World Bank aims to structure joint climate change products with pension funds

Bank examines asset allocation with pension funds to find appropriate products.

The World Bank is in discussion with a group of the world’s biggest public sector pension funds about ways to structure joint investment products that could channel billions of dollars into the fight against climate change.
Kenneth Lay, vice president and treasurer of the World Bank, told Responsible Investor: “We are working with many public sector pension plans, and they are telling us that at the moment that they do not see the opportunities of scale for investing in climate solutions, only smaller venture capital type investments. What we are doing is sitting down with them to examine their asset allocation strategies and see how we can structure product that will meet their needs and match the risk and return profiles of pension funds.” Lay, who addressed last week’s SRI in the Rockies conference in Canada, said the discussions included US pension giant CalPERS and CalSTRS, as well as funds from Europe. He said the bank was responding to “buy-side” pressure and that pension funds were increasingly seeking to allocate large pools to renewable energy and clean technology projects. He said the World Bank had earmarked $6bn for climate change investment funds and was now looking how to leverage that amount using private capital. Lay said it was likely the bank would develop debt and private equity type products to meetthe institutional demand. He said the World Bank initiative was prompted by an acknowledgement of the magnitude of resources needed to address the problem of climate change: “The UN says it needs one trillion euros per annum, and so far we are not seeing anywhere near that.” The World Bank currently issues about $15-20bn in bonds every year for projects and Lay said institutional investors were interested in how bonds are being structured that incorporate socially responsible and environmental themes. One example, he said was a AAA rated coupon issued in Japan that involved carbon credits for the greening of a Japanese energy plant. Another, he cited was a sustainable office building project in the Netherlands, which offered investors a 3% return.
In June this year, Rob Lake, head of sustainability at APG Investments, the €250bn fund manager of Dutch pension fund ABP, said institutional investors were unable to take advantage of increasing numbers of interesting sustainability investment proposals because they are not packaged for appropriate scale and due diligence requirements.
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