Mobilising
institutional capital
towards the SDGs anda Just Transition
FULL REPORT | WORKSTREAM B

W e a r e g r at e f u l to o u r f u n d e r s f o r t h e i r f i n a n c i a l s u p p o r t f o r t h e I m pact Ta s k f o r c e.

Contents
Acknowledgements

4

Executive Summary								Harnessing the power of financial markets for public good6

A Just Transition fit for the future

6

Activating markets towards the SDGs and a Just Transition

7

Mobilising capital at scale towards the SDGs now

7

Recommendations

8

Foreword

10

Introduction
G7 context for Workstream B

11

Impact Taskforce context for Workstream B

11

Workstream B report12

Who is this report for?

13

does more capital need to move faster towards the SDGs?
1 Why
An immediate opportunit y to advance a Just Transition
1.1 Section summary and key takeaways

14

1.2 Harnessing the power of financial markets for public good

16

1.2.1 Leveraging ESG and impact investment for the SDGs

16

1.2.2 Financial market key actors need to move simultaneously

18

1.3 A Just Transition fit for the future20

1.3.1 Background on Just Transition20

1.3.2 Overview of select global Just Transition initiatives to date27

1.3.3 Just Transition foundational considerations30

1.3.4 Integrated Just Transition Elements fit for the future31

1.3.5 Who are the key actors driving a Just Transition?

31

1.4 The opportunity to finance a Just Transition32

1.4.1 Funding needs and opportunities

32

1.4.2 Possible investment strategies for Just Transition finance39

1.4.3 Overview of select financing initiatives that align with a Just Transition41

are the units of action for moving markets
2 Whattowards the SDG ?
s

2.1 Section summary and key takeaways

43

2.2 Activating markets towards the SDGs and a Just Transition

44

2.3 Background to the scope of this report45

2.3.1 Why this report focuses on institutional investors

45

2.3.2 Why this report focuses on emerging markets

45

2.3.3 Why this report focuses on investment vehicles

46

2.3.4 Why this report prioritises private asset classes and fixed income

46

1

Mobilising institutional capital towards the SDGs and a Just Transition

2.4 Institutional investors are critical to achieving the SDGs

50

2.4.1 Overview

50

2.4.2 Institutional investors’ key barriers to investing in emerging markets in private transactions

56

2.5 The role of blended finance in structuring solutions

69

2.5.1 Overview of blended finance69

2.5.2 Overview of blending types

69

2.5.3 Blending trends

71

2.6 I nstruments and tools to accelerate and expand the flow and effectivenessof capital into investment73

2.6.1 Subordinated capital73

2.6.2 Guarantees

74

2.6.3 Insurance

76

2.6.4 Securitisation

77

2.6.5 Local currency financing

78

2.6.6 Performance data and information

80

2.6.7 Partnerships

80

do we mobilise capital at scale towards the SDG now?
3 How
asset class guidance for Just Transition Financing vehiclessfor institutional investors
3.1 Section summary and key takeaways

85

3.2 Using familiar vehicles for more effective alignment with the SDGs andto deliver a Just Transition86

3.2.1 The key actors in Just Transition financing vehicles: Roles and value propositions

87

3.2.2 Vehicle dimensions

92

3.3 Just Transition Blueprint for investment vehicles

93

3.4 Just Transition investment vehicles by asset class104

3.4.1 Overview

104

3.4.2 Private equity vehicles

106

3.4.3 Private debt vehicles

115

3.4.4 Infrastructure vehicles

125

3.4.5 Real estate vehicles

132

3.4.6 Bond vehicles

138

3.5 Just Transition outcomes

145

3.5.1 Threshold questions

145

3.5.2 Guidance

147

4 Recommendations2

4.1 Urgent and coordinated movement151

4.2 Environmental and social integration for a Just Transition

151

4.3 Mobilisation

152

4.4 Transparency

155

Note on recommendations

155

Contents

5 Main references

156

6 Appendices
6.1 A
 ppendix 1: Geographic considerations for emerging markets
investment approaches – the examples of South Africa and India

166

6.1.1 Starting point and transition trajectories

166

6.1.2 Country-specific energy transition frameworks

166

6.1.3 Country-specific social transitions

167

6.2 Appendix 2: Select COP26 finance announcements

172

6.2.1 Private funding announcements

172

6.2.2 Public funding announcements

172

6.3 Appendix 3: Select initiatives helping to progress a Just Transition by country/region

174

6.4 Appendix 4: Available resources on reflecting community voices in fund design

180

6.5 Appendix 5: Individual acknowledgements

181

6.6 Appendix 6: List of acronyms

184

3

Acknowledgements

Report authors• Nick Robins, Professor in Practice for
Sustainable Finance, Grantham ResearchInstitute on Climate Change and the Environment,
London School of Economics•L aurie Spengler, Board Member and Lead
Expert, Impact Investing Institute• S oVonna Day-Goins, Global Head of Social
Sustainability, Credit Suisse

The Impact Investing Institute would like to thankthe following for their contributions to this report:• Leonie Arnoldi, Consultant•R ory Moses, Consultant• A aron Levine, Senior Financial Sector Specialist,
International Finance Corporation

Secretariat(Impact Investing Institute)• Adam Wolfensohn, Managing Partner,
Encourage Capital•S arah Gordon, CEO• A isha R. Pandor, Co-Founder, SweepSouth•D
 avid Krivanek, Programme Manager• A lderman Vincent Keaveny, Lord Mayor of theCity of London• A rabella Phillimore, Consultant• Edward Upson, Programme Officer• Roisin Kennedy, Programme Officer• Ivan Tarkhanov, Programme Support• Lizzy Robins, Events, Communications andEngagement Manager• Joe Dharampal-Hornby, Public Affairs andMedia Relations Manager• G eorge Salmon, Communications andEvents Support•A dam Werlinger, Operations Manager• S u-Fang Hsiao, Relationships Coordinator•C lare Huggett, Executive Assistant

Impact Taskforce Workstream on
Instruments and Policies to Scale
Impact Investment

Chair
•D
 ame Elizabeth Corley, Chair, Impact Investing
InstituteImpact Taskforce Member and Senior
Advisor•L aurie Spengler, Board Member and Lead
Expert, Impact Investing InstituteTechnical Working Group•A
 lessandra Nibbio, Fund Manager, PPP
Mandates, BlueOrchard Finance• A mal-Lee Amin, Climate Strategy Director, CDC• Euan Marshall, Manager, Investor Engagement
Syndications, International Finance Corporation• Maria Teresa Zappia, Chief Impact and Blended
Finance Officer, Deputy CEO, BlueOrchard Finance4

Advisory Panel• A lexandra Basirov, Global Head of Sustainable
Finance for Financial Institutions Coverage, BNP
Paribas• A licia Seiger, Managing Director, Stanford
University Sustainable Finance Initiative• A nne-Marie Chidzero, CIO, FSD Africa
Investments• Audrey Choi, Chief Sustainability Officer,
Morgan Stanley• E liza Foo, Director, Impact Investing, Temasek• E lizabeth Boggs-Davidsen, Vice President,
Office of Development Policy, US International
Development Finance Corporation• E lizabeth Littlefield, Former Chair and CEOof OPIC, now DFC – the US Government's
Development Finance Institution• E ric Rice, Managing Director and Head of
Impact Investing, BlackRock• D r. Jeremy Gorelick, Strategic Advisor, Green
Finance Institute• Louisa Mojela, Founder and CEO, WIPHOLD• M arcus Svedberg, Investment Strategist, AP4• N adia Nikolova, Lead Portfolio Manager,
Development Finance, Allianz Global Investors• N aoko Ishii, Director, Center for Global
Commons, Professor and Executive Vice
President, University of Tokyo• N athalie Gabala, Regional Director, West,
Central, and North Africa, Mastercard
Foundation• N azmeera Moola, Deputy Managing Directorand Head of South Africa Investments, NinetyOneAcknowledgements•S hami Nissan, Head of Sustainability, Actis•S harmi Surianarain, Chief Impact Officer,
Harambee Youth Employment Accelerator•S tephanie Pfeifer, CEO, Institutional Investors
Group on Climate Change (IIGCC)•S tephen Brenninkmeijer, Chair, Supervisory
Board of the European Climate Foundation, andFounder, Willow Investments• Tim Macready, CIO, Brightlight Impact Advisory• Tracy Palandjian, CEO and Co-Founder, Social
Finance US•U che Orji, Managing Director and CEO, Nigeria
Sovereign Investment Authority (NSIA)

Observers•A mit Bouri, CEO, Global Impact Investing
Network (GIIN)• E mmanuel Faber, Former CEO, Danone, andPartner, Astanor Ventures• H iro Mizuno, UN Special Envoy on Innovative
Finance and Sustainable Investments• Jamie Broderick, Board Member and Lead
Expert, Impact Investing Institute• K risztina Tora, Chief Market Development
Officer, The Global Steering Group for Impact
Investment (GSG)• Nick Temple, CEO, Social Investment Business,
and Board Member and Lead Expert, Impact
Investing Institute• O livia Dickson, Board Member and Lead
Expert, Impact Investing Institute• Yushi Nagano, Deputy Director, Office for
Science, Technology and Innovation, and Digital
Transformation, Japan International Cooperation
Agency (JICA)

We would like to thank the Chair, Expert Advisers,
Members and Observers of the G7 Impact
Taskforce Steering Committee, as well as theindividuals listed in Appendix 5 to the present
report, for their valuable input.
We are grateful for funding for the G7 Impact
Taskforce from the Foreign, Commonwealth andDevelopment Office’s IMPACT Programme, theEQT Foundation and BNP Paribas.

5

Executive SummaryThe achievement of global priorities –delivering the United Nations’ Sustainable
Development Goals (SDGs) and delivering
an inclusive recovery from the Covid-19
pandemic – will require increased cooperation andinnovative partnerships between governments, theprivate sector and communities.
As part of its presidency of the G7 in 2021, the UK

government mandated the Impact Taskforce (ITF)
to support the development of scalable financial
vehicles that harness private capital for public
good. The result is a set of actionable pathways for
greater amounts of capital to invest
in solutions that meet the long-term andinextricably linked environmental and social
needs of people and the planet.

Harnessing the power of financial markets
for public goodT

he current momentum moving capital
towards impact needs to be accelerated.
A concerted and urgent effort by all
actors is required to move funding –using relevant instruments and vehicles – into the
SDGs and transition to a Net Zero world in which
no one is left behind. This applies to investment
opportunities across the world and has particular
relevance for emerging markets.
Combined, environmental, social and governance(ESG) and impact pools of capital can help realise
an inclusive and sustainable world for all. We now

need to see much more of the vast 'traditional’
capital resources move into ESG and impact.
Achieving the SDGs depends on it.
Capital that ignores environmental consequences
and social inequity and dislocation will be
increasingly vulnerable to performance as well as
reputational risk. Conversely, capital that pursues
investment strategies in which environmental andsocial objectives are integrated not only mitigates
exposure to risk, but also expands the opportunity
landscape for capital to generate positive financial,environmental and social returns.

A Just Transition fit for the futureAs climate finance is galvanising attention,
there is an increasing consensus that asingle focus on reducing CO2 emissions
to achieve Net Zero is not sufficient andthat a shift in perspective to also include its socioeconomic impacts is essential. A Just Transition
that pays attention to our planet and its people isneeded in order to address climate change and its
effects on societies in a fair and inclusive way. This
will result in a thriving planet where no one is left
behind.
While the Just Transition needs to be universal andglobal, Just Transition pathways must be groundedin considerations of local needs, capacity andpriorities to ensure that they are inclusive, fair andequitable as well as to avoid poor or disadvantaged

6

populations becoming worse off. The requirement
to reflect locally-specific context does not dilutethe global relevance and power of, and need for, acommon understanding of what a Just Transitionmeans in practice.
This report introduces globally applicable Just
Transition Elements which, combined with a tailored
understanding of local implementation scenarios,
will support and drive further alignment acrosspublic and private actors. The three Elements –Climate and Environmental Action; Socio-economic
Distribution and Equity; and Community Voice –work together to ensure that capital meaningfully
contributes towards a Just Transition.
The Elements make clear ‘what good looks
like’. They will allow the global community toExecutive Summary

speak the same language when pursuing a
Just Transition and they invite, encourage andincentivise actions that can have the most impact
in local environments. Only through the adoptionof consistent Just Transition Elements can we
encourage creative and effective investment
approaches by private sector actors while fosteringtransparent assessment of where and to whom
capital is flowing.

Accelerating the flow of capital towards a Just
Transition builds on growing public and private
market awareness of the need to consider people
and the planet, offers tangibility to a concept withpositive resonance and strengthens investment
behaviour to integrate environment and social
considerations. The three Just Transition Elements
can be integrated both into existing and newinvestment vehicles and those yet to be designed.

Activating markets towards the SDGs anda Just TransitionThere is significant near-term opportunity
to mobilise and allocate capital at scale
among different investor types across the
spectrum of capital to help achieve theSDGs in general, and a Just Transition in particular.
This opportunity exists in both developed andemerging markets and across asset classes, within
existing investment products and those yet tocome to market.
Large-scale mobilisation of capital into emerging
markets by institutional investors is one of the mostpowerful ways of financing (and so achieving) the
SDGs and delivering a Just Transition. While a
Just Transition offers an immediate and relevant
opportunity to mobilise capital at scale, theinstruments and tools highlighted in this report
have application across the SDGs. They can andshould be tapped to accelerate the volume andpace of capital flowing to meet the needs of people
and the planet.
Multiple external and internal investor barriers
currently limit the flow of this potentiallytransformational capital. Although it is important toaddress the barriers that institutional investors face,and structure investable vehicles that respond totheir needs, institutional investors themselves needto act for progress to happen at scale.
Many of the barriers holding some institutional
investors back can be overcome with existing
tools and instruments, often used in combination.
Successful approaches and modalities need to be
expanded so that more institutional investors canparticipate and deploy capital. Efforts can, in thefirst instance, be concentrated on dialling up themany effective existing structures. Perhaps the mostpromising is the increased use of guarantees andinsurance coverage at a portfolio and vehicle level.
Concerted and coordinated action is now requiredby both asset owners and asset managers – andall the other actors that support them – to use
existing, or create, pathways to enable institutional
capital to flow at the scale and pace required towhere it can have most impact. Regardless ofdifferent starting positions among asset owners
and managers, everyone can – and needs to – doa lot more to meet the magnitude of the challenges
confronting people and the planet. Current barriers
to investment must not be an excuse for inaction– they now need to be a catalyst for engagement
and, where needed, innovation.

Mobilising capital at scale towards the SDGs now

T

his is the moment for institutional investors
to move beyond their comfort zones,
utilising and combining the instruments
and tools that will enable them to deploy
increasing amounts of capital into SDG investmentsin emerging markets. Multilateral developmentbanks (MDBs) and bilateral development financeinstitutions (DFIs) play a particularly important rolein mobilising private capital at scale and this roleshould be encouraged and augmented, not onlyby the institutions themselves, but also by theirshareholders.
The Just Transition Blueprint and accompanying
Principles proposed in this report provide atangible starting point for developing investment
vehicles that align with the Just Transition Elements
and can help achieve the SDGs.
The Blueprint provides a robust and comprehensive
framework to shape a vehicle’s ambition, investment

7

Mobilising institutional capital towards the SDGs and a Just Transition

strategy, structure, outcomes' framework,
governance and operations. It also offers clear,consistent and accessible means to demonstrate
and monitor throughout a vehicle’s lifecycle how it
is helping to deliver Just Transition outcomes.

Case studies and examples featured in thisreport illustrate how vehicles can pursue boldenvironmental and social impact and be attractive
to institutional investors – at times with the use ofblended finance.

A range of investment vehicles already exist (acrossasset classes) that – while not labelled explicitly as
Just Transition vehicles – successfully demonstrateadherence to some, or even most, of the Just
Transition Elements and the Principles of the
proposed Just Transition Blueprint.

The report also shows how an existing vehicle canundertake modest adjustments to be fully alignedwith the Just Transition Elements and Principles.
It presents ideas that asset managers and owners
can use to develop and participate in new vehicles.

RecommendationsT

his report delivers action-oriented
recommendations, tailored for different
public and private financial sector actors.

We call on all parties participating in andinfluencing global financial markets to mobilise
investment to support the achievement of theSDGs in general, and a Just Transition in particular.
Mobilisation will be through vehicles and structuresthat can successfully deliver investment at scale.
These vehicles and structures will mobilise capital toachieve the SDGs, with a significant subset fulfilling
the three integrated Just Transition Elements:
Climate and Environmental Action; Socio-economic
Distribution and Equity; and Community Voice.
We call specifically on G7 Foreign and Development
Ministers to amend objectives of MDBs, DFIs
and other development banks and agencies tohave a capital mobilisation objective of equal
weight with balance sheet investment. This entails
structuring incentive mechanisms that promoteevery mobilised dollar as receiving at least as muchrecognition as every dollar invested on its own
account. Making mobilisation a co-equal objective
will have implications for the business models of
the MDBs and DFIs. Therefore, we call on the G7
shareholders to provide additional financing support:
to expand project pipeline capabilities; to expand
the investment tools within these institutions,
including capital to be used by the MDBs and DFIs
for risk mitigation instruments that address the risk
(perceived and real) of institutional investors; andto provide concessional capital where needed to
expand blended finance solutions.
We call on the G7 Foreign and Development
Ministers to significantly expand the use ofguarantees, particularly in emerging markets.

8

Building on the established track record andexisting models of guarantee providers, werecommend investing to strengthen the balance
sheets of existing providers of guarantees. We
also recommend funding new entities at scale
to be domiciled in emerging markets to address
the specific challenges (e.g., risk barriers, real or
perceived) limiting investment of more institutional
capital, domestic and international, in thosemarkets including specifically Africa.
We call on asset managers to use the examples
offered in this report to design and bring tomarket more SDG and Just Transition productswith the objective of attracting more private
institutional capital. If they commit to this, as they
have to reducing portfolio carbon footprints by
2030, asset managers have the opportunity tomaterially increase the amount of capital flowing toinvestments that seek solutions aligned with
the SDGs.
We call on all asset owners to commit to pursuinginvestments in vehicles that demonstrably integrate
environmental and social objectives, including
those that integrate the Just Transition Elements.
They are also encouraged to increase their
exposure to emerging markets.
We call on all parties to take action now.
No matter their starting position, each actor canand should do more to participate in the solutions
that will build a more sustainable and inclusive
world for all. Commitments and pledges now need
to be translated into concrete actions.
The table below provides a roadmap for individual
actions which, when taken together, can deliver an
inclusive, resilient and sustainable future for people
and the planet.

Executive Summary

Urgent andCoordinatedMovement

Environmental andSocial Integration fora Just Transition

Ecosystem
builders

Advisors

Impactinvestors

Assetmanagers

Institutional
asset owners

MDBs/DFIs

G7 policy
makersRecommendations

National policy
makers andregulators

Audience

Move together at once
Build momentum
Recognise the imperativeof a Just Transition,
integrating environmental
and social objectives
Engage with and apply the
Just Transition Elements
Accelerate private capital
mobilisation towards the
SDGs

Mobilisation

Demonstrate commitment
to the SDGs
Strengthen the enabling
environment for SDG
investments

Transparency

Demonstrate best-inclass Just Transition
investments

9ForewordI
Dame Elizabeth Corley
Workstream Chair

Laurie Spengler
Senior Advisor

10n 2021, there has been a transformational sharedrecognition of the need to address the crises thatpeople and the planet are facing. These include
climate change, structural inequity and Covid-19.
Even more importantly, there has been a powerfulrealisation of the interconnectedness between
places and people across the globe. Confronting
a pandemic in every corner of the world has
shown that is not possible to view people as living
in separate, disconnected communities. Can we
use this enlightened awareness of our sharedexperience and needs to achieve positive results
for all? Can we invest the effort and resources
required to address the root causes of thesecrises rather than merely treating the most visible
symptoms?

The Impact Taskforce (ITF) has accepted thechallenge to consider these questions. It ispresenting actionable pathways for mobilising
greater amounts of capital to invest in solutions
that contribute to meeting the long-term needsof people and the planet. In developing thesepathways, Workstream B of the ITF has focused
its efforts on an area of activity that is galvanising
global attention – climate finance. We havechallenged ourselves to identify ways to mobilise
more capital that advances social objectives as well
as reduces carbon emissions. Simply put, unlesscommunities are supportive of climate solutions
being advanced, progress won’t happen. The
needs of communities, and the people, households
and businesses that live and work in them, must be
front and centre for climate finance to be effective.

The ITF’s starting imperatives are two-fold:
1 That more institutional capital must be invested
in a future that works for all
2 That climate finance must deliver equitable andinclusive pathways to a Net Zero world, in which
no one is left behind
These imperatives, in turn, reflect two fundamental
points:• Deep, sustained and real inclusivity must bridge
the North-South divide as well as power andresource gaps determined by gender, race andother determinants of exclusion• Climate and environmental solutions meet theneeds of the planet only if they address the needsof people, particularly those not always seen orheard
It is key that all actors adopt a simultaneous
approach to achieving the SDGs and a Just
Transition. No one should wait on others to takethe first step. By moving in concert, capital can be
unlocked at the necessary scale and pace. What isparticularly hopeful about the recommendations of
the G7 Impact Taskforce is that the proposed actions
are grounded in tangible examples of what is alreadyworking to move capital towards the SDGs.

Dame Elizabeth Corley Laurie Spengler
Senior Advisor
Workstream ChairIntroduction

G7 context for Workstream BThe achievement of global priorities –delivering the United Nations' Sustainable
Development Goals (SDGs) and delivering
an inclusive recovery from the Covid-19
pandemic – will require increased cooperationand innovative forms of partnerships between
governments, the private sector and communities.
Many interpret this statement of reality as anopportunity for positive change; others as a way
to avoid existential climate, environmental andsocial risks. Both interpretations lead to the sameconclusion – action is necessary, and on a scale
and pace not yet seen.
G7 members states have been at the forefrontof the development of policy and regulatoryenvironments that help increase the flows ofprivate investment in businesses, social sector
organisations and projects that aim to generateand deliver positive, measurable outcomes.
In particular, since the launch of the Social Impact
Investment Taskforce in 2013, the G7 has highlighted
the importance of innovative financial approaches,
including impact investment, to achieve better
sustainable development outcomes.
Eight years later, in 2021, there is a greater needthan ever for governments and investors tocollaborate and use policy instruments, and public
and private financing, to tackle the climate andenvironmental crisis and the long-term impact of theCovid-19 pandemic. Mainstreaming sustainable andimpact investment would significantly help toaddress social and environmental challenges.
At the same time, the urgency and momentum
around the climate crisis create an opportunity toincrease – at scale – the amount of capital seeking
to achieve a positive environmental and social impact.

