Investing in climate change mitigation should be ‘obligatory’

Institutions recognise the need for climate investing but not necessarily the scale required, says Climate Fund Managers CEO Andrew Johnstone.

The $850 million raised by Climate Fund Managers for renewables projects in Africa, Asia and Latin America will need to be “supersized” with similar commitments from other fund managers if efforts to tackle global warming are to be effective, chief executive Andrew Johnstone told Infrastructure Investor.

Fundraising was completed last week for the $800 million Coöperatief Construction Equity Fund and the $50 million Stichting Development Fund, which together comprise Climate Investor One. The vehicles exceeded their original combined target of $530 million after two years of fundraising.

Funds have already been deployed to projects worth $150 million, Johnstone said, with a pan-Asian rooftop solar platform and a 42MW hydropower project in Uganda having received construction financing. The blended finance vehicle aims to deliver 1.7GW of renewable capacity. However, Johnstone believes this needs to be the start of a larger programme.

“Investing in climate shouldn’t be a discretionary thing, it should be an obligatory thing. It’s got to be done,” he said. “Institutional investors recognise that, but many investors don’t necessarily recognise the scale of it.”

Johnstone said that efforts to mitigate the impact of global warming would require $480 billion of financing if they were to prove effective. “The impact we are having is proving it can be done,” he said. “The next step is taking it supersized and convincing the market we need 500 Climate Investor Ones.”

Climate Fund Managers, a joint venture between the Dutch development group FMO and South African financial services firm Sanlam Group, raised the funds from 17 investors. Johnstone said that 80 percent of these were from the private sector, including institutional investors.

“We are able to take that capital into places where normal commercial investors don’t go,” he added. “The same types of investors you’d find in a traditional infrastructure fund are the investors in Climate Investor One, together with a community of development finance institutions. This is what makes Climate Investor One quite different from a traditional infrastructure fund. You’ve got pension funds, DFIs, but in addition we also have the Green Climate Fund, the European Commission, the Dutch government and the US government through USAID. It’s different types of capital for a common climate outcome.”

Johnstone said investors such as pension schemes in the Construction Equity Fund are given downside protection by the Development Fund which takes on the riskier elements. He added that the presence of the regional development banks and the European Commission would give the commercial investors confidence.

Johnstone explained that the closing also represents the start of a “journey”.

“This is the beginning of a series of initiatives,” he said. “We do See Climate Investor One, Two, Three, Four and Five across the climate investment landscapes.”