With its investment in Climate Investor One, Aegon Asset Management has helped bridge the mismatch between renewable energy projects and institutional investor requirements.
The international movement to prevent rising global temperatures from exceeding 2°C above pre-industrial levels is currently underway. While few would deny the need to accelerate the development of renewable energy projects, until now, few of these investments met the funding criteria of investors - particularly institutional investors.
Climate Fund Managers, a partnership between the Dutch Development bank and specialist infrastructure business Phoenix InfraWorks, worked together with Aegon Asset Management and other organizations to put together a unique investment model called Climate Investor One (CIO), which satisfies the requirements of institutional investors. The first in a series of climate finance initiatives, CIO will focus on Solar, Wind and Run-of-River Hydro renewable energy projects targeting Africa, Asia and Latin America.
Institutional investors need impact investments to meet their 'normal' risk and return requirements.Hendrik Tuch
Growing demand for impact investments
"Over the last few years, we have seen an increase in the demand for impact investments from our clients," explains Hendrik Tuch, Head of Rates & Money Markets at Aegon Asset Management."At the same time, institutional investors need impact investments to meet their 'normal' risk and return requirements. Mandates do not allow us to sacrifice investment yield or increase the risks in our portfolios."
CIO offers a new approach to the funding of infrastructure, which enables environmental impact, economic returns and operating infrastructure to be delivered in a faster and simpler manner.
Three funding stages
It combines three investment funds into one facility to finance renewable energy projects during the three stages of the project lifecycle: early-stage project development services & financing, equity financing through construction, and long-term debt once the project is operational. This approach allows CIO to implement more projects to market, delivering positive environmental and social impact sooner.
In addition to expertise, Aegon Asset Management's commitment of EUR 50 million, represents around 8% of the facilities funding to date. The investment was made via its Government Related Investment Fund (GRIF), that aims to achieve at least 50% of its investments in impact-related activities.
The positive social impact of CIO will be significant, with the creation of more than 10,000 new jobs through 20 renewable energy projects. At the same time it will achieve an estimated annual avoidance of 1.8 million tons of CO2 emissions, the equivalent of hundreds of thousands of cars off the roads each year.
Attractive risk-adjusted returns
"Expected high growth of emerging markets; the growing need for new power generation capacity; abundant renewable energy resources; and attractive risk-adjusted returns, also make this a solid investment for our customers," says Tuch. "I believe that we will see further growth of impact investments such as CIO in our portfolios, as these investments fit the risk and return profile of our clients."