The Impact Taskforce context for Workstream B

As part of its presidency of the G7 in 2021,
the UK Government mandated the Impact
Taskforce (ITF) in July to lead actionoriented discussions around two criticaland interrelated areas:
1 Impact transparency, integrity and trust
2 Support for the development of scalable financial
vehicles that harness private capital for public
good
The ITF was further invited to incorporate threecross-cutting themes (International Development
and Development Finance, Green-Social
Interdependence, and Diversity, Equity and Inclusion)
throughout its work and outputs.
To achieve the twin objectives highlighted above, the
ITF has divided its work between two Workstreams,
under the overall guidance of a Steering Committee
chaired by the Right Honourable Nick Hurd.

• The Workstream on Impact Transparency,
Integrity and Reporting (“Workstream A”) has led
the work on the critical need to harmonise andincreasingly bring transparent and consistentmeasurement to impact and environmental,social and governance investment pools, andprofessionally managed capital in general.
The Workstream has been chaired by Douglas L.
Peterson. See Workstream A full report.
• The Workstream on Instruments and Policies to
Scale Impact Investment (“Workstream B”) has
led the work on outlining actionable pathways tomobilise greater amounts of capital to invest in
solutions that contribute to meeting the long-term
and inextricably linked environmental and social
needs of people and the planet. The Workstream
has been chaired by Dame Elizabeth Corley.

11

Mobilising institutional capital towards the SDGs and a Just Transition

Workstream B reportR

eflecting the inextricable link between the
wellbeing of people and the environment,
combined with the size of the financing
challenge to achieve the SDGs,
Workstream B has adopted a thematic focus
on vehicles and structures that can successfully
mobilise institutional investment at scale. Within
this SDG thematic focus, specific attention has
been given to mobilising capital at scale to advancea transition to a Net Zero world that is inclusive
and socially beneficial for all. Although this has
global applicability, a particular focus is applied toadvancing a Just Transition in middle- and lowerincome countries, including in Sub-Saharan Africa.
This geographic focus is in line with the mandate of
the ITF and reflects the paucity of capital flowing tothese markets.
In considering the parties to be engaged to movecapital at scale, Workstream B has targetedmobilising more capital from institutional investors.
As the holders of the largest pools of investable
capital globally, increased participation of theseinvestors is path critical. Importantly, mobilising
capital from institutional investors catalyses
capital flows from both domestic and international
investors, and stimulates domestic andinternational capital markets. And yet, while they
are essential players in a successful action plan tofinance the SDGs, institutional investors cannot be
expected to act alone.
A central message of this report is that achieving
the SDGs and accelerating the volume and scaleof capital invested in social, climate and humancapital assets, will require concerted action fromall. This report pays particular attention to how
private and public actors can encourage andsupport institutional investors in playing theirpivotal role. The important role in mobilising capitalthat can be played by development banks as wellas bilateral development finance institutions is
specifically highlighted.

Momentum builds momentum when galvanisingmarkets. Market initiatives first honed in private
markets, ranging from thematic investing tostructural innovation, can and should be expected
to influence public markets. Similarly, initiatives
first developed within the impact investing market,
with its disciplined approach to risk, return andimpact, can and should be expected to influenceother parts and players of the global financial
markets. These factors of influence, which arehighlighted in the report, are already catalysing
action. They will also continue to be important for
expanding and accelerating flows of capital frominstitutional investors in pursuit of the SDGs and, inparticular, a Just Transition. By a Just Transition wemean a transition to Net Zero and environmental
sustainability that is fair and inclusive. A Just
Transition offers an immediate and relevant

12

opportunity to mobilise capital at scale, but the
instruments and recommendations put forward in
the report have application across the SDGs. Our
expectation is that they will be tapped to accelerate
the volume and pace of capital flowing to meet theneeds of people and the planet.
In the context of investing capital for public good,
we can build on the pioneering work contributed byexisting impact investing leaders – asset owners,
managers, policy makers, practitioners andecosystem builders – who have created a bodyof deals and results over the past decade. Theirefforts provide a base of tangible activity, examples
and best practice on which to build. Their work
helps to chip away at familiar reasons that haveheld back some investors from acting thus far.
Fundamentally, the type of concerted action
envisaged for a quantum leap in capital deployed
to advance the SDGs invites all parties to take a
step forward now without waiting for others.
As the report sets out, actionable pathways todeploy capital at scale are in our sights. We havethe map; the invitation is for each of us to take atleast one step forward along the path to financing
a sustainable, inclusive and resilient world for all
people and places.
To achieve these objectives and take up
this invitation, Workstream B has produced
this evidence-based report and associatedimplementation recommendations to:• Identify best practice• Stimulate more impact financing mechanisms
at scale• Demonstrate to decision makers how to integrate
a Just Transition approach into policy andinvestments
The report first emphasises the importance ofstructuring and marketing of financial instruments
and policies that scale investment which generates
positive impact for people and the planet. The
report further underlines how this supports a Just
Transition. Understanding the different starting
points across the globe for achieving a Just
Transition, the report places particular emphasison emerging markets. Importantly, the reportintroduces an explanation of ‘what good looks
like’ for a Just Transition, providing a common
understanding based on three integrated coreelements – Climate and Environmental Action;
Socio-economic Distribution and Equity; andCommunity Voice. An effective response tothese pressing needs will require determinedcollaboration by all – public and private players,
mainstream and impact investors, environmentalfirst and social-first strategies and managers, andall other actors operating in and influencing thefinancial system (Section 1).

Introduction

The report then highlights key features of current
market activity – focused on the expanding
opportunities to address barriers that limit capital
flows to positive impact. The report highlights
the tools, instruments and approaches that are
being used – and can be used at greater scale– to navigate existing barriers to unlock private
institutional capital at scale. More effective use ofexisting tools and instruments to mobilise capital atscale will enable enhanced collaboration between,
and among, actors (Section 2).
Above all, the report is highly practical andshowcases tools for mobilising capital at scale.
These tools take the form of guidance on how to
use existing instruments and ideas about possible
new pathways and instruments that would makeit easier for institutional capital to drive integrated
environmental and social outcomes. This reportprovides guidance that is tailored to different asset
classes and can be applied to existing and future
investment products, with practical examples
across these different dimensions. The examples
and guidance provide ways to foster more efficientand effective collaboration and so to mobilise more
capital at scale (Section 3).
Finally, this report delivers action-oriented
recommendations, tailored for the different
audiences of the report across public and private
sectors. The recommendations provide specificactions each audience can take that strengthen
their individual contributions and bolster greatercollaboration for positive and lasting outcomes.

Who is this report for?

T

his report has been written for all those
who are able to take further action in
response to global priorities. These actors
are invited to step up and contribute toincreasing the volume and pace of capital building
a sustainable and inclusive society for all. The
recommendations offered are constructively
presented, noting near-, mid- and long-term
implications. Reflecting a healthy dose of realism(not all actions can be undertaken immediately),
the recommendations offer a set of actions thatcan be undertaken individually by each identified
group. Actions taken by each group will have an
impact; together, the potential multiplier effect is
exponential.
In the first instance, this report provides
guidance for:• G7 policy makers• N ational policy makers and regulators• Institutional asset owners• M ultilateral development banks (MDBs) andbilateral development institutions (DFIs)• Asset managers• Impact investors• Advisors• Ecosystem builders• A ll other financial market actors

To ensure the relevance of the underlying analysis,
guidance and recommendations, the report wasdeveloped based on extensive engagement(see Appendix 5) with representatives from theabove audiences, to whom we would wish to
express our appreciation for their generosity ingiving time and sharing insights. In total, we haveengaged with 170 individuals, representing over
110 organisations.
In particular, we would like to thank the membersof the Technical Working Group and Advisory
Panel, the participants in thematic roundtables(including asset and fund managers, impact
investing National Advisory Boards and ecosystembuilders), as well as the stakeholders engaged
through bilateral discussions, who have provided
review, thoughtful suggestions and expert
feedback.
Our hope for the report is that it serves as a tool for
engagement to drive real change. The examples
shared and actionable pathways presented offer
substantive input to be taken up at decisionmaking tables of all types for those ready andmotivated to act now. Moving from talk to action
is not about promulgating a single policy orlaunching a moon-shot investment instrument or
introducing a capital allocation algorithm; rather, it
is about each of us using the tools we have at our
disposal today to bolster the wellbeing of all people
and the planet.

13

1

Why does more capital need tomove faster towards the SDGs?
An immediate opportunity toadvance a Just TransitionT

his section outlines why we need to mobilise institutional capital as a matterof urgency if we are to make material progress in achieving the SDGs; why
all actors influencing and participating in financial markets need to movebeyond their respective comfort zones if we are to achieve the SDGs; and why
financing a Just Transition offers a tangible, relevant and urgent opportunity to apply
our collective efforts and demonstrate what is possible in financing an inclusive andsustainable future for all.

1.1 Section summary and key takeaways
The current momentum moving
capital towards impact needs to beaccelerated
Capital currently on the sidelines needs to be
stirred into action towards the United Nations'Sustainable Development Goals (SDGs). A
concerted and urgent effort by all financial
market actors, including investors fromacross the capital spectrum – mainstream;
environmental, social and governance (ESG);
and impact – asset managers, rating agencies,
financial intermediaries and advisors, regulatorsand governments, is required to move the vastfunding amounts needed into the SDGs.

Action needs to be truly global,
spanning developed, emerging andfrontier markets

1

 ased on the World BankB
country classification system,
these include upper-middle
income countries, lower-middle income countries andlow income countries; allother countries are referredto herein as ‘developed’.
See World Bank (2021):“World Bank Country andLending Groups”; https://
datahelpdesk.worldbank.
org/knowledgebase/articles/906519-world-bankcountry-and-lending-groups

14

Rapid progress is needed on the SDGs
throughout the world. That said, particularemphasis and effort must be put on emerging
and frontier markets, where the funding
gaps are most pronounced and needs – andopportunities – are immense (for the purposeof the report the terms ‘emerging markets’ and'developing countries’ include both emerging
and frontier markets).1

ESG and impact investors areleading the packtraditional capital resources into these poolsof capital. Where and how these investors will
apply and invest those resources will determine
whether we achieve the SDGs.

The investment risks from ignoring,and the investment opportunities
from embracing environmental andsocial strategies are real
Capital that ignores environmental
consequences and social inequity anddislocation will be increasingly vulnerable
to performance as well as reputational risk.
Capital that pursues investment strategies inwhich environmental and social objectives areintegrated expands the opportunity landscapefor capital to generate positive financial,environmental and social returns.

The call for ‘Net Zero’
The world’s unprecedented recognition of theclimate crisis has increased the global appeal
for urgent and immediate action. The call for
a Net Zero climate agenda has been gaining
traction across the globe in recent years,
moving from the fringes to centrestage inpolitics and has also moved into the limelightin discussions of international financing flows,
including both public and private capital.

Combined, ESG and impact pools of capitaldemonstrate the potential realisation of an
inclusive and sustainable world for all.

Recognising the green-social
interdependence and resulting needfor a Just Transition

Traditional investors need to follow

Within the climate discussion there is increasingconsensus that a single focus of climate action
on Net Zero is not sufficient and that a shift in

The challenge is to move much more of the vastWhy more capital needs to move faster towards the SDGs

perspective to also include its socio-economic
impacts is essential. A holistic approach to a
Just Transition, paying attention to our planet
and its people, is needed in order to address
climate change and its effects on societies ina fair, inclusive and lasting way – resulting in a
thriving planet where no one is left behind.

Local context matters
While the Just Transition Elements are
relevant globally, local context will determine
how the Elements are put into action. Just
Transition pathways must be grounded in local
considerations of needs, capacity and priorities
to ensure that they are inclusive, fair andequitable, and to avoid poor or disadvantaged
populations becoming worse off. The
requirement to reflect locally-specific context
does not dilute the global relevance and powerof, and need for, a common understanding ofwhat a Just Transition means in practice.

Introducing foundational
considerations of a Just Transition
The report introduces and explains four
foundational considerations that should apply
to any solution that aspires to contribute to, andadvance, a Just Transition. Any Just Transition
action must: be both universal and placebased; apply across all sectors and be sector
specific; be all-inclusive and individually sociallybeneficial; and be dynamic and grounded in thecurrent situation.

Introducing three integrated
Just Transition Elements
The report further introduces three global ‘fit for
the future’ Just Transition Elements: advance
Climate and Environmental Action; improve
Socio-economic Distribution and Equity; andincrease Community Voice. The integrated
combination of the three Elements provides acommon understanding of what a Just Transition
requires. This consistent substantive explanation
will support alignment across public and private
actors and drive concerted and effective action.
Making clear ‘what good looks like’ will allow the
global community to speak the same language interms of pursuing a Just Transition while inviting,encouraging and incentivising actions that canhave the most impact in local environments.

Concerted Just Transition action isrequired across relevant actors
To achieve a Just Transition, simultaneous
effort and action across all segments ofsocieties are needed, in particular with respect
to key actors in the public sector, the private
sector and communities.

Just Transition funding needs
and opportunities are vast
By embracing the three Just Transition
Elements, there is a real chance to accelerate
the effectiveness of public and private financedeployed towards climate and socially
positive solutions. Applying the Just Transition
Elements invites investors from every partof the spectrum of capital to allocate capitalacross asset classes in order to contribute to
the change we need to achieve our people andplanet objectives.

MDBs and DFIs must play a leadingrole advancing Just Transition
finance
Multilateral development banks (MDBs) anddevelopment finance institutions (DFIs) canand must continue to go where the private
sector currently cannot using their status,
market networks and local expertise to create
investable pipelines, investment track records
and ultimately functioning markets, so thatprivate capital can follow. Their support isfurther needed at times to provide patient, risktolerant capital and capacity-building support inblended transactions.

Private investors across the
spectrum of capital and all financial
market actors need to support
integrated environmental and socialchange and a Just Transition
Traditional institutional investors, impact
investors, asset managers, intermediaries andadvisors need to contribute to the change
required to achieve our people and planet
objectives and a truly Just Transition.

Just Transition investment
strategies must embrace eachof the three Elements
A Just Transition requires an integrated andintentional financing approach to achieve a
global Net Zero economy that leaves no one
behind. Strategies can vary and have different
areas of priority or emphasis, but all three
Elements must be present to qualify as a Just
Transition investment.

Just Transition investments varyand can span most sectors
As strategies can be anchored in or led by
the climate and environmental or the social
Element, the resulting breadth of possible
Just Transition investments is substantial.
Possibilities go far beyond the (obvious)
renewable energy generation projects, energy
efficiency investments and sustainableinfrastructure; Just Transition investments

15

Mobilising institutional capital towards the SDGs and a Just Transition

can extend, for example, to financial
inclusion strategies targeting microfinanceinvestments, fintech and climate adaptation
insurance, healthcare strategies that include
energy efficiency improvements, green built
environment strategies that target educationaland other social infrastructure, as well as
strategies that target the growing pool ofnature-based solutions.

Outlook
There are many initiatives by investors, asset
managers and other financial sector players
recognising the importance and urgency ofclimate and Just Transition action. Accelerating
capital towards a Just Transition builds on
growing public and private market awareness,offers tangibility to a concept with positive
resonance and strengthens investment
behaviour to integrate environmental andsocial considerations. The high level of goodintentions shows that there is widespread
acceptance of the need for concerted financing
action; the current pace, however, is simply
too slow. What are the instruments and tools
to accelerate capital at scale and how they canbe used across asset classes is the subject ofSections 2 and 3 of this report.

1.2 Harnessing the power of financial markets
for public good
1.2.1 Leveraging ESG and
impact investment for the
SDGs
Financial markets need to change.
Acknowledging that ‘business as usual’will not address the climate and social
challenges the world faces, all investors andfinancial market actors need to be prepared
to go beyond ‘quick wins’ and push pasttheir respective comfort zones to address
seemingly intractable issues of environmental
degradation, social inequity, racial injustice,
the global North-South divide and more.

2

SIFMA (2021): "2021 CapitalMarkets Fact Book"; https://www.sifma.org/wp-content/
uploads/2021/07/CM-FactBook-2021-SIFMA.pdf

3

ICMA (2020): "Bondmarket size"; https://www.
icmagroup.org/Regulatory-Policy-and-Market-Practice/Secondary-Markets/bond-market-size/

4

Thinking Ahead Institute(2020): "The world’s largest
asset managers – 2020";
https://www.thinkingaheadinstitute.org/research-papers/the-worlds-largest-asset-managers-2020/

16

The reasons are grounded in both risk and return.
Capital that ignores environmental consequences
and social inequity and dislocation will be
increasingly vulnerable to performance as well as
reputational risk. Conversely, capital that pursues
investment strategies in which environmental andsocial objectives are integrated not only mitigates
exposure to risk, but also expands the opportunity
landscape for capital to generate positive financial,environmental and social returns.
The power of financial markets – of money – isimmense. Global equities markets amount to close
to a staggering $106 trillion (of which around 38.5%
is in the US, which hosts the largest capital markets
in the world).2 Global bond markets amount toa further $128 trillion globally.3 Collectively, theworld’s 500 largest asset managers manage over$100 trillion in assets.4 The power of this capital,
and those who control it, cannot be overestimated.
And yet much of it still sits on the sidelines andhesitates to embrace the challenges – and theopportunities – the world faces.

There has, nevertheless, been a marked changeover the last few years in investor awareness andperception of the dire challenges and acute risks
our planet and our people face – and a recognitionof the exciting opportunities that are coming outof action and innovation. Many people are waking
up to the crises ahead and are increasingly making
their views and wishes known through voice (byvoting and protest) and actions (as consumers
and clients). This, in turn, is driving more and moreinvestors to rethink what ‘business as usual’ shouldlook like in the future.
Investors span a wide range of types, fromprivate individuals to large institutions such as
major pension funds. Investors also differ in theirmotivation and intention, from traditional investors
focused primarily on generating a competitive,risk-adjusted financial return, to impact investors,
who seek not only a financial return (market or
below market, depending on the investor) but also
intentional and measurable impacts for people or
the planet, as shown in Figure 1.1.
Responsible and sustainable investment
are approaches that explicitly acknowledge therelevance of environmental, social, and governance(ESG) criteria and are used by conscious investors
to screen potential investment opportunities.
‘Responsible investing’ is defined as the use ofa negative screen to inform investment decisions,primarily seeking to avoid certain investmentsthat conflict with the investor’s agreed ethicalguidelines. ‘Sustainable investing’ is defined as
the use of positive screens to seek out investmentsthat score well on ESG criteria.

Why more capital needs to move faster towards the SDGs

Figure 1.1

The spectrum of private capital

Approach

Traditional

Responsible

Sustainable

Impact Investing'Finance First'

Finance
Goals

Philanthropy'Impact First'

Accept lower Accept partial
capitalrisk-adjusted
financial returns preservation

Accept competitive risk-adjusted financial returns

Acceptfull lossof capital

Avoid harm and mitigate ESG risks
Mitigate or reduce negative outcomes for people and the planet

Benefit stakeholders

Impact
Goals

Generate positive outcomes for people or the planet

Contribute to solutions
Generate positive change for otherwise underserved people or the planet

Intentions“I am aware ofpotential
negative
impact, but do
not try to
mitigate it”“I want
to behave
responsibly”“I haveregulatory
requirements
to meet”“I want
businesses to havepositive effects
on the world,and help sustain
long-term financial
performance”“I want to help
tackle climatechange”“I want to help
tackle theeducation gap”

The ‘Impact Economy’Source: Impact Investing Institute (2020), based on Bridges Fund Management and Impact Management Project

5

6

FTSE Russell (2021): "Assetowners are buying into sustainable investment." Sustainable
Investment: 2021 global survey
findings from asset owners;
https://www.ftserussell.com/
index/spotlight/sustainable-investment-2021-global-survey-findings-asset-owners
Bloomberg (2021): "ESG
assets may hit $53 trillion by2025, a third of global AUM";
https://www.bloomberg.com/
professional/blog/esg-assetsmay-hit-53-trillion-by-2025-athird-of-global-aum/

Environmental criteria consider how a company
performs as a steward of nature. Social criteria
examine how a company manages relationships
with, and its impacts on, employees, suppliers,
customers and the communities in which it
operates. Governance deals with a company’s
leadership, executive pay, audits, internal controls
and shareholder rights.
Early iterations of ESG investing were primarily
focused on responsible investing and the financial
risks associated with the climate crisis and“Investors are increasingly applying these
non-financial factors as part of their analysis
process to identify material risks and growth
opportunities. ESG metrics are not commonly
part of mandatory financial reporting,though companies are increasingly making
disclosures in their annual report or in astandalone sustainability report.”
Source: CFA Institute: "ESG Investing and Analysis"; https://www.
cfainstitute.org/en/research/esg-investing‘business as usual’ approach. Since then, ESG
analysis has evolved significantly. An increasing
number of investors are committing (explicitly or
implicitly) to sustainable investing, acknowledging
the positive opportunities of investing using an
integrated ESG analysis. A survey of major asset
owners by FTSE Russell found that more than eightout of 10 respondents are either implementing or
evaluating sustainability into their portfolios. The
predominant reasons given for doing so were
investment risk (64%), the avoidance of reputationalrisk (57%) and capital returns (36%).5
As a result, the global ESG investment market
has grown by two-thirds between 2016 and 2020.
Bloomberg estimates it will reach $53 trillion in
2025.6‘Impact investment’ is distinct from responsible
or sustainable investment as it seeks to achieve
clearly defined and measurable social orenvironmental impacts as opposed to simply
avoiding negative externalities or focusing on
high-level ESG criteria. According to the Global
Impact Investing Network (GIIN), the growing
impact investment market “provides capital toaddress the world’s most pressing challenges
in sectors such as sustainable agriculture,
renewable energy, conservation, microfinance,
17

Mobilising institutional capital towards the SDGs and a Just Transition

and affordable and accessible basic services
including housing, healthcare, and education”.7
Impact investing spans asset classes and return
expectations ranging from market-level to below
market. Impact investing has grown significantly
over the past ten years. The 2010 GIIN annual
survey counted only 24 respondents, 75% of whomthought the market was in its infancy. The number
increased to almost 300 in 2020, 69% of whom
expected the impact investing market to growsteadily. The market is now estimated to amount toabout $715 billion.8
Combined, ESG and impact pools of capitaldemonstrate the potential realisation of an
inclusive and sustainable world for all. The
challenge is to move much more of the vast
'traditional’ capital resources into thesepools of capital. Where and how we apply
and invest those resources will determine
whether we will achieve the SDGs.
The growth of ESG and impact investing has
spurred innovation towards meeting the SDGs
and continues to do so. Although global financial
markets have moved dramatically over the past few
years, much more action is necessary in order tomeet the needs that exist and harvest the massive
opportunities that can grow out of innovation.
Moving large swathes of capital controlled bylarge entities such as institutional investors will
be particularly critical. While often engaged andwilling, many investors are constrained in theirinvestment activities and face real barriers to what
they can do (see Section 2.4.2 for an overview
of external and internal investment barriers of
institutional investors). Therefore, actors across andaround financial markets, including investors, asset
managers, rating agencies, financial intermediaries,
regulators and also governments, will need topartner and move together to move capital andrethink markets so that they contribute to the wellbeing of people and the planet.

