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Prince Charles lead ‘P8’ pensions powerhouse heads to Washington for sustainability push

Meeting aims to structure investment products for developing countries and start capital flows.

A group of the world’s biggest pension funds brought together privately by HRH Prince Charles, the Prince of Wales, and known informally as the P8 – an allusion to the G8 group of the world’s industrial superpowers – is to meet in Washington next month with the aim of creating viable investment vehicles that could be used to simultaneously combat climate change and promote sustainable growth in developing countries. The meeting will be hosted by the Washington-based International Finance Corporation (IFC), part of the World Bank Group, which provides investment and advisory services to build the private sector in developing countries.
The IFC is leading the push by the P8 to come up with practical investment solutions that could meet the twin objectives of providing infrastructure such as energy and clean water at low carbon levels in developing countries because of its related experience in structuring profitable investments and researching companies and risks in regions such as Africa, Asia, South America and Eastern Europe. The P8 group – actually ten pension funds collectively managing $3 trillion in assets: three from Europe, three from Asia, three from the US andone from Australia, includes the Universities Superannuation Scheme in the UK, ABP, the giant pension plan for Dutch civil servants, as well as CalPERS and CalSTRS, the two largest US pension funds, which manage the retirement pots of Californian civil servants and teachers respectively. Rachel Kyte, vice president, advisory services at the IFC and a respected leader in both climate change and development investment, said the aim of the Washington meeting was practical solutions that would underpin this year’s Copenhagen intergovernmental summit to find a successor to the Kyoto Protocol: “The Danish government, ahead of Copenhagen, has become very interested in looking at strategically pushing initiatives that may be able to leverage significant amounts of private finance. It’s an essential element ahead of the political deal to be struck. At the moment, its difficult for political leaders in developing countries to say what this so-called climate change driven development is going to look like when maybe 80% of the population has no access to electricity or clean water and yet they’re being told to grow in a less carbon intensive way. That’s one of the big conundrums

in the Copenhagen negotiations. If you can’t visualise what the development looks like then it’s very difficult to negotiate towards that endpoint. We need to be able to show to a sceptical developing world that in fact money will flow. We have institutional investors that want to commit long-term capital to this area because of its steady return prospects. We’re interested in instruments, whether they are funds or funding facilities that can combine with the IFC’s ability to source projects, know the investment landscape and risks in developing countries and bring projects to the table where the P8 could be associated. I don’t have any strong views about exactly how the mechanism would work. For example, though we’ve had a lot of experience in debt structuring for projects where the different risk appetites of investors can be accommodated.That might mean that the IFC or another donor organisations takes the first loss position, the mezzanine could be taken up by IFC and the senior debt be taken by banks or institutional investors. We’ve used this for energy financing in Eastern Europe and school and health financing in Africa.” Responsible Investor first reported the creation of the P8 group in December, 2007. The group recently also said it had formulated a plan to be sent to global policy makers with the aim of lobbying for the best possible regulatory and financial environment that would enable pension funds to start using their financial muscle as long-term investors to increasingly take stakes in companies developing sustainable energy solutions.

A full interview with Rachel Kyte of the IFC will be published on Responsible Investor next week.