A group of leading institutional investors has highlighted the role that international finance institutions and development banks can play in financing climate-resilient infrastructure projects – before they are sold on to pension funds.
The development institutions “may be better positioned” to assume development and construction risks for new projects than institutional investors with their lower risk tolerances, a group of 10 leading asset owners – with a combined asset base of $1.3trn – have said in a statement today (September 23) as part of the UN Climate Summit.
The summit, co-convened by investor backed environmental data body CDP, is taking place in New York this week and has already featured major climate statements from the likes of CalSTRS and the Rockefeller Brothers Fund.
Now major pension funds have written a joint letter to United Nations Secretary General Ban Ki-moon and heads of state and government highlighting the key role development institutions can take in the first stages of financing climate-resilient infrastructure.
“Such organizations,” they say, “could provide development and construction capital and then sell assets to institutional investors once they are operational thus making capital available again for these institutions to invest in further development and construction.”
And they suggest that governments too could make capital available by “monetizing” existing operating assets. The risk-return profile of existing operating assets is seen as attractive to institutional investors as they better match the risk profile of pension liabilities.
The investors add that such assets can provide a good match for their long- duration, rate-sensitive liabilities. But, to attract capital, the investments must compete favorably on a risk-return basis versus other investments, they argue, adding they must provideadequate returns for the risks being taken and fit within investors’ mandates, risk appetite, and capabilities. In short: “They must meet our return and cash yield needs.”
A feature of the initiative is that senior figures (see below) from each investor have signed an individual statement committing to “identify and evaluate” investment opportunities in climate-resilient infrastructure.
They also commit to consider climate change and sustainability in the “design, construction and operation” of their assets – in line with “fiduciary responsibilities to act in the best long-term interests of our beneficiaries”.
The investors call for governments to set long-term infrastructure strategies/policies that provide “credible pipelines” with attractive long-term and inflation-protected cash flows. And they also want an effective and transparent policy and regulatory environment.
Signatories to the statement for the Climate Summit:
- AIMCo – Leo de Bever (CEO)
- British Columbia Investment Management Corp. – Gordon Fyfe (CEO/CIO)
- CalPERS – Ted Eliopoulos (CIO)
- CalSTRS – Christopher Ailman (CIO)
- Government Employees Pension Fund (South Africa) – Adrian Bertrand (ESG Manager)
- New York State Common Retirement Fund – Thomas Napoli (NY State Comptroller)
- NZ Super Fund – Adrian Orr (CEO)
- New York City – Scott Stringer (NY City Comptroller)
- Ontario Teachers’ Pension Plan – Ron Mock (President & CEO)
- PensionDanmark – Torben Moger Pedersen (CEO)