7

GIIN: "What you needto know about impact
investing"; https://thegiin.
org/impact-investing/needto-know/#what-is-impactinvesting8

GIIN (2020): "2020 Annual
Impact Investor Survey";
https://thegiin.org/research/
publication/impinv-survey-2020

18

The need for rapid progress on the SDGs isuniversal and applies throughout the world. Thatsaid, particular emphasis and, importantly, effort
must be directed towards emerging markets. This
is where the funding gaps are most pronounced
and needs – and opportunities – are immense(see also Figure 2.1 in Section 2). Collective
contributions are particularly urgent in theseregions to further the SDGs and build healthy andsustainable local financial and social ecosystems
around the world.

1.2.2 Financial market
key actors need to movesimultaneously
Mainstreaming responsible, sustainable andimpact investment practices among institutional
investors to achieve the scale necessary to meet
the world’s social and environmental challenges will
require many actors to contribute time, energy andfunding. Given the amount of capital they control,
institutional investors are a front row audience
for this report. Nevertheless, many other actors
are needed to accelerate and expand the flow ofcapital to where it is most needed. Crucially, allactors will need to work together simultaneously
to effect systemic change and design and deliver
financial solutions that bring the necessary impact
within the timelines required.
Key actors in global financial markets that need toengage and drive change include the following:

Investors (as owners of capital)
Investors are the legal owners of capital andtherefore are ultimately responsible for capital
allocation decisions. They typically have investment
objectives and mandates that determine theirinvestment decisions. Their engagement with
impact performance may involve allocating acrossa range of asset classes. Asset owners may
manage their assets directly and/or outsource
management to professional asset managers.
They include:• Institutional investors (as asset owners):
Institutional investors are typically understoodas large organisations investing on behalf ofother beneficiaries. The term refers primarily topension funds and insurance companies. It canalso include endowments, foundations, charities,
sovereign wealth funds (SWFs), banks and credit
unions, family offices and private funds (suchas mutual funds, hedge funds, private equity/
debt funds and venture capital funds, or realestate trusts). For the purpose of this report,
we consider institutional investors to be asset
owners. Private funds and their managers are
considered under the asset manager discussion.
As institutional investors usually have large
funding amounts available, they mostly seek
sizable investment opportunities. Institutional
investors tend to prefer standardised, easily
tradable investments and securities; illiquid
investments are usually a marginal part of theinstitutional portfolio. Some institutional investors,
in particular pension funds and life insurers, mayWhy more capital needs to move faster towards the SDGs

have long-term liabilities (e.g,. ongoing payments
to their pension scheme members) and hence
can invest in long-term assets that match them.
Many institutional investors face significant
regulatory requirements and constraints• Impact investors: Impact investors are – andhave been for decades – playing a pioneering rolein SDG investments across both developed andemerging markets. They are investors that deploy
capital to intentionally generate measurable
positive social and environmental results (seealso Figure 1.1 on the spectrum of capital
above). Impact investors cut across investor
types, including, typically, DFIs and MDBs on
the public side, as further discussed below,
and foundations, certain family offices and highnet worth individuals on the private side. They
have built and developed an impact investment
universe that is increasingly familiar and attractive
to traditional private investors. Several institutional
investors, including insurance companies andpension funds, have made allocations to impact
investing, demonstrating that it is possible forlarge institutional investors to deploy capital inpursuit of positive impact• G overnments and related entities, including:9OECD: Development financeinstitutions and private
sector development; https://www.oecd.org/development/
development-finance-institutions-private-sector-development.htm

10There are three main categories of SWF dependingon their aims: stabilization
funds are mandated toinsulate their home economies from macroeconomic
shocks and smooth out
revenue streams; capital
maximisation funds pursue
return maximisation withlong time horizons; finally,
strategic development funds
pursue social development,
economic diversification,
and/or domestic infrastructure fortification. The
majority of SWFs are domiciled either in oil-exporting
countries or East Asia.
See Toptal: The Wealthof Nations: Investment
Strategies of Sovereign
Wealth Funds; https://www.
toptal.com/finance/market-research-analysts/sovereign-wealth-funds; PwC(2016): Sovereign Investors
2020.

~ M ultilateral development banks andbilateral development finance institutions:
DFIs and MDBs deploy government capital tomeet economic development aims, primarily inemerging market countries. They mostly invest
in private sector projects and companies inlow- and middle-income countries to promote
job creation and sustainable economic growth.
They are usually majority-owned by national
governments and source their capital fromeither national/international development
funds or benefit from government guarantees.
This linkage, often through a government
shareholding, ensures their creditworthiness,
which mirrors that of the major shareholder/guarantor. This further enables them to raiselarge amounts of money on international capital
markets and provide financing on particularlycompetitive terms9~ S overeign wealth funds (SWFs): SWFs arestate-owned investment funds establishedto channel investment capital into global
investments on behalf of sovereign nations
or states and in the advancement of such
sovereigns’ goals. Most SWFs are funded byrevenues from commodity exports or fromforeign exchange reserves held by the relevant
central bank. As a group, SWFs are highly

diverse in terms of organisational models,
governance, purpose and investment strategies(investment focus, risk appetite, liquidity). They
are also mostly discreet about their investment
strategies, portfolio holdings and corporate
governance practices10• Individuals (as direct investors or indirectly,
e.g., as pension beneficiaries): Individual asset
owners are not restricted to those defined ashigh net worth or ultra high net worth investors.
When considered in the context of the numberof people across the globe with bank accounts,
pensions and retirement accounts of any type,the pool of individual asset owners is large anddistributed• O ther investors, including corporations that
not only operate their core businesses but also
increasingly invest their balance sheet capital

Stewards of capital
Stewards of capital follow a mandate provided by
the asset owners and make decisions within sucha mandate.
They include:• Asset managers: Asset managers are not thelegal owners of the assets under management
but act on behalf of their clients (the asset
owners). They may manage assets on behalfof clients via separate accounts and/or pooled
funds that bring together and invest the capitalof multiple investors. Investment decisions follow
guidelines stated in the respective agreementswith the capital owners (e.g., an investment fund’sformal ‘investment objective’)• I nvestment consultants: Investment
consultants provide asset owners such as
institutional investors with investment products,
advice, and/or planning. They carry out in-depth
work on formulating investment and allocation
strategies for clients, helping them fulfil theirneeds and reach their financial goals. They often
support asset owners in their asset manager
selection• I nvestment banks (buy-side advisory):
Investment banks provide investors and asset
managers with buy-side advisory services,advising on investment opportunities andstrategies

Rule setters
Rule setters establish rules for the conduct of themarkets.

19

Mobilising institutional capital towards the SDGs and a Just Transition

They include:

Ecosystem players• Regulators: National and regional regulators
issue and enforce legal requirements, contributing
to a functioning, stable and integrated, fair andtransparent financial system and preventing its
misuseEcosystem players are the many other players thatenable and help shape financial markets.

• Rating agencies: Rating agencies assess thefinancial strength of companies and government
entities, in particular their ability to meet principal
and interest payments on their debts (e.g.,
government and corporate bonds). By awarding
credit ratings to issuers that can be assessedon a like-for-like basis, their role is to improvetransparency and reduce information asymmetries
between debt issuers and purchasers.

Designers and structurers of products
Designers and structurers of products devise andcreate investable products for investors and stewardsof capital.

They include:• Auditors: Audit the financial statements of acompany and hence are key to ensuring theaccuracy of such statements• Legal advisers and other advisers:
Transactional legal counsel help structure financial
products or transactions, review contracts andadvise on legal risks. Other advisers may include
accountants• Corporates: Corporates can be the issuersof financial products such as shares and debt
offerings to raise capital to help fund theirbusiness activities; they may also use theirbalance sheets for investment• Asset managers: Asset managers have acontractual obligation from an asset owner tomanage assets for a fee in accordance with themandate the owner has set. They may create a‘commingled’ portfolio or a collective fund to pool
together the capital of multiple clients. For very large
clients, they may devise and structure a product ona segregated basis

Each type of actor plays a unique and criticalrole in the financial market ecosystem, helping
to ensure the smooth running of local andglobal financial flows. As highlighted in thisreport, each of these actors has the immediate
opportunity and responsibility to direct theiractions beyond generating short-term financial
returns. Whether motivated by the reduction ofrisk or the pursuit of new opportunities, theseactions will help deliver a better and moresustainable future for people and the planet.

• Investment bankers: Investment banks structure
and create products for their clients that allow themto raise capital on financial markets. They help withthe placement of such products and with finding
investors, and provide financial consultancy services

The actors set forth above are active infinancial markets across the globe. To increase
the likelihood of achieving the SDGs, where noone is left behind, these actors are encouraged
to increase their focus on emerging markets.

They include:

1.3 A Just Transition fit for the future
1.3.1 Background on Just
Transition1112

 ased on the World BankB
country classification
system, this would include
upper-middle-, lower-middle- and low-income
countries; all other countries
are referred to herein as ‘developed’. See World Bank
(2021): "World Bank Country
and Lending Groups";
https://datahelpdesk.
worldbank.org/knowledgebase/articles/906519-worldbank-country-and-lendinggroups
Union of Concerned
Scientists: https://www.
climatehotmap.org/global-warming-effects/drought.
html

20

1.3.1.1 The climate crisis and Net
Zero action
The climate crisis is one of the defining challengesof our time. It affects everyone across the globe,
across borders and jurisdictions, including bothdeveloped and emerging markets (for the purposeof this report, the terms ‘emerging markets’ and'developing countries’ include both emerging andfrontier markets)11. The impact on our planet isvisible. The effects on people’s lives are real.
Global climate change has already had observableeffects on the environment. Heat waves have led
to extensive droughts across continents, glaciers
have shrunk, plant and animal ranges have shifted,
and trees are flowering sooner. What will happen if
we do not contain global warming?

• Global warming affects evapotranspiration(the movement of water into the atmospherefrom land and water surfaces and plants due
to evaporation and transpiration), leading toincreased drought in dry areas. Already, during
the last 50 years, the Sahel region of Africa,
southern Asia, the Mediterranean, and theSouthwestern US, just to name a few places,
have been getting drier. Scientists expect theamount of land affected by drought to grow by
mid-century – and water resources in affectedareas to decline by as much as 30%12• Global sea levels have risen by about 20cm sincereliable record-keeping began in 1880. Sea levels
are projected to rise another 0.3m to 2.4m by
2100 as a result of melting land ice, especiallyglaciers, and the expansion of seawater as itwarms. In the next few decades, storm surges
and high tides could combine with rising sea

Why more capital needs to move faster towards the SDGs

Figure 1.2

Net Zero by 2050: What does it mean?
Based on research conducted by the IPCC, to limit global
warming to 1.5°C relative to pre-industrial levels (and hence
avoid the worst climate impacts), global CO2 emissions willneed to reach ‘Net Zero’ – or ‘carbon neutrality’ – by around2050.

reducing carbon emissions and using carbon mitigation
technologies, whereby any remaining greenhouse gas (GHG)
emissions can be counterbalanced by removing GHGs fromthe atmosphere in a process known as ‘carbon removal’using sequestration techniques.

In order to achieve ‘carbon neutrality’ by 2050, countries
need to work towards creating low carbon economies by

Source: World Resources Institute (2021): What does ‘Net-Zero Emissions’mean? 8 common questions answered

Creating a path to Net Zero
BUSINESS AS USUALEmissions
Reduction

NET ZERO
Gross Emissions
Net Emissions
Carbon Removal

2010

2020

2030

2040

2050

2060

2070

2080

2090

2100

Source: IPCC (2019): "SR15 Full report" Chapter 2

13

NASA: "The Effects of
Climate Change"; https://climate.nasa.gov/effects

14

 WF: "The effects of cliWmate change"; https://www.
wwf.org.uk/learn/effects-of/
climate-change

15

The IPCC is an organisationof governments that are
members of the United
Nations and has around 195
members currently.

16

IPCC (2018): "Special
Report on Global Warmingof 1.5°C"; https://www.ipcc.
ch/sr15/17IPCC (2018): "Special
Report on Global Warmingof 1.5°C"; https://www.ipcc.
ch/sr15/1819

IPCC (2021): "Headline
Statements from theSummary for Policymakers,
Sixth Assessment Report
Working Group I"; https://www.ipcc.ch/report/ar6/
wg1/
IPCC (2021): "Climate
Change 2021: the PhysicalScience Basis"; https://www.ipcc.ch/report/
sixth-assessment-report-working-group-i/

levels and land subsidence to further increase
flooding in many regions13

emissions” to occur in order to limit global warming
to 1.5°C or 2°C.18,19• Global warming is likely to be the greatest causeof species extinction this century, according to theWorld Wildlife Fund (WWF).14 The Intergovernmental
Panel on Climate Change (IPCC)15, the United
Nations’ body for assessing the science related toclimate change, estimates that a 1.5°C averagerise in global temperatures may put 20-30% of
species at risk of extinction. If the planet warms bymore than 2°C, most ecosystems will struggle. For
example, at 1.5°C, coral reefs are estimated to be
reduced by 70-90% – and if the planet warms by
2°C all coral reefs will be destroyed. This is not only
a tragedy for the ocean’s wildlife but also affects
around half a billion people who currently rely onfish from coral reefs as their main source of protein

A study sought to quantify the national
responsibilities for damages relating to climatechange by looking at each country’s share ofhistorical emissions (1850-2015) to cumulative CO2
Figure 1.3

Responsibility for climate breakdown

USA 40%Rest of Europe

These are just a few examples.
According to the IPCC, human activities are
estimated to have resulted in around 1°C of global
warming to date, relative to pre-industrial levelsof 1850-1900.16 In their 2018 special report,
the IPCC demonstrated that net emissions
must be reduced to zero in order to stabilise
global temperatures.17 The IPCC’s recent Sixth
Assessment Working Group I publication (2021)
reemphasises the importance and urgency ofclimate action, calling for “deep reductions incarbon dioxide (CO2) and other greenhouse gas

13%

EU 29%
Rest of Global North

10%

Global South 8%
Source: Jason Hickel (2020): "Quantifying national responsibility for climate breakdown: an equality-based attribution
approach for carbon dioxide emissions in excess of theplanetary boundary." Lancet Planetary Health21

Mobilising institutional capital towards the SDGs and a Just Transition

emissions. The study found that the United States(US) and the European Union (EU) nations together
were responsible for 69% of global excess CO2
emissions, the Global North for 92%20 (seeFigure 1.3).
The unprecedented acceleration of the climate crisis
has increased the global appeal for urgent andimmediate action. The call for a ‘Net Zero’ climate
agenda has been gaining traction across the globe inrecent years, moving from the fringes to centre stage
in politics, and has also moved into the limelight indiscussions of international financing flows, including
both public and private capital.

20

21

J ason Hickel (2020): "Quantifying national responsibility
for climate breakdown: anequality-based attribution
approach for carbon dioxide
emissions in excess ofthe planetary boundary".
See the analysis for more
information on assumptions
and methodology.
UNDP (2021): "Peoples’
Climate Vote - Results";
https://www.undp.org/
publications/peoples-climate-vote

There is growing public support for the Net Zeroagenda, with public outrage on climate inaction
shown through widespread action, including,for example, the global movement ‘Extinction
Rebellion’, the 2019 ‘Global Climate Strike’ and theweekly ‘Fridays for Future’ protests. In a surveyof public opinion on climate change that included
1.2 million respondents across 50 countries, theUnited Nations Development Programme's (UNDP)‘Peoples’ Climate Vote’ showed broad global
support for increased climate action.21
Initially, and still at times today, the climate action
agenda has focused exclusively on a Net Zeroclimate transition and the changes needed tomove to a low-carbon and resource-efficient global
economy. Such a single focus, however, has seen
push-back. In particular, there have been growing
concerns about the potential negative effects
of climate actions on society and the economy,
including job losses in affected industries andchanges to commodity prices that could result inhigher household expenses and diminished accessto basic goods and services for low-income, often
rural, communities. Such negative socio-economic
effects have led to social tensions, dissatisfactionand even unrest across the globe. This has
manifested in heated political debates around
Net Zero agendas, particularly in fossil-fuel reliant
economies or regions, including the US Republican
Party’s push-back on climate change priorities,
the severe protests in Chile ahead of the trade andUN climate summits in 2019, and the ‘gilets jaunes’
movement in France.
There is increasing consensus that a single focus
on Net Zero is not sufficient and that a shift inperspective to also include its socio-economic
impacts is essential. A holistic approach paying
attention to our planet and its people is neededin order to address climate change and its effects
on societies in a fair and inclusive way.

Figure 1.4

Net Zero milestones
The International Energy Agency (IEA) has provided a Net Zeroroadmap setting out over 400 milestones for what will need
to be done, and when, to decarbonise our planet by 2050.

According to the IEA, to reduce net emissions to zero by
2050, annual clean energy investment worldwide will need tomore than triple by 2030 to around $4 trillion a year.

Key milestones on the path to Net Zero
2030
Universal energy access
All new buildings are
zero-carbon-ready

2021

2035

60% of global car sales areelectric

Most appliances and coolingsystems sold are best inclass

Most new clean technologies
in heavy industry
demonstrated at scale

50% of heavy truck sales areelectric

351020 GW annual solar andwind additions

30

No new International
Combustion Engine (ICE)
car sales

Phase-out of unabated coal inadvanced economies

Gigatonne(Gt) CO240

No new unabated coalplants approved fordevelopment2025
No new sales offossil fuel boilers

25

All industrial electric motor
sales are best in classOverall net-zero emissions
electricity in advanced
economies

20
15

2040
50% of existing buildings
zero-carbon-ready levels

2050

50% of fuels used in aviation
are low-emissions

More than 85% ofbuildings are
zero-carbon-readyAround 90% of existing
capacity in heavy industries
reaches end of investment
cycle

2045

Net-zero emissions
electricity globallyPhase-out of all unabatedcoal and oil power plants

50% of heating
demand met by heat
pumps

10

More than 90% of
heavy industrial
production is
low-emissions
Almost 70% ofelectricity generation
globally from solar
PV and wind

5
0
-5

2020

for development; no new coal minesor mine extensions

2025

2030

2035

150 Megatonne (Mt)low-carbon hydrogen 850
Gigawatt (GW) electrolysers

4 Gt CO2 captured

Electricity and heat

2040

Industry

Transport

2045

2050

435 Mt low-carbon hydrogen 3000
GW electrolysers

7.6 Gt CO2
captured

Buildings

Other

Source: IEA (2021): "Net Zero by 2050 – A Roadmap for the Global Energy Sector"

22

Why more capital needs to move faster towards the SDGs

The Paris Agreement
The Paris Agreement stated that parties should take into
account“the imperatives of a just transition of theworkforce and the creation of decent workand quality jobs in accordance with nationallydefined development priorities”,
thus highlighting the importance of workers and thecreation of decent jobs in climate change actions.

Source: United Nations (2016): Just Transition of the Workforce,and the Creation of Decent Work and Quality Jobs

1.3.1.2 The evolution of a Just
Transition

22J ust Transition Centre(2017): "Just Transition –A Report for the OECD";
https://www.oecd.org/
environment/cc/g20-climate/collapsecontents/
Just-Transition-Centre-report-just-transition.pdf

23

European Commission(2021): "France, Germany,
UK, US and EU launch
ground-breaking International Just Energy Transition
Partnership with South
Africa"; https://ec.europa.
eu/commission/presscorner/detail/en/IP_21_5768

SPOTLIGHT

The roots of the ‘Just Transition’ concept lie inthe labour union movement: in the 1990s, North
American labour unions and environmental justicegroups demanded fair and just pathways for workers
to transition to alternative jobs in response toenvironmental protection policies that resulted in job
losses in affected polluting industries such as coal.22
The Just Transition concept was subsequently
incorporated into the negotiating text for the
Copenhagen Summit in 2009 but it only found its
way into an actual agreement six years later: thehistoric Paris Agreement. The Paris Agreement,
signed by 196 nations at the 21st Conferenceof the Parties (COP21) in Paris on 12 December
2015, explicitly highlighted the importance of a
Just Transition, acknowledging that decarbonisingobjectives need to be combined with attention toaffected workers in a shift to a resilient economy.
Since COP21, the discussion on a Just
Transition has broadened. It now often includes
a more systemic concept of green-social
interdependence, its dynamic nature and theneed for a holistic approach that breaks down
the often-siloed discussions between climate andsocio-economic considerations. These discussions
have highlighted the imperative of considering(i) different climate transition and planet preservation
strategies across sectors; (ii) geographic disparities,
needs and priorities at international, regional andnational levels; and (iii) affected and underserved or
marginalised communities, households, individuals,
workers and enterprises, to achieve an inclusive
and socially beneficial transition. The result is a
growing recognition that in every climate change
discussion, particular attention needs to be paid
to those segments of societies that are typicallyunderrepresented and discriminated against as
a result of, among other factors, their economic
standing, race or gender.
At COP26, a number of western nations signed a
Just Transition Declaration, stressing the need toensure that no one is left behind in the transition to
Net Zero economies, recognising that the climatetransition will affect those working in sectors, cities
and regions reliant on carbon-intensive industries
and production most acutely, and recognisingthat the effects of climate change affect those inpoverty disproportionately, and can exacerbate
economic, gender and other social inequalities.23
Since early 2020, many long-standing socioeconomic and development issues, for example, job
insecurity, poverty, inadequate healthcare or lackof access to clean water, have been compoundedby the Covid-19 pandemic, affecting particularly“Core to just transitionis the recognition thatclimate success will be
contingent on designing atransition that is both fairand seen to be fair acrossregions and across thesocioeconomic spectrum.”
Source: LSE Grantham Institute and Universityof Leeds (2021): "Financing climate action
with positive social impact – How banking can
support a just transition in the UK"

Climate and gender

There is widespread gender injustice around the globe, butalso growing awareness of the significant challenges climatechange has on women, for example:• Water scarcity can increase the burden to collect water orpush families to split to seek work
• Lack of access to energy has material negative effects on

girls’ education and health as well as women’s opportunity
to pursue economic activities
Source: GenderSmart (2021): "Gender & Climate Investment:
A strategy for unlocking a sustainable future"

The GenderSmart report showcases how gender andclimate investing can apply across three example sectors:
Energy: Extension of access to renewable energy solutions
to households.
Agriculture: Opportunities across agricultural and foodtechnologies, food processing, fashion and other supply
chains.
Infrastructure: Ability to address existing gender gaps byincorporating a gender lens to the design and build of green
infrastructure projects.
23

Mobilising institutional capital towards the SDGs and a Just Transition

Defining a ‘Just Transition’There is not yet any universally agreed definition of the Just
Transition concept. One of the early descriptions was provided
by the International Labour Organization (ILO):“A just transition for all towards anenvironmentally sustainable economy […] needs
to be well managed and contribute to the goalsof decent work for all, social inclusion and theeradication of poverty […]greening the economy should be done in a way that is
as fair and inclusive as possible to everyone concerned,
creating decent work opportunities and leaving no one behind.
A Just Transition involves maximizing the social and economic
opportunities of climate action, while minimizing and carefully
managing any challenges. The OECD’s analysis showsthat the impacts of environmental degradation tends to beconcentrated among vulnerable groups and households, while
the benefits and costs of environmental policies are also likely
to be unevenly distributed across households.

