KLP goes ‘dark green’ with new Macquarie infra debt fund

Norway’s largest pension hopes other pension funds will commit to the new vehicle, which will invest in loans with tenors as long as 20 years.

KLP, Norway’s largest pension fund, has committed €200 million to a new infrastructure debt fund it says is tailor-made to its “green requirements”.

“We were, even after a thorough search, not able to find a solution of this type that was sufficiently green, so we had to develop it ourselves,” KLP’s chief financial officer Aage Schaanning said in a statement.

The Macquarie Green Energy Debt Fund, which has been launched and will be managed by Macquarie Asset Management’s private credit team, will invest in solar, wind, hydropower and sustainable energy storage, primarily in OECD countries, but with the option of investing up to 25 percent of the total capital raised in non-OECD jurisdictions. It will invest in loans with very long tenors, up to 20 years, “a segment of the market that is expensive for banks to hold on their books due to high capital charges”, Schaanning said.

In addition, the fund will make investments that are aligned with the EU Taxonomy for Sustainable Activities and that can demonstrate their contribution towards reaching international climate goals.

“There will be internal due diligence of the project(s), considering material environmental, social and governance issues, following established best practices, such as the application of the IFC performance standards,” Schaanning told Infrastructure Investor. “Each project will furthermore be assessed for compliance with the EU taxonomy,” he added.

Asked what the difference between “dark green” and green infrastructure is, Schaanning replied: “With ‘dark green’ infrastructure, we refer to any technology that today is zero emission or close to zero emission. In other words, it is solutions that themselves are considered green today as well as several years into the future.

“Light green infrastructure would rather be a more transitional technology – as some will argue that gas switch from coal is – or existing infrastructure that has material emissions today but has a concrete, verifiable plan to reduce emissions in accordance with Paris-aligned emission trajectories.”

KLP has been working towards increasing its climate friendly investments for several years. Last year, it invested NKr8.8 billion ($1.1 billion; €867 million) in such assets, nearly NKr3 billion more than it had invested annually in previous years. At the end of 2020, the market value of KLP’s climate friendly investments totalled NKr52.2 billion, Schaanning said.

In addition to renewables, KLP’s definition of climate friendly investments includes sustainable forestry; green buildings; zero emission fuels (which in KLP’s case is ammonia); green bonds; as well as climate mitigation measures in the form of water and wastewater infrastructure, Schaanning explained.

While KLP also invests in other infrastructure subsectors, the pension fund does not have a portfolio or category dedicated solely to the asset class.