to invest in the sustainability space.”
The partnership will support the EBRD’s aim to double private co-financing by 2025.
This is the first time PGGM has established a formal partnership with an MDB. The pension fund’s emerging market credit investment manager, Ricky Singh, said there could be more collaborations in the future given the wide range of opportunities in the private debt space.
“We want to demonstrate to the market that we’re serious about impact investments and that there’s serious capital behind it,” he said. “We expect to see more deals with the EBRD and want to do more in terms of impact investing.”
Singh added that there is only so much PGGM can do in public markets, which is why the pension fund has been exploring the private debt market.
“We’re having ongoing discussions with various MDBs on individual impact investments, and we might do more partnerships in the future,” he said. “We feel this is a significant and ambitious commitment. If this goes well, you might see us upsizing this commitment to the EBRD or signing commitments with other MDBs.”
On future partnerships, Borrego-Cubero identified the Netherlands, Nordic countries and Canada as jurisdictions that are ahead in terms of impact investing and said the EBRD may look to work with them going forward.
“We plan to make similar deals in the future,” he said. “It’s very clear that the private debt space in emerging markets is something that needs to be explored more. We want to do more with private institutional investors, so this is part of that drive.”