The greening of economies presents many
opportunities to achieve social objectives: it has
the potential to be a new engine of growth, bothin advanced and developing economies, anda net generator of decent, green jobs that cancontribute significantly to poverty eradication andsocial inclusion. The greening of economies will
enhance our ability to manage natural resources
sustainably, increase energy efficiency andreduce waste, while addressing inequalities andenhancing resilience.”

Source: ILO (2015): "Guidelines for a just transition towards environmentally sustainable economies and societies for all"; https://www.ilo.org/wcmsp5/groups/
public/---ed_emp/---emp_ent/documents/publication/wcms_432859.pdf

Similarly, the OECD’s approach to a people-centred transitionbuilds on the ILO’s definition of a Just Transition, asserting that

OECD (2021): "The inequalities-environment nexus: Towards a people-centred
green transition". OECD Green Growth Papers, No. 2021/01; https://www.
oecd-ilibrary.org/environment/the-inequalities-environment-nexus_ca9d8479-en

Despite the lack of a unifying definition, the Just Transition
concept is increasingly used by governments, labour groups,
investors, businesses, civil society and multilateral agencies
as a way to encourage consideration of who will be affectedby climate action and where the effects of related systemicchange will be felt. A holistic view of these effects is vital inorder to distribute the costs and benefits of Net Zero climate
action in a fair manner, and should both provide a voice tothose affected and result in intentional planning of climate
action.

those already underserved and marginalised groups
along economic/class, gender and racial lines.
Covid-19 has also exposed deep, long-standing
and growing inequalities between countries. The
global pandemic has thus reinforced the need fora Just Transition, increasing the urgency to ensure
equitable societies and the importance of finding
ways to address structural imbalances and rebuild
economies, while addressing the risks of climatechange at the same time.

24

25

Task Force on Climate,
Development and theInternational Monetary
Fund (2021): "Toward
Development-Centered
Climate Change Policy at
the International Monetary
Fund"; https://www.bu.edu/
gdp/files/2021/10/TF_Strategy-Report_FIN.pdf
Place-based approaches
are person-centred, bottom-up approaches used tomeet the unique needs ofpeople in one given location
by working together to use
the best available resources
and collaborate to gain local
knowledge and insight. See
IRISS (2015): "Place-based
working"; https://www.iriss.
org.uk/resources/irisson/
place-based-working

24

As stated by the Task Force on Climate,
Development and the International Monetary
Fund (IMF), “climate change poses significant
risks to financial and fiscal stability, poverty andinequality and the long-run growth prospects of theworld economy” and “climate action presents anopportunity to build a green and just 21st century
economic infrastructure, adapting to the changing
climate while raising levels of prosperity across theworld”.24 It is imperative that the global community
support climate resilience and transition to a lowcarbon economy in a just way.
Climate action needs to provide equitable
and inclusive pathways to Net Zero and athriving planet where no one is left behind.
In other words, the transition to a viable
environmental future also needs to be sociallyjust to be successful and sustained over thelong term.

1.3.1.3 Geographic considerations
Climate change is a global problem that will require
action across all developed and emerging markets.
However, implementing effective Just Transition
measures requires paying attention not only tothe universal concept but also to the local context
using a place-based lens.25 In other words, which
Just Transition pathways are possible and desirable
depends on the specific local realities, capacities
and capabilities.
Appendix 1 provides further analysis and specificgeographic considerations for emerging market
investment approaches.

Determining starting points
Countries, regions and communities have different
starting points when it comes to delivering a Just
Transition. These are determined by a range ofenvironmental and socio-economic factors, including
a place’s emission legacy track record, relianceon fossil fuels and economic dependencies ongreenhouse gas-emitting sectors and existing energy
infrastructure. A place or community’s vulnerability
to climate-related risks (e.g., rising sea levels), its
ability to provide universal access to modern energy
services (particularly as energy demand rises), its
demographic footprint, as well as broader socioeconomic (e.g., employment and poverty) andhuman development indicators all have an impact.

Why more capital needs to move faster towards the SDGs

Figure 1.5

Vulnerability to climate change by country (measured by ND-GAIN Country Index)
Emerging markets face significant climate change vulnerability compared to developed markets with fewer resources to address this vulnerability.

Worse

Better

Source: ND-GAIN Matrix and Global South vulnerability: https://gain.nd.edu/our-work/country-index/

Determining trajectories

26

CDC Group (2020): "Climate Change Strategy";
https://assets.cdcgroup.
com/wp-content/uploads/2020/07/01181554/
CDC-climate-change-strategy_FINAL-FOR-PUBLICATION-1.pdf

In addition, countries, regions and communities
also have a distinct pace when it comes torespective Just Transition pathways, and resultant
decarbonisation and development trajectories.
Trajectories are related to the starting points but
also depend on additional factors around thecountry/region/community’s preparedness todeal with climate change and the social actions
necessary to build a just and inclusive society.
These factors include financial strength, and local

Local context of a Just Transition“The greening of economies in the context
of sustainable development and poverty
eradication will require a country-specific mixof macroeconomic, industrial, sectoral, social
protection, skills, social dialogue and labour
policies that create an enabling environment
for sustainable enterprises to prosper andcreate decent work opportunities by mobilizing
and directing public and private investment
towards environmentally sustainable activities”
Source: UNFCCC (2016): Just Transition of the Workforce,and the Creation of Decent Work and Quality Jobs

capacity and capabilities to address Just Transition
imperatives, including access to global financeflows and international support.
Given these respective starting points andtrajectories, countries may have different
development priorities, such as meeting rising energy
demand, expanding access to energy, modernisingenergy infrastructure, reducing their environmental
footprint, or, on the social side, providing
employment or reducing poverty. Developing
countries also face specific pressures in the context
of climate action, as they need to tackle the climate
emergency at the same time as other urgent needs,
notably the push for economic growth, increased
energy access and improved living standards to meetthe needs of their citizens and to meet the SDGs.26

Regional implications of the Paris
Agreement
Disparities across countries, regions andcommunities has been internationallyacknowledged. In the Paris Agreement, the needfor assistance, both financial and in building
capacity to countries that are both less wealthy andmore vulnerable, was recognised and positioned asa call to action by the global community.
The Paris Agreement required each participating
country to prepare country-specific ‘Nationally
Determined Contributions’ (NDCs), setting out
each country’s climate actions. It was expressly
understood that developing countries would take25

Mobilising institutional capital towards the SDGs and a Just Transition

longer to reach their peak of emissions and thatemissions reductions would need to be undertakenon the basis of equitable considerations acrosscountries, in the context of sustainable development
and reflecting respective efforts to eradicate poverty.
To date, 194 countries27 have submitted their first
NDCs. An NDC updated Synthesis Report wasissued in October 2021, combining the information of
the 192 parties to the Paris Agreement at that time.

1.3.1.4	Sectoral considerations
Greenhouse gas (GHG) emissions, and hence
climate impact, differ significantly by sector. The
IPCC estimated, in a 2014 report, that the biggest
sectors by global climate emissions in 2010 were
electricity and heat production (25%), agriculture/
forestry/land use (AFOLU) (24%), industry (21%),and transport (14%). Redistributing indirect CO2
emissions from electricity and heat production to
the sectors where they were being used changed
the picture, making industry the largest emitting
sector, at 32%, followed by AFOLU at 25% andbuildings at 18%.29

The Glasgow Climate Pact, announced on 13
November 2021, at the end of COP26, reconfirmed
the need to significantly increase support fordeveloping countries, beyond $100 billion per year.28

While efforts to decarbonise are currently
concentrated on transition out of coal and fossil fueldivestment within the energy sector – see Spotlight
panel below – the movement towards a Just
Transition cannot stop with activities focused only
on fossil fuel reduction.

In summary, while there is a need for a Just
Transition to be universal and global, Just Transition
pathways must be grounded in local considerationsof needs, capacity and priorities to ensure that they
are inclusive, fair and equitable, and to avoid pooror disadvantaged populations becoming worse off.
The requirement to reflect locally-specific context
does not dilute the global relevance, power of, andneed for a common understanding of what a Just
Transition means in practice.
27

All 193 current parties to
the Paris Agreement plus
Eritrea, which is not a party
to the Agreement.

28

UNFCCC (2021): "Glasgow
Climate Pact"; https://unfccc.int/sites/default/files/
resource/cma2021_L16_
adv.pdf

29

IPCC (2014): "AR5 Synthesis
Report – Climate Change";https://www.ipcc.ch/report/
ar5/syr/

A Just Transition must also concentrate on transition
to green technologies and on changes across highemitting sectors. With a view to including dimensionsof social justice and fairness, Just Transition
efforts should span all economic sectors,
seeking innovation and changes to businessmodels that improve our climate and planet
and advance the livelihoods of our people.
Efforts must also reach consumers and become
engrained in human awareness and resultant habits
and individual choices.

Introducing a globally consistent descriptionof a Just Transition with a tailored
understanding of local implementation
scenarios will support and drive furtheralignment across public and private actors.
Making clear ‘what good looks like’ willallow the global community to speak thesame language in terms of pursuing a Just
Transition while inviting, encouraging andincentivising actions that can have the mostimpact in local environments.

In other words, a Just Transition is not justabout carbon. The landscape is far more diverseand dynamic, offering significant investment
opportunities that will be addressed in later sectionsof this report.

Figure 1.6

GHG emissions by economic sectors (2010)
Electricity and heatproduction
25%

Energy
1.4%

AFOLU
24%

Industry
11%

Buildings
6.4%
Transport
14%

Total: 49 Gt
CO2-eq(2010)

Transport
0.3%

Other energy
9.6%
Direct GHG emissions• I ndustry: Emissions from the burning of fossil
fuels in furnaces for heat production or directly inchemical processes• Transport: Emissions from burning of fossil fuelsin engines of cars, planes or trains

Buildings
12%

Industry21%• Agriculture, Forestry and Other Land Uses
(AFOLU): Emissions from various sources,
including from land clearance by burning or whenland is over-ploughed, methane gas emissions
from rice cultivation or livestock, or nitrous oxide
gas emissions from the use of fertilisers

AFOLU
0.87%
Indirect CO2 emissions• B uildings: Emissions from burning of fossil fuels
for cooking or heating• E lectricity and heat production: Emissions
from the burning of fossil fuels for electricity andheat production• O ther energy: Emissions from the energy sector
not directly used for producing electricity, suchas for fuel extraction, refining, processing ortransport

Source: IPCC (2014): "AR5 Synthesis Report – Climate Change"; https://www.ipcc.ch/report/ar5/syr/26

Why more capital needs to move faster towards the SDGs

SPOTLIGHT

Decommissioning coal-fired power plants

Coal has long been viewed as the cheapest way to power
the global economy, yet this is no longer the case. The
development and construction of new renewable energy
plants has become cheaper than new coal plants almost
everywhere, even before considering coal’s externalities
such as its health, climate and environmental impacts. But
meaningful change to GHG emissions cannot focus solely
on new plants but needs to include the decommissioning ofcurrent coal-fired power plants. Decommissioning of fossil
fuel plants is a complex undertaking, entailing not only costs
but also socio-economic effects in the affected region, inparticular due to local job losses.
A key barrier to accelerating the decommissioning and phasingout of fossil fuel power plants is that the vast majority of suchplants are insulated from competition, benefitting from longterm contracts and non-competitive tariffs. A decommissioning
process must, therefore, entail a careful consideration ofinterests and of economic effects on, and incentivisationof, a variety of stakeholders, including workers and local
communities and consumers, taxpayers and coal plantinvestors, as well as the implications for the local economy andgovernment revenue.

There are several research initiatives ongoing, such as by
the Rocky Mountain Institute, that perform research on thedecommissioning of fossil fuel plants, specifically in the US.
These initiatives are seeking to identify pathways forward that
achieve a Just Transition without the need for additional publicfunding. One approach uses low-cost refinancing raised, forexample, through securitisations, whereby the new capital isused to (i) reinvest in clean energy solutions, and (ii) provide
transition support to coal workers and local communities,
offering funding to preserve livelihoods, protect benefits andensure that host communities can continue to thrive.
Using well designed mechanisms, such as the one discussed
above, can ensure that decommissioning is achieved in anaffordable way, balancing the interests of all core constituents.
That said, as stated above, every phasing out is complex andfor a decommissioning plan to be successful, local context,
realities and disparities need to be carefully considered and all
relevant stakeholders need to be engaged and included in thesolution.
Sources: Rocky Mountain Institute (2020): "How To Retire Early"; WEF (2021):"4 key steps to decommissioning coal-fired power plants"; https://www.weforum.
org/agenda/2021/08/4-key-steps-decommissioning-coal-fired-power-plants/

1.3.2 Overview of selectglobal Just Transition
initiatives to date30

ILO (2015): "Guidelines fora just transition towards
environmentally sustainableeconomies and societies
for all"

31

IPCC (2018): "Special
Report on Global Warmingof 1.5°C"; https://www.ipcc.
ch/sr15/. The report was
prepared by 91 authors
and review editors from 40
countries

32

J ust Transition and COP24(2018): "Solidarity and Just
Transition Silesia Declaration"

33

ILO: "Climate Action for
Jobs initiative"; https://www.ilo.org/global/
topics/green-jobs/areas-of-work/climate-change/
WCMS_732060/lang--en/index.htm

34

Euractiv (2021): "EU lawmakers give final approvalto bloc’s green transitionfund"; https://www.euractiv.
com/section/energy-environment/news/eu-lawmakers-give-final-approval-toblocs-green-transition-fund/The concept of a Just Transition that considers bothclimate and social objectives is gaining attention
around the world. This focus has been heightenedby Covid-19 and the way the global pandemic
has affected developed and emerging markets
differently, including the disproportionate impact
on low-income communities and the unequal
distribution of vaccines – with these inequalities
expected to make long-term recovery for the wholeplanet more difficult. Scrutiny of climate solutions
that ignore social realities has also increased atinternational climate conventions, the most recent
being COP26. This report intends to build on
this attention and convert it into concrete
action for mobilising capital at scale.

International initiatives
Following the 2015 Paris Agreement, there
have been a number of significant declarations,guidelines and reports that underline the need foractions that support a climate transition that is fairand just. These have included the ones listed below
as well as those recently announced in November
2021 at COP26 in Glasgow as listed in Appendix 2:• The International Labour Organization (ILO)’s
Guidelines for a just transition towards
environmentally sustainable economies andsocieties for all issued in 2015. This provided a“non-binding practical orientation to governments
and social partners with some specific options
on how to formulate, implement and monitor thepolicy framework, in accordance with national
circumstances and priorities”30• The IPCC’s 2018 Special Report on Global
Warming of 1.5°C, a comprehensive “reporton the impacts of global warming of 1.5°C
above pre-industrial levels and related global
greenhouse gas emission pathways, in thecontext of strengthening the global responseto the threat of climate change, sustainable
development, and efforts to eradicate poverty”31• The Solidarity and Just Transition Silesia
Declaration, signed by 50 countries at COP24 in2018, reaffirming the Paris Agreement, stressing
the required paradigm shift and recognising
the greater and specific needs of developing
countries32• The ILO Climate Action for Jobs Initiative at theUnited Nations Climate Action Summit in 2019,
under which 46 countries committed to support
a just ecological transition and to formulate
national plans for a Just Transition through social
dialogue, creating decent work as well as green
jobs, thus enabling ambitious action towards asustainable future of work33• In 2019, the EU launched the European Green
Deal, a plan that intends to mobilise at least€1 trillion in sustainable investments over the
next decade, including the ‘Just Transition
Mechanism’ targeting a fair and just green
transition. In the wake of the Covid-19 crisis, theJust Transition Mechanism builds upon people’s
demands to ‘build back better’: the EU’s €17.5
billion Just Transition Fund, the first pillar of the
Mechanism, combines funds from the EU’s
budget and its Covid-19 recovery fund and is
set to support EU countries as they wind down
fossil fuel industries.34 it is expected to mobilise at27

Mobilising institutional capital towards the SDGs and a Just Transition

SPOTLIGHT

EU Just Transition Fund

The €17.5 billion EU Just Transition Fund (JTF) is thefirst pillar of the European Union’s Just Transition
Mechanism (JTM).
It is a key tool to support territories most affected by thetransition towards a climate-neutral economy. It aims toprovide them with tailored support to alleviate the socioeconomic costs triggered by climate transition, supporting ashift to more diverse and sustainable economic activity in the
territories concerned.
The fund aims to invest in small and medium enterprises,

the creation of new firms, research and innovation,
environmental rehabilitation, clean energy, the up- andre-skilling of workers, job-search assistance and active
inclusion of job-seekers’ programmes, as well as thetransformation of existing carbon-intensive installations whenthese investments lead to substantial emission cuts and job
protection. It is expected to mobilise close to €30 billion inthird-party investments.
Source: European Commission: "Just Transition funding sources"; https://
ec.europa.eu/info/strategy/priorities-2019-2024/european-green-deal/financeand-green-deal/just-transition-mechanism/just-transition-funding-sources_enleast €100 billion in investments over the period2021-2027 to support workers and citizens of
the regions most affected by the transition awayfrom fossil fuels.35 For example, the EU allocated€877 million of its Just Transition Fund to support
structural change in German coal-mining regions.
The Commission identified 18 areas within
Germany, which would be most affected bystructural change in a transition from coal36•T he Joint Declaration of all Public Development
Banks in the World in 2020, which declared theircommitment to “working to deliver sustainable,
equitable and inclusive outcomes, leaving no one
behind”37• The G20 Sustainable Finance Roadmap,
developed by the G20’s Sustainable FinanceWorking Group (SFWG) and endorsed by the G20
finance ministers and central bank governors
in 2021, which highlights the “need to advancethe understanding of and support the growth ofmarkets for financing a just climate transition”
as one of the key areas that is not sufficiently
being addressed at the international level. The
roadmap particularly calls on DFIs and MDBs toraise their ambitions in supporting their investee
companies to achieve a just climate transition,and on international organisations to collaborate
to develop high-level principles for a credible andconsistent framework for financing a just climatetransition38

changes require reliable framework conditions andlong-term monitoring. New financial instruments
are needed, in addition to existing instruments, tobring together strategic investments in the lignite
mining regions and secure their funding in thelong term.39 At the regional level, WWF Germany
reported that the Ruhr region of Germany has
steadily transitioned from coal producing to a morediverse and modern economy over the last several
decades. This was done with no redundancies andpromoted dialogue between the coal company,
trade unions and the state40• In the UK, the government has adopted an
integrated approach to climate action and social
considerations, both in the context of Covid-19
recovery and achieving Net Zero targets. The"Build Back Better: our plan for growth" policy
paper set out the UK government’s plans to
support growth through significant investment
in infrastructure, skills and innovation, pursuing

35European Commission (2020): "The European Green Deal Investment Plan and Just Transition Mechanism explained"; https://
ec.europa.eu/commission/presscorner/detail/en/qanda_20_24

36

European Commission (2020): "Communication from theCommission to the European Parliament, the European Council,
The Council, the European Central Bank and the Eurogroup";
https://ec.europa.eu/info/sites/default/files/2020-european_semester_country-report-germany_en.pdf

37

Finance in Common (2020): "Joint Declaration of All Public
Development Banks in the World"; https://financeincommon.
org/sites/default/files/2020-11/FiCS%20-%20Joint%20declaration%20of%20all%20Public%20Development%20Banks.pdf

38

G20 Sustainable Finance Working Group (2021): "G20 Sustainable Finance Roadmap"; https://g20sfwg.org/wp-content/
uploads/2021/10/G20-Sustainable-Finance-Roadmap.pdf

39

Commission on Growth, Structural Change and Employment (2019): "Final Report"; https://www.bmwi.de/Redaktion/EN/Publikationen/commission-on-growth-structural-change-and-employment.pdf?__blob=publicationFile&v=340

 WF Germany (2019): "Just Transition for Regions and GenW
erations"; https://regionsbeyondcoal.eu/just-transition-for-regions-and-generations/41

UK Government (2021): "Build Back Better: our plan for growth";
https://assets.publishing.service.gov.uk/government/uploads/
system/uploads/attachment_data/file/969275/PfG_Final_print_
Plan_for_Growth_Print.pdf

Initiatives by country
Initiatives linked to a Just Transition have beenlaunched in developed economies including
Canada, Germany, Japan, the UK and the US, andin emerging economies such as China, Colombia,
India and South Africa. Some examples are shown
below, and a list of further select country-level Just
Transition initiatives is provided in Appendix 3:• The German government convened a Commission
on Growth, Structural Change and Employment
to develop a broad social consensus aroundstructural changes to energy and climate policyin Germany. The report argued that structural28

Why more capital needs to move faster towards the SDGs

SPOTLIGHT

41

UK Government (2021):
Build Back Better: our planfor growth; https://assets.
publishing.service.gov.
uk/government/uploads/
system/uploads/attachment_data/file/969275/
PfG_Final_print_Plan_for_Growth_Print.pdf

42

UK Government (2021): Net
Zero Strategy: Build Back
Greener; https://assets.
publishing.service.gov.
uk/government/uploads/
system/uploads/attachment_data/file/1026655/
net-zero-strategy.pdf

43

Climate Investment
Funds (2020): Supporting
Just Transition in South
Africa; https://www.
climateinvestmentfunds.
org/sites/cif_enc/files/
knowledge-documents/
supporting_just_transitions_in_south_africa.pdf

44Grantham Research Institute et al (2018): Investing ina just transition

45

European Commission(2021): France, Germany,
UK, US and EU launch
ground-breaking International Just Energy Transition
Partnership with South
Africa; https://ec.europa.eu/
commission/presscorner/
detail/en/IP_21_5768; BBC
News: COP26: Boris Johnson cautiously optimistic onclimate progress

SPOTLIGHT

UK Transition Plan Taskforce

At COP26, the UK government announced
it would make it mandatory for every UK
financial institution to have a Net Zerotransition plan, which will set out how
they intend to decarbonise their activities.
Through this requirement, the government
aims to increase oversight of the financial
sector, ensuring that financial flows shift
towards supporting Net Zero, as well as
providing greater levels of transparency andaccountability to combat green washing.
To support this new requirement, thegovernment also announced the launch of a

new Transition Plan Taskforce. The Taskforce
will comprise representatives from UK industry,
academia, regulatory bodies and the third sector.
The Taskforce will define the requirements for the
Net Zero transition plans, outlining standards,
associated metrics and recommendations.
The Taskforce will coordinate with international
efforts such as the Glasgow Financial Alliance for
Net Zero, and will report in 2022.
Source: UK Government (2021): "Fact Sheet: Net Zero-aligned
Financial Centre"; https://www.gov.uk/government/publications/fact-sheet-net-zero-aligned-financialcentre/fact-sheetnet-zero-aligned-financial-centre

growth that enables the UK to transition to
Net Zero.41 The “Net Zero Strategy: Build Back
Greener”, outlining the government’s strategy
to Net Zero by 2050, further sets out the
government’s stated commitment for the transition
to deliver “good and green jobs”, contribute toaddressing regional inequalities, and mitigate
any potential negative social impacts, including
on the most vulnerable.42 The devolved Scottish
government has launched a Just Transition
Commission, mandated to provide practicaladvice and recommendations to Scottish ministers
on how to apply Just Transition principles to
Scotland (see Spotlight panel)

Development Plan (NDP), national climate change
policies, and Nationally Determined Contributions(NDC).43 In 2018, the National Planning
Commission issued a paper on energy, layingout the challenges facing a system dominated bycoal, following the Paris Agreement and the rapid
global development of clean energy technologies.
The paper highlighted the risk of stranded
infrastructure investment in the South African coalindustry and stressed the “need for co-ordinatedstakeholder action driven by government tofacilitate a transparent decision-making process
on the future of coal in South Africa as part of ajust energy transition”44• In South Africa, there is broad acknowledgementof the importance of a Just Transition among key
stakeholders. The concept of the Just Transition
is prominently featured across the country’s
trade union policies on climate change, National• At COP26, France, Germany, the UK, the US
and the EU announced a Just Energy Transition
Partnership with South Africa, pledging an initialcommitment of $8.5 billion over the next five years
to support the country’s decarbonisation efforts45

Scottish Just Transition Commission

The Scottish Just Transition Commission, established in
2019, is an independent committee that reports to the
Scottish government annually. The Commission’s March
2021 report lays out the Just Transition opportunities andchallenges, recommendations and practical next steps for
the Scottish government to deliver climate neutrality in a waythat is fair and inclusive.

Moray region, an area exposed to North Sea oil and gas.
This fund is intended to support and accelerate the transition
to a Net Zero economy. The £500 million will be given todevelop offshore and marine renewables supported by
improvements to port infrastructure.

The Commission has called on the Scottish government topursue an orderly transition to Net Zero that benefits people,
addresses the skills gap, empowers communities anddistributes benefits and costs of climate action fairly, with anumber of recommendations. In response to the Commission,
the Scottish government published actions it will take,alongside its National Just Transition Planning Framework.

The Scottish government also committed to consultations on
how fair work can be core to climate action and will design
and implement a ‘skills guarantee’ for workers in carbonintensive sectors. It will also publish guiding principles toensure that no one is left behind in the heat transition. The
Scottish government further committed to? a consultation on
climate risk reporting and ESG standards for local authority
pension funds and to? explore the potential for local climate
bonds.

The Framework will result in a set of sectoral plans, ranging
from energy to agriculture and land use. It further sets up
a £500-million Just Transition Fund for the North-East andSource: This case study is based on the report of the Financing the Just
Transition Alliance convened by the LSE Grantham Research Institute. We are
grateful to its authors for allowing us to reproduce it here.

29

Mobilising institutional capital towards the SDGs and a Just Transition

1.3.3 Just Transition
foundational considerations
Every global movement offers the opportunity forcollective insight to inspire action. Already, the Just
Transition concept is used by governments, labourgroups, investors, businesses, civil society andmultilateral agencies to better understand who will
be affected by climate action and where the effects
of related systemic shifts will be felt.
• B e both universal and place-based:
A Just Transition needs to apply globally but,at the same time, take into account regional
and local factors, including different starting
points and trajectories, capacity for change
and financial means. This especially applies toemerging markets, underdeveloped regions
and underserved communities and individuals•A pply across all sectors and be sectorspecific: A Just Transition cannot solely focus
on high-profile fossil fuels and job losses that
result from decarbonisation measures. Climate
action must span all sectors to reduce both
GHG emissions and electricity consumption,
driving emission reductions and efficiency
gains, including also environmental andbiodiversity considerations. However, thedifferent sectoral opportunities and priorities
for change and the different effects theimplementation of Just Transition strategies
have on different sectors and their workers

Drawing on the challenges detailed in theprevious Section, we can summarise four
foundational considerations that should apply
universally to any solution that aspires tocontribute to and advance a Just Transition.
Any Just Transition action must:and communities need to be considered andaddressed• Be all-inclusive and individually sociallybeneficial: A Just Transition needs toencompass all those negatively affected by
Net Zero strategies but also those alreadydisadvantaged, marginalised and underserved.
To achieve inclusivity, a Just Transition needs
to focus on individuals, households andcommunities to assess the uplift needed toachieve a truly equitable society, including
consideration of gender and race
• B e dynamic and grounded in the current
situation: A Just Transition is, at its heart,a dynamic concept that develops over time.
As such, it needs to be adaptive to changing
global and local needs and environments andconsider both the local and global situationand transformational requirements at thecurrent point in time

Figure 1.7

The integrated Just Transition Elements
Advance Climate and Environmental Action
1 Greenhouse gas emission mitigation, reduction and removal
2 Adaptation and resilience
3 Biodiversity and natural capital – climate and environmental effects

The three Just Transition Elements

4R eduction of pollution or degradation of the natural environment

9 Biodiversity and natural capital – socio-economic effects

AND increase Community Voicea Social dialogue and stakeholder engagement through a participatory voice
and inclusion in decision making for those affected and those frequently
excluded and/or marginalised, including communities and people

30

CE
VO I
U
MM
CO

8 Livelihood enhancement and social justice for all across regions,communities and individuals, including marginalised and underserved
groupsY
NIT

7 Accessibility and affordability of products and services

CLi r o I M AT En me
an taln d
AC T
I ON

6 Inclusive opportunities for decent jobs (including re-skilling where jobs
are lost), delivering fair income, security in the workplace and social
protection for families

env

5 Fair distribution of climate change costs and benefits between developed
and developing countries and between regions and communities withincountries, based on a place-based lens

SOCIO-ECONOMIC
DISTRIBUTION AND EQUITY

Just Tr ansition

AND improve Socio-economic Distribution and Equity

Why more capital needs to move faster towards the SDGs

1.3.4 Integrated Just Transition
Elements fit for the future
Building on the foundational considerations above
and the need to integrate environmental and social
objectives to achieve a sustainable and inclusivetransition for all, it is pivotal that everyone embracea shared view of what constitutes a Just Transition.
We believe that by introducing the Just Transition
Elements, we can make clear what ’good looks
like’, which, in turn, is more likely to spur concerted
and effective action.
Drawing on current discussions, this Section sets
out the future-fit Just Transition Elements. At theircore the Just Transition Elements integrate three
critical drivers of a Just Transition applicable acrossgeographies, sectors, policies and investments.
Actions can only be considered to advance a Just
Transition if they meet all three of the integrated
Elements. Only by adhering to a common
understanding of a Just Transition can we ensurethat equitable and inclusive pathways to Net Zeroand a thriving planet are realised and not left torhetorical aspirations.
Figure 1.8

Sustainable funds' outperformance in 2020
A Morgan Stanley analysis of more than 3,000 US mutual funds andexchange traded funds (ETFs) shows that sustainable equity funds
outperformed their traditional peers by a median of 4.3% in 2020.

Returns from sustainable vs traditional mutual funds

Median Total Return15%

19.04%

14.77%

10%
6.74%

5.86%

5%

0%
EquitySustainable

The Just Transition Elements reflect the systemic
connectedness of environmental enhancement andsocial equity. Progressive adoption by all key groups
mentioned at the opening of this report – asset
owners, stewards of capital, designers and structurersof investment products, and ecosystem players –offers a corridor of tangible action. By embracing
the Just Transition Elements there is a real chanceto accelerate the effectiveness of public and private
finance deployed towards climate and socially positive
solutions. Integrity and accountability of finance can beassured by using the Just Transition Elements as thebasis for assessing results.
It is important to repeat that a Just Transition stands
only on all its three legs and that the integrated pursuitof all three Elements is key. All three of the following
threshold statements must apply to any action:
1 Every Just Transition investment transaction will, asa minimum, include at least one clear componentof Climate and Environmental Action and there
should be a net positive contribution to climate
and the environment.
2 Every Just Transition action will, as a minimum,
make a net positive contribution to Socioeconomic Distribution and Equity
3 Every Just Transition action will, as a minimum,
include meaningful engagement with local
stakeholders and demonstrate how Community
Voice is reflected.
The transition to a sustainable and inclusive
world for all requires conscious, intentional,
proactive and concerted action across theworld, from both public and private actors.
Embracing common Just Transition Elements
across all groups will strengthen efforts
underway and encourage new efforts withsharper clarity and focus.

2020 Median Total Returns
20%

Implementing the Just Transition
Elements

Bond
Traditional“Sustainable investments have continued toperform well throughout 2020, reinforcing the valueof sustainable investing and further dispelling themyth that investors who include sustainability
considerations in their portfolios face a financial
trade-off”
Audrey Choi, Chief Sustainability Officer
Source: Morgan Stanley (2021): "Sustainable Funds Outperform Peers in 2020
During Coronavirus"; https://www.morganstanley.com/ideas/esg-funds-outperform-peers-coronavirus

Every global movement invites moments ofcollective clarity to inspire action. By introducing
the integrated Just Transition Elements that buildon what has come before, we are contributing tothis clarity which, in turn, will galvanise action.
Sections 2 and 3 of this report describe the typesof action that can be encouraged by making fulland concerted use of investment instruments andpolicies.

1.3.5 Who are the key actors
driving a Just Transition?
In order to achieve a Just Transition, effort and action
across all segments of societies are needed. There
are a number of key actors that need to engage anddrive change, including:Public sector• The international community, national
governments and local governments need31

Mobilising institutional capital towards the SDGs and a Just Transition

to drive the explicit integration of a Just Transition in
relevant policies and regulations. Further, they needto engage in and cooperate on related activities,
including the harmonisation and adaptation of Just
Transition reporting standards and to represent
the voices of their communities affected by thetransition to Net Zero. National governments also
play an important role as the shareholders in DFIs
and MDBs (see below), and hence the providers ofthese institutions’ respective mandates• Bilateral DFIs and MDBs play a crucial andleading role in advancing a Just Transition. Theirability to initiate and scale Just Transition businessmodels and innovations that combine environmental
and social considerations, their ability to provide
patient capital (including blended financial solutions,
see Section 2.5) and invest in emerging markets,and their influential voice all make them importantdrivers of Just Transition financing

46

IEA (2021): "Net Zero by2050 – A Roadmap for the
Global Energy Sector";
https://www.iea.org/reports/net-zero-by-2050•R egulators have a key role to play as they
have the power to assign benefits to, or impose
restrictions or penalties on, companies within
their jurisdictions. Their core aim has been to
ensure market integrity for consumer protection
and risk mitigation, yet their ability to adversely
impact the market by restricting capital flows tomarkets and investments is particularly pertinent.
Their gatekeeping role is material for mobilising
future flows to those investments and markets that
advance the SDGs and a Just Transition

Private sector• Corporates are increasingly expected bygovernment regulation, investors and consumers
to integrate Just Transition considerations into their
purpose or mission, their strategy, decisions, actions
and reporting with respect to their own products
and services, and along their supply chains• Financial actors, including investors, asset
managers, banks and advisory intermediaries,
are of particular importance as large capital sums
are needed to drive an inclusive transition acrossthe world. Investors need to channel their funding
and integrate a Just Transition lens across theirinvestment and divestment decisions, asset
allocation and corporate engagement activity.
Asset managers and intermediaries need toensure that relevant investment opportunities
are designed to allow participation by a wide
range of investors so that projects that advancea Just Transition can attract funding at scale
and pace. Investing in the Just Transition is not
only a defensive strategy, it should be – and isincreasingly seen as – an opportunity

Communities• Communities and their place-based needs(e.g., in terms of job creation and retention,
livelihoods enhancement, energy access andquality of basic services) must be at the centre
of a Just Transition. They must be given an
increased voice at the table to ensure that the
decarbonisation of the global economy provides
solutions that work for the workers, households
and individuals living in the communities mostaffected by Net Zero strategies.

1.4 The opportunity to finance a Just Transition
Just Transition goals can only be met with afundamental shift of global financing, and withwidespread adoption of investments that support
and accelerate a Just Transition. Activating thecomplete range of financing tools, spanning public
and private funding across asset classes, is needed.
Figure 1.9

Trillion USD (2019)

Clean energy investment required to achieve Net Zero5
End-useEnergy infrastructure

4Electricity generation3

Low-emissions fuels2

1

2016-20

32

2030

2050

Source: : IEA (2021):"Net Zero by 2050 - A
Roadmap for the Global Energy Sector";
https://www.iea.org/
reports/net-zeroby-2050

That is how we will encourage participation of thevast amounts of capital required to convert a Just
Transition from aspirational goal into reality forpeople in communities across the globe.

1.4.1 Funding needs andopportunities
What funding is required: There is no complete
estimate of the funding required to achieve a Just
Transition globally. Some relevant data points andestimates, however, showcase the enormity of thechallenge and opportunity. For example, with afocus on energy transition specifically and the SDGs
more generally:• The International Energy Agency (IEA) estimatesthat total clean energy investment to achieve
Net Zero across energy infrastructure, electricity
generation, low-emission fuels and electricity enduse sectors, needs to reach around $4 trillion perannum by 203046• A recent Energy Transitions Commission reportputs global costs for reaching Net Zero by 2050 at
approximately $1.6 trillion a year, comprising $1.3

Why more capital needs to move faster towards the SDGs

trillion for the power sector and $300 billion for allother sectors47• The UN Environment Programme (UNEP) estimatesthat the global cost of adaptation to climate
impacts will grow to $140-300 billion per year by2030 and $280-500 billion per year by 205048• The UN estimates the gap in financing to achieve
the SDGs at $2.5 trillion per annum in developing
countries alone 49,50• Morgan Stanley reported that climate-related
disasters cost the world $650 billion from 20162018, just over a quarter of 1% of global GDP51
What funding is being provided: Actual fundedamounts currently available for green or social
financing, although on the rise, are still a fraction ofwhat is needed:• Global ESG thematic bond issuance has risen
sharply in the last eight years, reaching close to$450 million in 2020.52 Green bonds are growing
impressively but remain a niche in global debt
markets. From less than $1 billion a decade ago,
issuance of green bonds reached $280 billion in
2020. However, in 2019, green bond issuances
still represented only about 3.5% of global bondissuances53• Green infrastructure investments are on the rise, inparticular in renewable energy. However, to put this
into context, these investments are only a fractionof total unlisted equity infrastructure investments todate, which again account for less than 1% of theoverall asset allocation of institutional investors.54
With $52 billion newly committed, renewables
funds outraised conventional energy funds by morethan six times in 2020, according to the financial
data provider Preqin. By mid-2021, investors had
committed another $30 billion into renewableenergy private equity funds – that’s as much as
25-times the investment in legacy energy sources55• Access to energy has grown from a niche market
in 2012 and less than $30 million of investmentcommitments to an established market with over$300 million of commitments in each of 2016 =201956• In 2020, $272 billion worth of sustainableinfrastructure projects were announced, nearly
double the levels seen a decade ago. Around
35% of all infrastructure projects globally aresustainable, up from 10% a decade ago57• Impact investments grew to an estimated $715
billion in 202058. However, compared withtotal global institutional investor assets undermanagement, estimated at $154 trillion as of end202059, impact investments remain marginal
Seizing the economic and investment
opportunity: Seeing these investment gaps as
openings for action, funding towards climate andsocial objectives is increasing. This movement
reflects growing awareness that funding a Just
Transition to Net Zero represents a significant
economic opportunity. At a global level, the New

Climate Economy initiative estimates, based on
its analysis, that “bold action could yield a direct
economic gain of $26 trillion through to 2030
compared with business-as-usual”60.
In the UK, the Climate Change Committee estimatesthat while there needs to be a five-fold increase in
Net Zero investment from about £10 billion per year
in 2020 to around £50 billion in 2030, before peaking
in 2035, these capital costs will be more than offset
by major financial savings in operating costs.61
Calculating the latest carbon budget for the UK led
the Committee to expect the level of the UK's GDP
by 2035 to be around 2% higher with climate action
than it would be continuing as is, as resources are
redirected from fossil fuel imports to UK investment.

47

Energy Transitions Commission (2020): "Making Mission Possible – Delivering a Net-Zero Economy"; https://www.energy-transitions.org/publications/making-mission-possible/

48

UNEP (2021): "Adaptation Gap Report 2020"

49

Estimates for total investment needs in developing countries
alone range from $3.3 trillion to $4.5 trillion per year for basic
infrastructure (roads, rail and ports; power stations; water andsanitation), food security (agriculture and rural development),climate change mitigation and adaptation, health, and education.
At today’s level of investment – public and private – in SDG-related sectors in developing countries, an average annual funding
shortfall of some $2.5 trillion over 2015-2030 remains.

50

UNCTAD (2014): "World Investment Report –Investing in the SDGs: An Action Plan"; https://unctad.org/
system/files/official-document/wir2014_en.pdf

51

CNBC (2019): "Climate disasters cost the world $650 billion over
3 years – Americans are bearing the brunt: Morgan Stanley";
https://www.cnbc.com/2019/02/14/climate-disasters-cost-650billion-over-3-years-morgan-stanley.html?linkId=63598601

52

Amundi and IFC (2021): "Emerging Market Green Bonds Report2020"; https://www.ifc.org/wps/wcm/connect/publications_ext_
content/ifc_external_publication_site/publications_listing_page/
emerging-market-green-bonds-report-2020

53

 IS (2020): "Quarterly review – Green bonds and carbon emisB
sions: exploring the case for a rating system at the firm level";https://www.bis.org/publ/qtrpdf/r_qt2009c.htm

54OECD (2016): "Progress report on approaches to mobilising institutional investment for green infrastructure"; https://www.oecd.
org/cgfi/resources/Progress_Report_on_Approaches_to_Mobilising_Institutional_Investment_for_Green_Infrastructure.pdf

55

 loomberg (2021): "Private Equity Follows the Money – and theB
Money Is Ditching Fossil Fuels"; https://www.bloomberg.com/
news/articles/2021-07-06/private-equity-is-ditching-fossil-fuelsover-climate-change-concerns?mc_cid=9e2e07a1f9&mc_eid=977e424e83

56

GOGLA (2020): "Off-grid solar investment trends"; https://www.
gogla.org/resources/off-grid-solar-investment-trends-2019-2020

57

Refinitiv (2021): "Sustainable infrastructure: The green rush";https://www.refinitiv.com/en/infrastructure-investing/insights/sustainable-infrastructure

58

GIIN (2020): "2020 Annual Impact Investor Survey"; https://thegiin.org/research/publication/impinv-survey-2020

59

Thinking Ahead Institute (2021): "Global Pensions Asset Study– 2021"; https://www.thinkingaheadinstitute.org/research-papers/global-pension-assets-study-2021/. The analysis includes
pension funds, insurance companies, sovereign wealth funds,
endowments and foundations, and mutual funds.

60

The New Climate Economy (2019): "Unlocking the Inclusive
Growth Story of the 21st Century: Accelerating Climate Action in
Urgent Times"; https://newclimateeconomy.report/2018/wp-content/uploads/sites/6/2018/09/NCE_2018_FULL-REPORT.pdf

61

CCC (2020): "Sixth Carbon Budget"; https://www.theccc.org.uk/
publication/sixth-carbon-budget
33

Mobilising institutional capital towards the SDGs and a Just Transition

62

In South Africa, according to Absa Bank,“investments built around renewable energy,
sustainable transport solutions and nature-based
rehabilitation could deliver 250% more jobs and420% more value added in the economy compared
to traditional fossil fuel investments”.62
ABSA Bank (2021): "TheRoad to COP26: Opportunities, Challenges and theAfrican Transition to Net-Zero"; https://www.absa.
africa/absaafrica/our-stories/
our-voices/2021/the-roadto-cop-26

63

Robeco: "Climate investing– Opportunity"; https://www.robeco.com/en/sustainability/climate-investing/opportunity

64

IFC (2016): "Climate
Investment Opportunities in
Emerging Markets"; https://www.ifc.org/wps/wcm/connect/59260145-ec2e-40de97e6-3aa78b82b3c9/3503IFC-Climate_Investment_Opportunity-Report-Dec-FINAL.
pdf?MOD=AJPERES&CVID=lBLd6Xq

65

66

67

UNFCCC (2021): "Glasgow
Climate Pact"; https://unfccc.int/sites/default/files/
resource/cma2021_L16_
adv.pdf
UNFCCC: "Climate Financein the negotiations"; https://
unfccc.int/topics/climate-finance/the-big-picture/climate-finance-in-the-negotiations; see also Heinrich
Boell Stiftung, ODI (2021):"Climate Funds Update"Public development banks
are state-owned financial
institutions, including
MDBs and DFIs, that aim todeliver on policy objectives
to support the economic
development in a country
or region. According to the
AFD, there are around 450
public development banks
across the globe: https://www.afd.fr/en/actualites/
six-things-know-about-public-development-banks

SPOTLIGHT

In emerging markets more broadly, companies that
seek to deliver climate solutions with clear social
benefits, including renewables or smart technology
developed for emerging markets, are increasingly
coming into investors’ focus.63 The International
Finance Corporation (IFC), for example, identified$23 trillion worth of investment opportunities forclimate-smart investments in emerging markets
in their 2016 report on "Climate Investments
Opportunities in Emerging Markets".64
The Just Transition Elements introduced in thisreport reflect the systemic connectedness ofenvironmental enhancement and social equity.
By embracing the integrated application of theJust Transition Elements, there is a real chanceto accelerate the effectiveness of public andprivate finance deployed towards climate andsocially positive solutions.

1.4.1.1 Public funding towards
a Just Transition
Governments have been called to action in orderto achieve long-term Net Zero objectives and aredeveloping roadmaps to meet these. In addition
to climate action at the national level, developed
countries jointly promised in Copenhagen in 2009 toincrease their annual climate-related finance support
to developing countries to $100 billion by 2020.
At COP21 in Paris in 2015, developed countries
confirmed their intention to continue and increase
their collective support of developing countries
with respect to climate mitigation, adaptation
actions and implementation of transparency toenhance the provision of urgent and adequate
finance, technology and capacity-building support,
considering developing countries’ respective needs
and priorities. At the conclusion of COP26, theGlasgow Climate Pact reconfirmed the need to

Thematic initiatives: In recent years, several funds
have been launched by the community of developed
countries to provide financial assistance to emerging
markets to support their transition towards Net Zero.
These include those below as well as those coming
out of COP26, listed in Appendix 2:66
• Global Environment Facility (GEF): Established on
the eve of the 1992 Rio Earth Summit to help tackle
the world’s most pressing environmental problems.
The GEF is focused on enabling developing
countries to invest in nature and supports theimplementation of major international environmental
conventions on issues including biodiversity,
climate change, chemicals and desertification. As
of December 2020, the GEF had approved over
830 projects amounting to $4.1 billion. The GEF
also administers the Special Climate Change Fundand the Least Developed Country Fund, whichprimarily support smaller-scale projects• Green Climate Fund (GCF): Founded in 2010 within
the framework of the United Nations Framework
Convention on Climate Change (UNFCCC) as an
operating entity to assist developing countries in
adaptation and mitigation practices to counterclimate change. With over $10 billion pledged(and close to $9 billion committed), the GCF is theworld’s largest climate fund, mandated to support
developing countries raise and realise their NDC
ambitions towards low-emissions and climateresilient pathways• Adaptation Fund: Established under the Kyoto
Protocol of the UN Framework Convention on
Climate Change. Since 2010, the Adaptation
Fund has committed $833 million to more than
120 projects and programmes targeting climate
adaptation
Initiatives by MDBs/DFIs: In addition to theconcerted effort of industrialised countries to support
developing countries, MDBs and bilateral DFIs areneeded to expand funding and accelerate Just
Transition relevant projects, enterprises and financing
vehicles. At the Finance in Common summit 2020,

Denmark’s national collaboration model

Denmark introduced a new climate law in 2019, binding thecountry to emission reduction goals of 70% of 1990 levels
by 2030, and Net Zero by 2050. The law also includes
a commitment to deliver climate finance to developing
countries.

34

significantly increase support for developing countries
beyond $100 billion per year.65

renewables) contribute their expertise and investment into
technology and infrastructure, with the aim of phasing out
fossil fuels in electricity and heating.

In order to meet its targets, Denmark is working on a modelof how government and the private sector can work together
to mobilise capital, catalyse innovation, and share risks tojointly meet their country’s Net Zero targets.

Throughout this process, risk sharing among the parties has
emerged as a major topic, given the required time horizonsof these investments. As a result, incentives, subsidies, andregulations may be necessary to encourage capital flows.
This is a topic that is explored in greater detail later in thisreport.

The government is creating climate partnerships, whereby
policymakers provide the framework and conditions, while
corporates (including energy companies across oil, gas andSource: Bain & Company (2021): "Global Energy and Natural Resources
Report 2021 – Navigating the Energy Transition"

Why more capital needs to move faster towards the SDGs

all public development banks67 delivered a Joint
Declaration of All Development Banks in the World,
confirming that Just Transition is an integral partof international development and development
finance efforts. In 2019 alone, MDBs committed$61.6 billion towards climate finance.68
Some important funding structures over the years
include those below as well as those coming out of
COP26, listed in Appendix 3:69
• Climate Investment Funds: Besides governmentdriven climate funds, the MDB community
created two Climate Investment Funds, including
various programmes, to bridge the financing
and learning gap in climate finance: the Clean
Technology Fund and the Strategic Climate
Fund In 2008; the funds received pledges of$8.5 billion from their 14 donor countries

68

69

70

Heinrich Boell Stiftung,
ODI (2021): Climate Funds
Update; https://odi.org/
en/about/our-work/climate-funds-update/Thinking Ahead Institute(2021): "Global Pensions
Asset Study – 2021";
https://www.thinkingaheadinstitute.org/research-papers/global-pension-assets-study-2021/. The
analysis includes pension
funds, insurance companies, sovereign wealthfunds, endowments andfoundations and mutual
funds.
PRI: "Statement of Investor
Commitment to Support a
Just Transition on Climate
Change"; https://www.unpri.
org/download?ac=10382.
Endorsed by 161 investors.

• Forest Carbon Partnership Facility (FCPF):
The World Bank’s Carbon Finance Unitestablished FCPF in 2008 to explore how
carbon market revenues could be harnessed toreduce emissions from deforestation and forest
degradation, forest conservation, sustainable
forest management and the enhancement offorest carbon stocks (efforts known collectively
as REDD+)finance readiness in African countries through theGerman-funded ACCF, established in 2014
Blended transactions: Using their status, market
networks and local expertise, MDBs and DFIs can andmust continue to go where the private sector currently
cannot, to create investable pipelines, investment
track records and ultimately functioning markets, sothat private capital can follow. Their support is further
needed at times to provide patient, risk-tolerant capitaland capacity-building support in blended transactions.
These transactions ‘blend’ public or other impactfocused capital (i.e., capital whose primary objective
is positive impact rather than a sole focus on financial
performance) with private institutional capital. This helps
to mobilise private capital into transactions by derisking or otherwise enhancing investments (for more on
blended finance see Section 2.5). Risks addressed byblending include credit, political, economic or currency
risks, risks associated with untested and innovative
business models or risks with respect to new fundmanagers entering or pivoting into emerging markets.

1.4.1.2 Private funding towards Just
Transition• Global Energy Efficiency and Renewable Energy
Fund (GEEREF): The European Investment Bank
administers the European Union’s GEEREF, afund of funds launched in 2008, which invests inrenewable energy and energy efficiency private
equity funds in emerging markets

Public monies will not be enough to meet the funding
needed to achieve a global Just Transition. Private
capital across the spectrum of capital is required,including both risk-tolerant pioneering capitalfrom impact investing capital providers and thetransformative large amounts of capital that are heldby institutional investors, estimated at $154 trillion asof end-2020.70 All investors need to embrace the pushtowards a global transition that is just and fair for all.
That said, investors do not act in isolation. Also theuniverse of intermediaries, advisors and consultants
needs to do its part and move beyond short-term
financial targets in order to achieve long-term andsystemic change.

• Africa Climate Change Fund (ACCF): The African
Development Bank funds enhanced climate

In 2020, in a Statement of Investor Commitment to
Support a Just Transition on Climate Change, 161• BioCarbon Fund Initiative for Sustainable Forest
Landscapes: This public-private partnershipfor mobilising funds for sequestration orconservation of carbon in the land use sector was
established in 2004 and is managed by the WorldBankStatement of Investor Commitment to Support a Just Transition on Climate Change“Investors can make an important contribution
as stewards of assets, allocators of capital andas influential voices in public policy to makesure that the transition produces inclusive andsustainable development. There are multiple
reasons which together create a compellingcase for investors to support the just transition”• S ocietal Goals: The Just Transition enables investors
to align themselves to strategic global objectives such as
those contained within the Paris Agreement, the Sustainable
Development Goals along with international labour andhuman rights standards• S ystemic Risk: The Just Transition provides a way forinvestors to better manage the systemic risks of climatechange by linking the environmental and social dimensionsof long-term economic performance• Fiduciary Duty: The Just Transition is aligned with thefiduciary duty to capture the social and environmental
drivers of value creation and serve beneficiary interests• M ateriality: The responsible management of workforce
and community dimensions of climate change are
increasingly material drivers for value creation• O pportunity: The linkage of climate change with social
factors provides a lens for investors to view new investment
opportunities that generate returns and positive impact

Source: PRI: "Statement of Investor Commitment to Support a Just Transition
on Climate Change"; https://www.unpri.org/download?ac=10382.

35

Mobilising institutional capital towards the SDGs and a Just Transition

Key high-level asset classes for institutional investors•E quities (stocks)~ Including global equities, emerging market equities, sustainable equities and ESG portfolios•F ixed income (bonds)~ Including global fixed income, emerging markets debt, investment grade and high-yield debt andgreen bonds~T hree basic products: revenue bonds (funding particular projects), general obligation bonds (funding
general activities of issuing body) and asset-backed securities (backed by specific assets)• Cash and cash equivalents~C ash, money market funds• A lternatives~ Including private equity (including leveraged buy-outs and venture capital), private debt, real estate,
infrastructure, and commodities
Today, the relevance of the typical asset class categorisation is under discussion. Experienced voices
within the investing community are advocating for two changes: 1. reclassification of private debt alongside
fixed income given its similar correlation and performance features; and 2. introduction of new asset
classes reflecting the value of natural assets. These discussions can be expected to continue shaping andinfluencing investor behaviours and opening up further opportunities to scale capital towards the SDGs.

investors, representing $10 trillion in assets,committed to supporting a Just Transition (seepanel below).71

71

PRI: "Statement of Investor
Commitment to Support a
Just Transition on Climate
Change"; https://www.unpri.
org/download?ac=10382.
Endorsed by 161 investors.

72

UNEP Finance Initiative(2021): "Global investor
statement: Investors urge
governments to undertakefive priority actions before
COP26"; https://www.
unepfi.org/news/industries/
investment/nearly-600investors-urge-govts-toundertake-five-priority-actions-before-cop26/

73

UK Government (2021):"Third of UK's biggest
companies commit to Net
Zero"; https://www.gov.uk/
government/news/third-ofuks-biggest-companiescommit-to-net-zeroThis statement was reinforced in the run up
to COP26, as 587 investors, representing $46
trillion in assets, endorsed a 2021 Global Investor
Statement to Governments on the Climate Crisis,
which includes a call to governments to develop
Just Transition plans for workers and communities
affected by the transition to Net Zero.72 On theback of COP26, this commitment is gaining further
traction within the investor community. Despite
increased awareness among investors of the urgent
need for a Just Transition most have not gone
beyond expressions of support for the objective.
Expressions to date are largely aspirational
without specific meaning, beyond climate, of how
invested capital can contribute towards a Just
Transition. Equally, emerging markets have notfeatured prominently in investments. Hence, theopportunity to introduce the three Just Transition
Elements that we have outlined in this report and,from a geographic perspective, focus attention on
investing in emerging markets.
Investors have an array of investment opportunities
across all asset classes that are ESG- or impact-

relevant. However, currently there are few deals
that fully satisfy all three of the Just Transition
Elements. This is because Just Transition is arelatively new concept in finance and has either
been used in quite an abstract way or very
narrowly to speak to the loss of jobs arising froman economic transition away from fossil fuels. Many
investors are looking at climate investments (oftenwith a Net Zero lens) or social investments (oftenwith an SDG lens), yet few investment opportunities
have bridged the gap and combined the two.
However, there are many investment opportunities
available to private investors, across all asset
classes, that combine climate and social
objectives. The table below provides examples of
direct and indirect transactions, within each asset
class, that pursue climate or social objectives.
While these are not Just Transition investments,
the table intends to demonstrate that relevant
investment opportunities exist. Many of theexamples listed could be used as base examples
that, with targeted modifications to their objectives
and strategy, can fully satisfy the Just Transition
Elements. Section 3 provides a more detailed viewon select indirect transactions listed below withinpriority asset classes.

Climate and socially relevant transaction examples across asset classes(Note: Examples listed below do not yet fully meet the requirements of the Just Transition Elements but indicate the potential for further alignment)

Equities

36

DirectIndirect

What Investors Can Do

Corporates

Listed funds or vehicles

Examples:Thirty of the UK’s FTSE100
companies have signed up to
the United Nations’ Race toZero campaign; e.g., Vodafone
has pledged to reduce its own
carbon emissions to zero by
203073

Examples:•C alvert Global Alternative Energy Fund•S
 elect stocks with strong
climate and social performance•K BC Asset Management•W inslow Green Growth Fund

• Engage with companies toimprove climate and social
track record, includingtransparency and reporting(shareholder advocacy)• Engage with government
bodies (policy advocacy)

Why more capital needs to move faster towards the SDGs

Bonds

DirectIndirect

What Investors Can Do

Sovereign and municipal

Bond funds or investment vehicles

Green bonds

Examples:• Schroder International Selection FundBlueOrchard Emerging Markets Climate
Bond fund by BlueOrchard• Select bonds with strong
climate and social performance

Examples:• EIB Climate Awareness Bond
• Green bonds issued by 16
sovereigns to date74
Social bonds
Examples:• Social bond by the Republic ofEcuador, raising $400 million in2020 (first social bond from asovereign)75• For revenue bonds, review
underlying projects and focus
on use of proceeds• Green Credit Continuum (Greco) by
Amundi and the European Investment
Bank (EIB)• Demand transparent andstringent climate and social
reporting• Planet Emerging Green One by Amundi
and IFC• Demand securitisation
structures backed by energyefficient assets, e.g., an RMBS
backed by energy-efficientbuildings• Masala bond programme by IFC(Note: Alternative structure)
Asset-backed securities

Corporate
Green bonds
Examples:• Fannie Mae was the largest
green bond issuer in 2020 witha total issuance of $13 billion76

Examples:• Room2Run synthetic securitisationby the African Development Bank (AfDB)• Orsted green bond (corporate
green bond of the year award;
at the time of issuance it was
the largest ever GBP green
bond offering)77• Standard Bank issued a$200 million green bondin 2020
Social bonds
Examples:• CaixaBank’s inaugural social
bond in 2019 at €1 billion78

Cashand cashequivalents

Cash at bank

N/A

Examples:• Banks with climate
commitments and sociallyconscious banks such as
ShoreBank, New Resource
Bank or Triodos Bank

• Put money to work in bankswith clear and demonstrated
climate and social objectives• The Global Alliance for Banking
on Values (GABV) is a networkof such financial institutions79

Money market instruments

74

ICLG (2021): "Green bond nations raise nearly GBP 100 billion"; https://iclg.com/ibr/articles/16677green-bond-nations-raise-nearly-gbp-100-billion

75

Environmental Finance (2020): "Social bond of the year, sovereign, and Award for innovation – bondstructure (social): Republic of Ecuador"; https://www.environmental-finance.com/content/awards/
green-social-and-sustainability-bond-awards-2020/winners/social-bond-of-the-year-sovereignand-award-for-innovation-bond-structure-(social)-republic-of-ecuador.html

76Climate Bonds Initiative (2021): "Record $269.5bn green issuance for 2020: Late surge sees pandemic year pip 2019 total by $3bn"; https://www.climatebonds.net/2021/01/record-2695bn-greenissuance-2020-late-surge-sees-pandemic-year-pip-2019-total-3bn

77Environmental Finance (2020): "Green bond of the year, corporate – Ørsted"; https://www.environmental-finance.com/content/awards/green-social-and-sustainability-bond-awards-2020/winners/
green-bond-of-the-year-corporate-orsted.html

78

Environmental Finance (2020): "Social bond of the year, bank – CaixaBank"; https://www.environmental-finance.com/content/awards/green-social-and-sustainability-bond-awards-2020/winners/social-bond-of-the-year-bank-caixabank.html

79Global Alliance for Banking on Values: https://www.gabv.org/

37

Mobilising institutional capital towards the SDGs and a Just Transition

Alternatives

DirectIndirect

What Investors Can Do

Private equity and venture
capitalPrivate equity and venture capital
funds

Private debt
Infrastructure

Examples:• Emerging Consumer Fund III by Leapfrog• Prioritise opportunities that
demonstrate a combination ofclimate and social objectives
from strategy to execution

Real estate• Rise Fund by TPG

Commodities• Brookfield Global Transition Fund by
Brookfield80• Tropical Asia Forest Fund by New Forests• African Development Partners III by DPI
Fund of funds
Examples:• Climate Innovation Fund by Credit Suisse• AfricaGrow by Allianz Global Investors
Private debt funds
Examples:• Global Climate Partnership Fund by
responsAbility• Access to Clean Power Fund by
responsAbility• Develop a set of consistentscreening and due diligencequestions for all managers toassess incorporation of climate
and social objectives• Encourage managers with trackrecord to innovate and bring tomarket investment propositions
that combine climate and social
objectives• Analyse opportunity within local
contexts of capital deployment
with consideration of countries’
climate priorities• Demand consistent and clear
reporting of performanceagainst climate and social
objectives• Africa Credit Opportunities Fund 2 by
Ninety One• Emerging Markets Loans Fund by FMO
IM and NN IP• Microfinance Fund by Triodos Investment
Management• InsuResilience Investment Fund by
BlueOrchard
Infrastructure funds
Examples:• Energy Fund 4 by Actis• Emerging Markets Infrastructure Fund by
Ninety One• Infrastructure Climate Resilient Fund by
AFC Capital Partners
Real estate funds
Examples:• IHS Fund II by International Housing
Solutions
Hedge funds
Examples:• Autonomy Capital’s global macro strategy
includes over 60 countries, considering
the “global drive towards sustainability”81

Source: The table is based on the Institute for
Responsible Investment and Boston College
for Corporate Citizenship's "Handbook on Climate-Related Investing across Asset Classes",
supplemented by our own research.
80

Environment Journal (2021): "Brookfield’s
New $7.5 billion Climate-Focused Fund";https://environmentjournal.ca/brookfieldsnew-7-5-billion-climate-focused-fund/81

Autonomy Capital: Seeking to uncover
uncommon opportunity in developed andemerging markets; https://autonomycapital.
com/strategies/

38

Applying the Just Transition Elements allows investors from every
part of the spectrum of capital (and the wider ecosystem of asset
managers, intermediaries, advisors and consultants) to allocate
capital across asset classes in ways that contribute to the change
we need to achieve our people and planet objectives.

Why more capital needs to move faster towards the SDGs

1.4.2 Possible investment
strategies for Just Transition
finance
A Just Transition requires an integrated andintentional financing approach to achieve a global Net
Zero economy that leaves no one behind. Financingof Just Transition initiatives, provided by both public
and private investors, should integrate the three
Just Transition Elements outlined in this report.
The Just Transition Elements can be applied toportfolio allocation strategies and funding decisions,establishing and following clear and transparent
parameters. A Just Transition investment will needto include a combination of target investment
objectives, with at least one identified objective
within each of the three Elements, to qualify as such.
Possible strategies that follow the Just Transition
Elements’ objectives are shown in Figure 1.10.
When combined, these strategies offer a positive
impact approach to climate and social investingthat can contribute to achieving a Just Transition
that delivers a sustainable and inclusive society
for all. The relative prominence of the individual
Elements will depend on the respective strategy or
funded initiative being pursued. Certain investments
may integrate positive climate and social action
simultaneously with a focus on the stimulation of‘new’ business models and innovations of existingmodels, as, for example, investments that accelerateaccess to affordable renewable energy or investments
into green microfinance or building affordable housingthat is energy efficient. Other investments may have aclear primary focus on the Climate and Environmental
Action Element while including consideration of andengagement in the other two Elements. Such an
example may include an investment in renewableenergy including an explicit focus on decent jobs andcommunity support (see Section 3 for more casestudies and examples of vehicle strategies).
Regardless of the primary area of priority oremphasis, all three Elements must be present
to qualify as a Just Transition investment.
As strategies can be anchored in or led by theclimate or the social Element of a Just Transition,
the resulting breadth of possible Just Transition
investments is substantial. Possibilities go far
beyond the (obvious) renewable energy generation
projects, energy efficiency investments and sustainableinfrastructure. Just Transition investments can extend,
for example, to financial inclusion strategies targeting
microfinance investments, fintech and climate
adaptation insurance, healthcare strategies that
include energy efficiency improvements, green built
environment strategies that target educational and othersocial infrastructure, food and agriculture strategies
that strengthen livelihood opportunities for smallholder
famers and introduce climate resilience, as well as
strategies that target the growing pool of nature-based
solutions (see Figure 1.11 for further examples).

Figure 1.10

Just Transition Elements and example strategies to meet them
Just Transition

Climate andEnvironmental
ActionExamples of financing strategies

Emission mitigation, reduction and removal

Renewable energy, sustainable infrastructure,electric vehicles

Adaptation and resilience

Resilient infrastructure, resilience insurance

Biodiversity and natural capital – climate andenvironmental effects

Sustainable forestry

Reduction of pollution or degradation of thenatural environment

Circular economy

Fair distribution of costs and benefits ofclimate action

Socioeconomic
Distribution
and Equity

Community
Voice

Foundational
Considerations

Inclusive opportunities for decent jobs

Job-creation, quality jobs, up/re-skilling, job preservation

Accessibility and affordability

Access to affordable energy strategies, affordable housing

Livelihoods and social justiceFinancial inclusion, gender or racial equity strategies

Biodiversity and natural capital –socio-economic effects

Sustainable agriculture, fishery, wildlife conservation

Dialogue and engagement

Community/employee ownership schemes

A Just Transition must:• Be universal and place-based• Be all-inclusive and individually socially beneficial• Apply across sectors and be sector-specific• Be dynamic and grounded in the current situation

39

Mobilising institutional capital towards the SDGs and a Just Transition

Figure 1.11

Example strategies from climate-led to social-led

Climate-led

Access torenewableenergyWaste & water

Sustainableinfrastructure
Renewableenergygeneration &distributionGreentransport
Green realestateEnergyefficientconsumerproducts

Nature-based
solutionsSustainable
forestry

Financialinclusionincl. climate
insurance

Resilience
insurance

Healthcareincl. energy
efficiency

Affordable
green housing
Education

Biodiversity in green realGreenagriculture

SustainableoceansSocial-led

estateEquality
strategies
incl. climate
resilience

Circulareconomies

This report intends to provide guidance toinvestment efforts applying a common Just
Transition approach that explicitly integrates all three
Elements of Climate and Environmental Action;
Socio-economic Distribution and Equity; andCommunity Voice across strategies, geographiesand sectors. The guidance does not predetermine
the manner in which the three Elements are satisfied
by an investment. Application of the Just Transition
Elements to existing investment products in themarket as well as influencing the design of new
investment products is the focus of the following
sections of this report.

1.4.2.1 Just Transition Element 1:
Climate and Environmental Action
The Just Transition Climate and Environmental
Action Element includes four sub-elements:
emissions mitigation, reduction and removal;
adaptation and resilience; biodiversity and natural
capital; and reduction of pollution oir degradationof the natural environment.
Moving the world to Net Zero can be achieved
through two complementary investment areas:climate mitigation or reduction action and carbon
removal. To reduce net emissions to zero, focus isneeded on both pathways: those that accelerate
the reduction of emissions of harmful GHGs andthose that protect natural solutions and accelerate
the development of new solutions that capture or
remove those gases.
82

IPCC (2018): "Special Report on Global Warming of
1.5°C"; p 362; https://www.
ipcc.ch/sr15/

40

On emissions mitigation and reduction, supply anddemand need to be addressed simultaneously. On
the supply side, actions are needed to decarboniseelectricity and heat production through the use of
low-carbon solutions. One clear focus must be thetransition out of fossil fuels and into renewables,
wherever possible, to reduce the supply of highcarbon energy. On the demand side, a clear
focus should be on the introduction of energy
efficiency measures to reduce the demand forheat and energy. Demand-side initiatives include
advancing low-emission innovations like electriccars, increasing the energy efficiency of buildings
or adopting energy-efficient products andappliances, as well as reducing the consumptionof energy- and GHG-intensive products throughbehavioural and lifestyle changes (e.g., reducing
the consumption of meat and dairy, using trainsinstead of cars or aeroplanes).82
In addition, carbon removal (or sequestration)measures are required to remove or capture any
remaining carbon balance that has not been
mitigated by reduction action. ‘Negative emissions’actions can include the enhancement of naturalcarbon sinks such as forest restoration or othercarbon capture and storage technologies.
The second sub-element is about climate
adaptation, i.e., building the resilience of
populations, communities and regions mostaffected by climate change and helping them toadapt to changing climatic conditions. Adaptation
investment areas include, for example, measures infarming, measures enhancing efficient water usage,
or the building of flood protections.
The third sub-element on biodiversity relates tostrategies that, by improving life on the planet,
have positive climate effects, such as sustainable
forestry engagement or strategies that pursue acircular economy.
The fourth sub-element on pollution or degradationof the natural environment relates to strategies thathave positive environmental effects, such as thecircular economy.
Threshold: Every Just Transition investment
transaction will, as a minimum, include at least one
clear component of Climate and Environmental
Action and there must be a net positive
contribution to climate and the environment.

1.4.2.2 Just Transition Element 2:
Socio-economic Distribution andEquityWithin the second Element, Socio-economic
Distribution and Equity, the first sub-element
regarding a fair distribution of costs and benefits
is more relevant for public finance as a distribution
question is less likely to be in the focus of investment
vehicles. The others, including inclusive opportunities
for decent jobs, accessibility and affordability of
products and services, livelihood enhancement
and social justice, and biodiversity strategies that
improve our socio-economic wellbeing, are relevant
for both public and private finance initiatives.

Why more capital needs to move faster towards the SDGs

83

84

CDC Group (2020): "Investing for clean and inclusive
growth – Climate Change
Strategy"; https://assets.
cdcgroup.com/wp-content/
uploads/2020/07/01181554/
CDC-climate-change-strategy_
FINAL-FOR-PUBLICATION-1.pdf
Rockefeller Foundation: "TheGlobal Energy Alliance for
People and Planet (GEAPP)";https://www.rockefellerfoundation.org/initiative/global-energy-alliance-for-people-and-planet-geapp/85

IIGCC: "About Us"; https://www.
iigcc.org/about-us/

86Finance in Common (2020):"Joint Declaration of All Public
Development Banks in theWorld"; https://financeincommon.org/sites/default/
files/2020-11/FiCS%20-%20
Joint%20declaration%20of%20
all%20Public%20Development%20Banks.pdf

87Net Zero Asset Managers initiative (2021):"Announcement"; https://www.
netzeroassetmanagers.org/
net-zero-asset-managers-initiative-announces-41-new-signatories-with-sector-seeing-net-zero-tipping-point88Markets Insider (2021): "Almost
half of all global assets undermanagement are now geared towards net-zero goals, according
to a group of fund managers";
https://markets.businessinsider.
com/news/stocks/net-zero-asset-managers-initative-esg-hsbc-climate-change-2021-7

89

PRI: "Statement of Investor
Commitment to Support a Just
Transition on Climate Change";https://www.unpri.org/download?ac=10382. Originallyendorsed by 161 investors

90

UNEPFI (2021): "Gobal Investor
Statement: Investors urge govts
to undertake five priority actions
before COP26"; https://www.
unepfi.org/news/industries/
investment/nearly-600-investorsurge-govts-to-undertake-five-priority-actions-before-cop26/

91

GFANZ (2021): "The Glasgow
Financial Alliance for Net Zero –Our progress and plan towards a
net-zero global economy"92

 loomberg (2021): "Private
B
Equity Follows the Money – andthe Money Is Ditching Fossil
Fuels"; https://www.bloomberg.
com/news/articles/2021-07-06/
private-equity-is-ditching-fossilfuels-over-climate-change-concerns?mc_cid=9e2e07a1f9&mc_
eid=977e424e83

93

 loomberg (2021): "Private
B
Equity Follows the Money – andthe Money Is Ditching Fossil
Fuels"; https:// www.bloomberg.
com/ news/articles/2021-07-06/
private-equity-is-ditchingfossil- fuels-over-climatechange- concerns?mc_cid=
9e2e07a1f9&mc_eid=
977e424e83

CDC Group, the UK's DFI, for example, considers
three components within the “social building
block” of their climate change strategy, seeking
a transition “which is socially inclusive of worker
rights, gender and communities”:83
1 Job creation, re- and up-skilling in new lowcarbon and resilient sectors
2 Addressing negative effects on communities
from changes in industrialisation
3 Addressing negative effects of job loss in highpolluting sectors
As another example, the Global Energy Alliance for
People and Planet (GEAPP) includes affordability
and accessibility of environmentally-linked initiatives
for those in low- and middle-income countries toensure there are socio-economic considerations
included in positive environmental solutions.84
Threshold: Every Just Transition investment
transaction will, as a minimum, make a net
positive contribution to Socio-economic
Distribution and Equity.

1.4.2.3 Just Transition Element 3:
Community VoiceThe third Element, Community Voice, canincorporate a spectrum of components that help
to improve social dialogue and agency, from local
engagement and participation in decision making
to direct economic participation. It is paramountthat stakeholders, in particular those affected bytransition action, are heard and that their views
and needs are responded to in any financing
transaction purporting to contribute to a Just
Transition. A Just Transition finance initiative must
be grounded in, and responsive to, the needs ofthe people affected; it should also provide workers
and communities with a voice and a seat at thetable, when planning its aims, goals and activities(for more see also Section 3.3 and Appendix 4).
Threshold: Every Just Transition investment
transaction will, as a minimum, include meaningful
engagement with local stakeholders anddemonstrate how Community Voice is reflected.

1.4.3 Overview of selectfinancing initiatives that alignwith a Just Transition
The critical role of finance in, and the immense
funding gap that exists for, the advancement of a
Just Transition has been discussed above. Fundingneeds to be urgently redirected, leveraging thecurrent momentum for climate justice and a Just
Transition across the global financial community.
There has been a significant show of interest andcommitment by asset owners, asset managers andthe DFI community in the last few years, thanks to
the growing attention being brought to the issues
around climate change and to the need for global
action and solutions.

Select key initiatives by financial actors that
integrate one or more Elements of a Just Transition
include:• The Institutional Investors Group on Climate
Change (IIGCC) was founded in 2012 as theEuropean membership body for investor
collaboration on climate change and the voiceof investors taking action for a prosperous, lowcarbon future. The IIGCC today has more than
360 members, mainly pension funds and asset
managers, across 22 countries, who have over
€49 trillion in assets under management85• The Joint Declaration of All Development Banksin the World at the Finance in Common summit
in 2020, confirming that a Just Transition is an
integrated part of international development anddevelopment finance efforts86• The Net Zero Asset Managers Initiative, launched
in December 2020, is recognised by the
UNFCCC Race to Zero campaign. It sees “asset
management firms committed to supporting
emissions reductions in the real economy,
developing investment products that are geared
towards Net Zero and encouraging clients toinvest in a climate friendly way”.87 According toMarkets Insider, almost half of all global assets
under management are now geared towards Net
Zero goals, after 41 more firms joined the Net
Zero Asset Managers initiative in July 2021. The
group now has 128 signatories, which manage
approximately $43 trillion of the $100 trillion-plus
asset management industry, saying that thismoved the sector closer to a "net zero tipping
point". Although not yet a Just Transition initiative,
it is a marked change88• The Statement of Investor Commitment to
Support a Just Transition on Climate Change
includes 161 investors, representing $10
trillion, endorsing a Just Transition;89 and the
Global Investor Statement to Governmentson the Climate Crisis included 587 investors,
representing $46 trillion90• The announcement of the Glasgow Financial
Alliance For Net Zero (GFANZ), a consortium of
450 financial firms across 45 nations, to aligntheir own businesses and their lending andinvesting activities with Net Zero goals91
Individual institutional investors are also taking
action, including:92• The US’ third-largest public pension fund, the New
York State Common Retirement Fund’s pledge, in
December 2020, to reduce its GHG emissions to
Net Zero across its investments by 2040
• The US’ second-largest public pension fund,the California State Teachers' Retirement
System (CalSTRS)'s announcement to createa sustainable portfolio for private markets andinvest between $1 billion to $2 billion over the
next couple of years93• The world’s biggest sovereign wealth fund,41

Mobilising institutional capital towards the SDGs and a Just Transition

Norway’s Norges Bank Investment Management(NBIM) announced its intention to sell out ofcompanies that are poorly performing on ESG
issues94• In 2020, Blackstone announced its plans to
cut carbon dioxide emissions from its newinvestments by 15% within the first three years ofbuying the assets95• In 2020, the BT Pension Scheme (BTPS) in the
UK announced plans to reinvest its entire £55
billion portfolio to achieve Net Zero carbon
emissions by 203596• In 2021, the Ontario Teachers’ Pension Plan
committed to reaching net-zero emissions acrossits investment portfolio by 205097• In April 2021, Amundi launched its Just Transition
for Climate fund, an actively managed European
fixed income portfolio with quantifiable objectives
around energy transition and social cohesion98• In 2021, Aviva Investors launched an Aviva
Investors Climate Transition Global Credit Fund99
In addition, there are important supporting
initiatives, increasing the awareness and inclusionof Net Zero and Just Transition objectives incompanies’ and investors’ actions and reporting:• The UN’s Principles for Responsible Investment(PRI), the world’s leading proponent ofresponsible investment, works to understandthe investment implications of ESG factors, andto support its international network of investor
signatories in incorporating these factors into
their investment and ownership decisions100• The Financial Stability Board established the Task
Force on Climate-related Financial Disclosures(TCFD) to develop recommendations for more
effective climate-related disclosures that could
promote more informed investment, credit andinsurance underwriting decisions and, in turn,enable stakeholders to better understand theconcentrations of carbon-related assets inthe financial sector and the financial system’s
exposures to climate-related risks101• The World Benchmarking Alliance (WBA) has
launched Just Transition metrics, aiming toassess 450 of the world's most influential
companies in high-emitting sectors on what
they are doing to respect the rights of workers,
communities and the most vulnerable as theywork towards low-carbon goals. The pilot Just
Transition Assessment covers 180 companies
across three sectors: oil and gas companies,
electric utilities and automotive manufacturers.
The WBA is also developing benchmarks that willcompare companies’ performance to the SDGs.
For example, in 2021, it released its first genderbenchmark, ranking 35 apparel companies on
their contribution to SDG 5: Gender Equality and
Women’s Empowerment103• Climate Action 100+ (CA100+) brings together
over 570 investors with more than $54 trillion in
assets under management to coordinate investor
engagement with 167 companies that accountfor over 80% of corporate industrial greenhousegas emissions. The first iteration of the CA100+
Net Zero Company Benchmark was launchedin March 2021. The benchmark assesses
companies across 10 overarching indicators, withrelated sub-indicators and metrics, including the
publication of short-, medium- and long-term
GHG reduction targets as well as climate policy
engagement. For companies in the upstream
oil and gas, electric utilities and automotive
sectors, CA100+ provides supplementary capital
allocation assessment indicators104• The Just Transition Centre, established by theInternational Trade Union Confederation (ITUC),
has been promoting the practical implementation

Initiatives such as those cited above demonstrate a
growing awareness of, and movement to, address
one or more Just Transition Elements. While thisawareness and movement is welcomed, many ofthese initiatives continue to focus solely on the
climate challenges the world faces. Much more
activity is needed to achieve the combined climate,socio-economic and community objectives that the
integrated Just Transition Elements introduced inthis report are designed to support.

94

ESG Investor (2020): "Major European Asset Owners Intensify Net
Zero Support"; https://www.esginvestor.net/major-european-asset-owners-intensify-net-zero-support99

95

 lackstone (2020): "Our Next Step in ESG: A New Emissions
B
Reduction Program"; https://www.blackstone.com/insights/article/
our-next-step-in-esg-a-new-emissions-reduction-program/

96

97

98

42

of Just Transition; it has published a businessguide to Just Transition with the B Team BusinessInitiative102

Aviva (2021): "Aviva Investors expands Climate Transition range
with launch of Climate Transition Global Credit Fund"; https://www.avivainvestors.com/en-gb/about/company-news/2021/05/
aviva-investors-expands-climate-transition-range-with-launch-ofclimate-transition-global-credit-fund/100

PRI: "Principles for Responsible Investment"; https://www.unpri.
org/pri/about-the-pri

101

Taskforce on Climate-related Financial Disclosures: "About";
https://www.fsb-tcfd.org/about

Ontario Teachers Pension Plan (2021): "Ontario Teachers’ Pension
Plan commits to net-zero emissions by 2050"; https://www.otpp.
com/news/article/a/ontario-teachers-pension-plan-commits-tonet-zero-emissions-by-2050

102

International Trade Union Confederation: "Just Transition Centre";
https://www.ituc-csi.org/just-transition-centre103

 orld Benchmarking Alliance: "Just Transition"; https://www.
Wworldbenchmarkingalliance.org/just-transition

Institutional Asset manager (2021): "Amundi launches first Just
Transition for Climate strategy"; https://www.institutionalassetmanager.co.uk/2021/04/08/298379/amundi-launches-first-just-transition-climate-strategy

104

Climate Action 100+: https://www.climateaction100.org

 lackstone (2020): "Our Next Step in ESG: A New Emissions
B
Reduction Program"; https://www.blackstone.com/insights/article/
our-next-step-in-esg-a-new-emissions-reduction-program/2

What are the units ofaction for moving markets
towards the SDG s?

T

his Section outlines what the key levers are for ensuring institutional capital
participates in achieving the SDGs in general, and a Just Transition in particular.
It details the key players and parts of the system – financial market actors,
regions, asset classes – and identifies the collective approaches that can bebetter and more expansively utilised to overcome current barriers and mobilise capital atscale. It lists existing and proven tools and instruments that are available to be expanded
in order to accelerate the flow of capital to achieve the SDGs.

2.1  Section summary and key takeaways
Financing needs to be
stepped up now
There is significant near-term opportunity tomobilise and allocate capital at scale among
investor types across the spectrum of capitalto help achieve the Sustainable Development
Goals (SDGs) in general, and a Just Transitionin particular. This opportunity is found in bothdeveloped and emerging markets and acrossasset classes, within existing investment
products and those yet to come to market.

Investment to achieve the SDGs
needs to be activated across all
asset classes, both listed andprivateThere is a dynamic connection between privateand listed markets, where the innovations
generated by nearly two decades of impact
investing vehicles by managers in private
markets are informing public markets andshaping mainstream finance offerings.

Introducing the scope of the report
The report focuses on the mobilisation of
institutional investor capital into investment
vehicles that address funding needs towards
the SDGs in general, and a Just Transition inparticular, with a focus on emerging markets.
While the report acknowledges the relevanceand importance of all asset classes in achieving
the SDGs, it prioritises private equity, private
debt, infrastructure, real estate and fixedincome.

The transformative potential ofinstitutional investor capital
Enabling at-scale mobilisation of capital into
emerging markets from institutional investors,

who control vast amounts of capital, presents
one of the most powerful means of financing
to meet the SDGs and, in particular, deliver a
Just Transition to Net Zero. The growing poolsof domestic institutional investor money inemerging markets also have a significant roleto play.

Momentum is there
Interest in applying environmental, social andgovernance (ESG) and impact standards isgaining traction across the institutional investor
community. The asset manager universe thatdelivers impact and offers sizeable investment
vehicles is growing, and includes mainstream
managers moving into impact and impact
managers scaling up.

Institutional investor investment
barriers need to be understoodMultiple external and internal investment
barriers currently limit the flow of institutional
investors’ transformational capital. However,the challenges to investment must not be
an excuse for inaction. Existing and familiar
instruments and tools demonstrate it is possible
to address these barriers.

Simultaneous, concerted andcoordinated action is required byboth institutional asset owners andasset managers – and all the otheractors that support them –to overcome these barriers
It is important to address the investment
barriers that institutional investors face andstructure investable vehicles that respond totheir needs. Importantly, institutional investors
themselves also need to move beyond their

43

Mobilising institutional capital towards the SDGs and a Just Transition

comfort zones for progress to happen at scale,including amending their existing mandates
and allocation frameworks and adjusting their
incentive structures towards consultants andasset managers, where appropriate. Intentional
effort by all financial market actors, includingintermediaries, consultants, advisors andrating agencies, that often act as gatekeepers
to investment, is encouraged. Well-structured
partnerships between investment actors can– and do – overcome current barriers andachieve meaningful capital allocations towards
the SDGs.

Instruments and tools that address
barriers and drive mobilisation exist

MDBs and DFIs need to dial up
their tools and instruments towards
private capital mobilisation

Instruments and tools need to
be fully and further activated toaccelerate mobilisation

Multilateral development banks (MDBs) anddevelopment finance institutions (DFIs), using
their status, market networks and expertise,are crucial for the acceleration of institutional
investor mobilisation given their ability to create
investable pipelines, their ability to provide derisking support such as subordinated capitalor guarantees, and their ownership of years of
relevant performance data.

These now familiar instruments and tools need
to be expanded so that more institutional
investors can participate and deploy capital
into the SDGs in emerging markets. Perhaps
the most promising tools are the increased
use of guarantees and insurance coverage ata portfolio and vehicle level as they allow for
unfunded risk mitigation.

Blended finance plays an importantrole in addressing risk/returnbarriers

Given the diverse range of institutional
investors, there will not be one solution thatfits all. Each may have their own specific setof challenges, depending on the regulatory
framework and jurisdiction under which
they operate, and their individual appetite
for engagement, which may be determinedby their leadership. Early engagement withtargeted investors and distinct partnerships areimportant to move significant money into Just
Transition solutions in emerging markets.

Blended finance is a highly effective and widelyused approach enabling private commercial
capital to invest for social and/or environmental
impact. Blended structures can provide
investors with the opportunity to increase
portfolio exposure into strategies which
demonstrate strong fundamentals but areassociated with high perceived risk.

Many proven instruments and tools alreadyexist (be it within blended finance structuresor others), often combined, to help mobilise
institutional capital. The report showcases thefollowing: subordinated capital, guarantees,
insurance, securitisation, local currency
financing, performance data and informationand partnerships. The potential of these
instruments and tools is evidenced by realexamples that demonstrate how capital can bemobilised at scale.

The need for tailored approaches

2.2 Activating markets towards the SDGs anda Just Transition
As laid out in Section 1, the funding needs andopportunities to achieve the United Nations’
SDGs in general, and a Just Transition in particular,
are vast. Public funding is not sufficient; sizeable
private monies are available but not yet directed
towards SDG investment. This funding gap isparticularly acute in emerging markets. Directing
investment flows towards investment vehiclesaligned with the SDGs is especially important if
capital flows are to meet environmental objectives
in a socially-inclusive and fair manner.
The prior section of this report acknowledges
momentum from both public and private sector
actors in response to the climate and Covid-19
crises. However, this momentum has not yet
44

directed sufficient capital at scale towards the
SDGs nor mobilised capital that is aligned withadvancing a Just Transition that integrates Climate
and Environmental Action, Socio-economic
Distribution and Equity, and Community Voice.
Investment activity motivated by addressing theclimate crisis has too often prioritised singularclimate solutions in the pursuit of Net Zero without
reflecting and incorporating socio-economic
considerations as well as community voice.
There is significant near-term opportunity tomobilise and allocate capital at scale among
many investor types across the spectrum ofcapital to help achieve the SDGs and a Just
Transition. This opportunity exists in bothdeveloped and emerging markets and acrossWhat are the units of action for moving markets towards the SDGs?

asset classes, within existing investment
products and those yet to come to market.

4	Proactively pursue investments in emerging
markets, where the impacts of climate change(largely generated by developed countries) andsocio-economic challenges are most acuteThis report calls on asset owners and managers to:
1	Step up now

This report calls on all actors in financial markets,
whose actions (and inaction) will influence asset
owners and managers in their capital allocation
decisions, to engage and seek ways to use the leversat their disposal to encourage the scaling of capital
towards the SDGs. Only if all actors – those who
deploy capital directly and those who influence that
deployment – act together, will we see a material
acceleration and expansion of capital at scale.

2	Move beyond a siloed focus on separate
climate or social considerations and to integratethese considerations within their portfolios
across asset classes
3	Expand their use of instruments and toolsthat can address some of the barriers holding
capital back2.3 Background to the scope of this report
105

106

Thinking Ahead Institute(2021): “Global Pensions
Asset Study – 2021”;
including in their analysis
pension funds, insurancecompanies, sovereign
wealth funds, endowments
and foundations andmutual funds
As defined in Section 1, theterms ‘emerging markets’
and 'developing countries’
include both emerging
and frontier markets forthe purpose of this report;
based on the World Bank
country classification
system, that would include
upper-middle income
countries, lower-middle
income countries and low
income countries; all othercountries are referred toherein as ‘developed’

2.3.1 Why this report focuseson institutional investors

investors to move beyond their comfort zones anddeploy increasing amounts of capital into SDG
investments in emerging markets.

The size of the opportunity set in advancing
the SDGs in general, and a Just Transition inparticular, demands mobilisation of capital acrossthe full spectrum of capital (see Section 1.2.1 forthe spectrum of capital). This report focuses on
the mobilisation of institutional investors giventhat the amount of capital they hold and control,
estimated at $154 trillion as of the end of 2020,105
has the potential to be transformative. The reportacknowledges the different types of institutional
investors as well as those organisations that
influence their investment activity. As responsible,
sustainable and impact investing practices gainawareness and traction, now is the time to call on
investors to step up their existing commitments
to the SDGs in developed markets. But given thepull of various market forces combined with public
sentiment, this is also the moment for institutional

2.3.2 Why this report focuseson emerging markets
Additional capital to achieve the SDGs in general,and a Just Transition in particular, is urgently
needed across the world. While recognising that
opportunities to invest exist in both developedand emerging markets, this report focuseson emerging markets106 as they represent thebiggest opportunity gap. In addition, historically,
institutional investors have largely been on the
periphery when it comes to investing significantly
in developing countries. This geographic challenge
applies to institutional investor participation in local
listed markets and investment in private alternative
asset classes.

Figure 2.1

SDG annual financing gap
Emerging markets anddeveloping countries
5
1.5
1.5

0.4

2.0

1.2

4

1.5

1.0

3

0.9

1.0

4.5

1.5
2.5

0.1
0.1

1.3

Financinggap

2.5

AfricaPrivateAdvanced countries($ trillion)

1.0

2
0.5

1
0
Financinggap

PrivatePublic0Investment
needs

Financinggap

PrivatePublicInvestment
needs

0

Public0.1

Investment
needs

0.5

Source: UNEP Finance Initiative (2018): Rethinking impact to finance the SDGs

45

Mobilising institutional capital towards the SDGs and a Just Transition

2.3.3 Why this report focuseson investment vehicles
The focus on institutional investors, on the one
hand, and emerging markets, on the other, has led
the report to focus on indirect investment using
vehicles such as pooled investment funds as these
allow for scale to be achieved by consolidating
investments. Available investments in emerging
markets tend to be smaller and more dispersed
than in developed markets. The ability to aggregate
investments in vehicle structures is critical to create
access for institutional investors who require scale.
Such aggregated investment offerings also allow
for professional management with market accessand expertise and diversification and therefore canhelp to reduce portfolio risk.

2.3.4 Why this reportprioritises private asset
classes and fixed income
Investment to achieve the SDGs needs to be
applied across all asset classes, both listed andprivate. There is a dynamic connection between
private and listed markets, where the innovations
generated by nearly two decades of impact
investing vehicles by managers in private markets
tend to inform and shape mainstream financeofferings. This dynamic should be encouraged.
Among private investments, this report prioritises
vehicles in four private asset classes: private
equity (including direct and fund of funds vehicles),private debt, infrastructure and real estate.
These four private asset classes represent
actionable pathways familiar to asset owners andmanagers that can be successfully expanded tomobilise more capital to achieve the SDGs and,specifically, Just Transition objectives. They offer
significant and market-ready opportunities to shapethe design of investment vehicles that further the
SDGs and have the ability to satisfy the proposed
integrated Just Transition Elements. In this way,
Figure 2.2

Developed versus emerging financial markets
Developed markets

High

Emerging markets (ex–China)
Tradable instruments

Tradable
instruments
Liquidity /transparency

Privateinstruments

Low

Source: Based on PwC (2018): “Frontier markets mobilisation”

46

Privateinstruments

they can foster replication and market momentum.
Within publicly listed assets, the report focuses
on fixed income. This reflects the high investor
appetite for familiar products that can produce
an attractive and reliable yield and liquidity. In
particular, we focus on the potential for emerging
market bonds aligned with the SDGs and Just
Transition objectives. (The opportunity to influence
public equity markets in ways that advancealignment with the SDGs using the importantlevers of transparency, harmonisation andintegrity is the subject of the report of the Impact
Taskforce’s Workstream A.)
SDG investments and the proposed Just Transition
Elements are not limited to the profiled public andprivate asset classes. Rather, SDG investments canand should be included across all asset classes.
We expect that the increase in volume and velocity
of capital deployed in the selected asset classes
will stimulate more activity towards the SDGs
across all asset classes.

2.3.4.1 Rationale for theprioritisation of private assets
in general
Private investments are often the most powerfulentry point for investments that seek to achieve
meaningful environmental and social objectives
as they provide greater investor influence andcontrol. Their relevance is even more pronounced
in emerging markets, owing to the lack of mature
public, regulated markets and the importance ofgenerating flows of additional capital into investablepropositions.

Lack of mature public, regulated
markets in emerging economies
Public investment refers to securities available on
an exchange or an over-the-counter market. Public
exchanges in developed economies are highly
regulated and provide investors with daily liquidity
and stringent governance and reporting standards.
Companies that issue listed securities are usually ofa certain size and maturity. All of these features areintended to reduce risk for investors. Consequently,
shares and bonds publicly listed in developed
markets are generally considered the backboneof financial markets and tend to make up the lion’sshare of institutional asset allocation.
The majority of emerging markets, conversely,
entirely lack public markets. Where they do exist,
they are mostly small and provide access only toa few large corporations and banks (see Figure2.2). These markets often do not meet developed
markets’ standards and criteria and operate withvery thin trading volumes that limit participation by
institutional investors.
Equities in emerging markets: There are about
70 major stock exchanges globally trading assets
with a total market capitalisation of $113 trillion asWhat are the units of action for moving markets towards the SDGs?

of June 2021.107 Of these exchanges, 15 have a
total market capitalisation of over $2 trillion – noneof which are located within Africa or Latin America.
The 15 largest exchanges account for close to 70%of the cumulative global market capitalisation.108
In emerging markets, the largest exchanges areconcentrated in China.109

companies as they trigger high equity capitalrequirements under Solvency II regulations, forexample. Corporate ratings generally are limitedby the so-called ‘country ceiling’ based on thejurisdiction’s sovereign bond rating (with someupwards flexibility for strong issuing corporates, inparticular in developed countries).114

Fixed income in emerging markets: The
International Capital Markets Association (ICMA)
estimated the global fixed income market toamount to $128 trillion in August 2020, of which
about $87 trillion was in sovereign bonds and $41
trillion in corporate bonds.110

Using the rating agency Moody’s as an example,
97% of all of its corporate ratings are at or below thecorresponding sovereign rating. This gap createssignificant challenges for institutional investors
looking at emerging markets, as the majority of themore frontier economies are rated sub-investment
grade or deeply speculative (see Figure 2.3).

Sovereign bonds were predominantly located in
the US ($22 trillion), China ($20 trillion) and Japan($12 trillion). In comparison, ICMA estimated theentire African sovereign bond market amounted tojust north of $1 trillion. South Africa was the largest
issuer with $329 billion of outstanding bonds. AfterSouth Africa, Egypt was the only sizeable issuer ataround $240 billion.111
The corporate bond market (by country of issuer
incorporation) is also dominated by the US ($11trillion) and China ($7 trillion).112 Looking again at
Africa, in 2020 the continent’s total corporate bondvalue amounted to only around $150 billion, of
which about $96 billion was in South Africa.113
The distribution of emerging market fixed income
is limited by its credit profile. Often, assets with
sub-investment grade credit ratings cannot be heldby institutional investors, particularly insurance

Looking forward, there are two courses of action
to consider. The first is to encourage emerging
markets issuers to attract more institutional capital
at a transactional level, both from within theirdomestic capital markets and internationally. The
second is to see how emerging markets generally
can strengthen their capital markets’ infrastructure,size and depth to allow for continuous flows ofinvestment in listed equities and bonds.115 The
first action is addressed in subsequent sectionsof this report by exploring ways to enhancemarket receptivity of fixed income offerings. The
second action is beyond the direct scope of thisreport, with the acknowledgment that policy
makers should continue to prioritise interventions
that bolster emerging markets’ operating
infrastructure.116

Figure 2.3

Distribution of OECD countries by credit risk rating
Based on an analysis by the UK’s Foreign, Commonwealth &Development Office (FCDO, formerly Department for International
Development) on low- and middle-income countries that had a rating in
2019, the median rating for these countries was sub-investment grade at
B+. The median for all low- and middle-income countries would be lower
since many of the 65 unrated countries would likely be rated below B+.
Private sector borrowers (excluding state-owned enterprises) usuallyachieve a rating of at least 1–3 notches below the credit rating of theircountry – too low to attract meaningful institutional investor capital.

Distribution of Countries on OECD DAC list 2018–2020
Country classification

NumberSovereign risk rating

NumberLeast developed
countries

47

A- or better

3

Other low income

2

BBB

10

Lower middle income

38

BB

16

Upper middle income

58

B

45

Total

145

CCC or worse

6

Unrated65

Median rated

B+

Source: DFID (2019): “Internal – Mobilisation teamwork planning”

107 FE (2021): “Dashboard”; https://focus.world-exchanges.org/
W
issue/august-2021/dashboard

108

 FE (2021): “Market Statistics”; https://focus.world-exchangW
es.org/issue/august-2021/market-statistics

109

 FE (2021): “Market Statistics”; https://focus.world-exchangW
es.org/issue/august-2021/market-statistics

110

ICMA (2020): “Bond market size”; https://www.icmagroup.org/
Regulatory-Policy-and-Market-Practice/Secondary-Markets/bond-market-size/

111

ICMA (2020): “Bond market size”; https://www.icmagroup.org/
Regulatory-Policy-and-Market-Practice/Secondary-Markets/bond-market-size/

112

ICMA (2020): “Bond market size”; https://www.icmagroup.org/
Regulatory-Policy-and-Market-Practice/Secondary-Markets/bond-market-size/

113

ICMA (2020): “Bond market size”; https://www.icmagroup.org/
Regulatory-Policy-and-Market-Practice/Secondary-Markets/bond-market-size/

114

There has been more flexibility in Europe (Moody’s, e.g.,
typically allows for corporate issuances to be up to six notches
above the government bond rating, Fitch up to three notches).
But such flexibility is considerably lower in other regions andusually applies only in exceptional cases where companies arerecognised as market leaders, have strong financials, mostly
hard currency revenues and operate in industries protected by
the state (e.g., through tariff barriers)

115

The issue has been recognised and activities seeking tostrengthen local public markets are being pursued, e.g., by the
UK government’s MOBILIST programme116

Global Investors for Sustainable Development Alliance (2021):“Increasing private finance mobilization: Recommendations fordevelopment banks and the global development community”

47

Mobilising institutional capital towards the SDGs and a Just Transition

SPOTLIGHT

SEC Thailand: Sustainable Bond Issuance Guide

The ASEAN Low Carbon Energy Programme (LCEP) is a
£15 million aid programme that is part of the UK’s prosperity
programming. It promotes inclusive economic growth byproviding assistance to targeted government ministries andagencies on green finance and energy efficiency. Gender andinclusion are mainstreamed across all of the programme’s
interventions.
A notable deliverable of the LCEP is the Sustainable Bond
Issuance Guide that was recently published by the Securities
and Exchange Commission Thailand, aimed at developing thesustainable bond market in the country. This document seeks
to provide market players in Thailand with information on the
different sustainable bond types and standards, as well as
step-by-step guidance on the process to issue green, social,sustainability, transition and sustainability-linked bonds. The
Guide explicitly recognises that sustainable bonds can drive
both enhanced climate as well as gender equality related
impacts, both of which are necessary for a Just Transition.
Source: Securities and Exchange Commission Thailand (2021): “Sustainable
Bond Issuance Guide”

Greater investor influence and control
A further argument supporting the prioritisation ofprivate markets (in addition to fixed income) in orderto scale private capital is the degree of influencea provider of capital can assert to align that
capital with the impact being pursued. Assuring
alignment between the source and use of capital is
a common challenge for all investments; however,the stakes are higher for investments that seek tofurther the SDGs where positive change in the livesof people or place is explicitly targeted.
The ability to assure such alignment is generally
greater with private transactions. When subscribing
to the publicly listed shares of a company there islittle, if any, ability to shape the company’s businessactivities. Although significant energy and money
is expended on shareholder advocacy initiatives
in public markets, an individual investor has
mostly little opportunity to influence a company’s
behaviour.

117

The GIIN Impact Investor
Survey included a widearray of investors active in
the impact investing space,
67% of which categorised
themselves as ‘market rate’
investors. While the survey
is focused on impact investors and therefore includes
only a limited number ofmainstream institutional
investors, it provides adata point showcasing theimportance of the private
equity and private debt
markets in developing
countries

118

GIIN (2020): “2020 Annual
Impact Investor Survey”;
https://thegiin.org/research/publication/impinv-survey-2020

119

The Economist Intelligence
Unit (2019): “The criticalrole of infrastructure for the
Sustainable Development
Goals”

48

In private markets, alignment between the source
and use of capital can be assured in the terms andconditions drawn up for the investment vehicle.
Generally, the closest alignment is achieved in
private equity where ownership rights translate
into direct influence at the company’s governancetable and over how an investee uses the capitalprovided. Private debt investments rely oncovenants and other contractual undertakings toensure alignment with the impact objectives that
underpin the capital committed.
Investors seeking to invest to advance the SDGs
need to have assurance of the reliability ofdelivering the vehicle’s stated impact objectives.
It is important for the vehicle to interrogate theinvestees’ use of proceeds, business operations,environmental footprint, diversity and other social
aspects of a company or project, and, in somecases, influence along a company’s supply chain.
Investing with an explicit focus to integrate people
and planet priorities invites more direct alignment
between sources of capital and its uses.

2.3.4.2 Rationale for theprioritisation of private equity
and private debt
Turning to private equity and private debt, specificreasons to include these two asset classes are:• Familiarity: Institutional investors are familiar
with and understand these asset classes• Prevalent asset classes: As a proxy for
purposeful investments in emerging markets,
the Global Impact Investing Network's (GIIN)
Impact Investor Survey of 2020117 showsthat the respondents’ impact investments inemerging markets are predominantly in private
equity and private debt (see Figure 2.4)

2.3.4.3 Rationale for theprioritisation of infrastructure
and real estate
Infrastructure and real estate are prioritised forthe following reasons:• Climate relevance: Although institutional
investors’ investments in these asset classes
have to date focused on developed markets,
it is understood that both the infrastructure
and the real estate sectors have major
implications for climate change and need tobe addressed across the globe in order toachieve Net Zero targets. As described in the
sectoral considerations in Section 1.3.1.4, major
contributors of emissions include transport,
buildings and energy• Developmental and socio-economic
relevance: In addition to climate relevance,
infrastructure and real estate both contributesignificantly to country-level development
objectives, including employment andaccess to, and affordability of, basic services
and livelihood essentials, in particular tounderserved individuals, households andcommunities119

What are the units of action for moving markets towards the SDGs?

Figure 2.4

Geographic focus

Asset allocation by impact investors
Geographic focus
OverallDM-focused Investors

EM-focused Investors

Private debt

21%

9%

36%

Public equity

19%

27%

3%

Private equity

17%

13%

25%

Real assets

17%

30%

0%

Publicly traded debt

17%

15%

22%

Equity-like debt

1%

0%

2%

Deposits & cash equivalents

1%

1%

0%

Other

8%

5%

12%

n

289

139

124

Total AUM (USD million)

220,914

123,131

80,168Source: GIIN (2020): “Annual Impact Investor Survey 2020”

2.3.4.4 Rationale for prioritisationof fixed income
Fixed income is also prioritised as an asset classfor the following reasons:• M aterial and familiar asset class: Bonds
are generally the most significant asset class for
institutional investors within their asset allocation
strategies. In emerging markets, according
to GIIN (see Figure 2.4), publicly traded debt
accounts for 22% of assets under management,
making it the third-largest asset class reported by
impact investors. This percentage is even higher
for mainstream investment portfolios, where
fixed income comprises, on average, 40% of
institutional investor portfolios120• Pipeline of issues: There is a steady flow ofissuances from companies and sovereigns,
despite some of the market infrastructure
challenges referenced above, with the expectationthat the number, volume and frequency of issues
will increase in the coming years

SPOTLIGHT• Climate relevance: The green and sustainability
bond markets are strong and growing fast, withaverage annual growth of 95% for green bonds
since the market started in 2007 (see Section
1.4.1)121• Developmental and socio-economic
relevance: As it has grown, the green bondmarket has started to include social objectives,
driving also the growth of sustainability andsocial bonds (see Section 3.4.6 for an overview
of thematic bonds). In recent years, markets haveseen issuances of blue bonds, gender bonds,120

 ased on Natixis Investment Managers, Global Survey of InstiB
tutional Investors conducted by CoreData Research in Octoberand November 2020. The survey included 500 institutional
investors in 29 countries throughout North America, Latin
America, the United Kingdom, Continental Europe, Asia andthe Middle East

121

Climate Bonds Initiative (2020): “$1 Trillion Mark Reached in
Global Cumulative Green Issuance: Climate Bonds Data Intelligence Reports: Latest Figures”

UK Green Financing Framework and green gilts

The UK Green Financing Programme is a series ofgreen gilt issuances and a green retail savings bond. The
programme will finance expenditure associated with tacklingclimate change and other environmental challenges, byfinancing or refinancing projects/schemes that will fundinfrastructure, create green jobs and mainstream green
financial products. The government has committed toreporting on the social co-benefits of this green spending,following the Impact Investing Institute’s Green+ Gilt
proposal.
The UK’s inaugural green gilt sale in September 2021 received
the highest ever bids for a UK government bond sale; the £10billion raised made it the largest sovereign green bond at thetime of issuance.
Investor appetite has been demonstrated by the further
three issuances released subsequently, two of which werewholesale and one retail. The first £10 billion wholesale bondwas 10x oversubscribed; the second wholesale £6 billionbond, with a tenor of 32 years, was 12x oversubscribed.
Sources: Carbon Trust (2021): “Pre-issuance impact report on the UK government
green financing programme”; Financial Times (2021): “UK’s debut ‘green gilt’sale draws blockbuster demand”; UK Government (2021): “Greening Finance: A
Roadmap to Sustainable Investing”; Impact Investing Institute (2020): “Investors with£10 trillion in assets call for the UK to issue a green+ sovereign bond”

49

Mobilising institutional capital towards the SDGs and a Just Transition

Covid-19 recovery bonds and more.122 There isa ready opportunity to extend green bond tools
and approaches to consider more explicitlyissuances with a socio-economic objective123• Transparency: One of the core conditionsof any fixed income investment is how theproceeds are to be used. Using proceeds forclimate and social projects that demonstrate a
direct contribution to underserved individuals,
households and communities provides a clear
link to a Just Transition. There has been growing
criticism of the integrity of green and social bondofferings and whether the capital mobilised does
advance positive environmental or social results.
This report’s proposed integrated Just Transition

Elements provide an opportunity to introduce
clarity of objectives in fixed income vehicles thatare marketed with positive climate and social
language. Although not all climate vehicles
can be expected to advance a Just Transition,embracing clear objectives will encourage andsupport delineation of investment products.
This Section has laid out the rationale forthis report’s focus – and the reasons forprioritising certain investors, markets,
asset classes and means of investment
in order to mobilise capital to finance theSDGs at pace and at scale, with particularconsideration of capital flows in, and to,
emerging markets.

2.4 Institutional investors are criticalto achieving the SDGs
2.4.1 Overview
2.4.1.1 Who are institutional
investors?

122

123

 lue bonds are bonds thatB
fund commitments towards
oceans, water related initiatives and sustainability;
gender bonds are bondsthat fund commitments
towards the improvementof lives of women; Covid
recovery bonds are bondsthat fund commitments
towards Covid-19 recovery.
Disaster or catastrophe
relief bonds are a further
area of growthImpact Investing Instituteand LSE (2021): “The UK’s
Green Gilt: Demonstrating
the Contribution to Jobs
and Levelling Up”; https://www.impactinvest.org.
uk/publications/the-uksgreen-gilt-demonstratingthe-contribution-to-jobsand-levelling-up/124

 lackRock (2014): “WhoBowns the assets?”125Investopedia (2019): “Investment Consultant”

50

Institutional investors are typically understood aslarge organisations investing on behalf of otherbeneficiaries. The term primarily refers to pension
funds and insurance companies. It can also include
endowments, foundations, charities, sovereign
wealth funds (SWFs), banks and credit unions,family offices and private funds (such as mutual
funds, hedge funds, private equity/debt funds andventure capital funds, or real estate trusts). For the
purpose of this report, we consider institutional
investors to be asset owners. Private funds andtheir managers are considered under the asset
manager discussion.
There are differences between the types of
institutional investors listed above. Such differences
need to be consciously considered and addressed
when talking about capital mobilisation (e.g.,
in terms of mandate, time horizons, regulatory
obligations in their respective jurisdictions, andgovernance challenges) which can lead to different
capital allocation patterns. But for the purposeof this report, we refer to the entire group of
institutional investors as a single community – andhighlight specific differences where relevant.

2.4.1.2 Who is making the asset
allocation and investment
decisions?
When considering the investment behaviours anddecisions of institutional investors, the role of asset
managers is significant. Managers play an activerole managing assets for institutional asset owners

across a variety of fund types, including mutual
funds, hedge funds, private equity and private debt
funds. These managers do not invest on their own
account but in their clients’ name and based on
their clients’ investment policies and mandates.
They are stewards of third-party capital, withtremendous influence and responsibility for thecapital entrusted to them.
Large institutional investors often manage much of
their developed market equities and fixed income
assets themselves. For other strategies, including
private asset classes, they tend to rely on externalmanagers. Smaller asset owners often employ
asset managers to manage all of their assets.
McKinsey estimates that around three-quartersof financial assets are managed directly by asset
owners, while the remainder is outsourced.124
Investment consultants are another importantgroup of actors in the institutional investor universe.
Investment consultants formulate investment andallocation strategies for clients in accordance with
their respective financial goals and often support
asset owners in their manager selection.125
Managers and consultants often drive and define
the investable universe for institutional investors.
It is therefore vital that both are incentivised tosupport propositions that advance the SDGs.
Initiatives to improve the alignment, stewardshipand accountability of mandates between
asset owners, asset managers and investment
consultants are being driven by several groups,
including the Global Investors for Sustainable
Development (GISD) Alliance.

What are the units of action for moving markets towards the SDGs?

Figure 2.5

Institutional investors’ assets under management
Asset owners globally control$154 trillion
Asset Owners 33
57

Asset Owners -Pension Funds

55

2.4.1.5 Institutional investors
and responsible, sustainable
and impact investing

8
1

Sovereign Wealth Funds

Endowments & Foundations

Insurance Funds

Mutual Funds (inc ETF)

Source: Thinking Ahead Institute (2021): Global Pension Asset Study – 2021

126

Thinking Ahead Institute(2021): “Global Pensions
Asset Study – 2021”;
https://www.thinkingaheadinstitute.org/research-papers/globalpension-assets-study-2021/

127

AfDB (2017): “Unleashing
the potential of institutional
investors in Africa”; https://www.afdb.org/sites/
default/files/documents/
publications/wps_no_325_
unleashing_the_potential_of_institutional_investors_in_africa_c_rv1.pdf

128

 lended Finance TaskforceB(2018): “Better finance,
better world”

129

Pensions and investments:“In Quest for Diversification, Institutional Investors
Take a New Look at Private
Markets”; https://www.
pionline.com/aberdeen_
privatemarkets20

130Pensions and investments:“In Quest for Diversification, Institutional Investors
Take a New Look at Private
Markets”; https://www.
pionline.com/aberdeen_
privatemarkets20

131

PRI: “Principles for
Responsible investment”;
https://www.unpri.org/pri/
about-the-pri132

“ Taskforce on Climate-related Financial
Disclosures”; https://www.
fsb-tcfd.org/about/

However, in response to the 2008–2012 global
financial crisis and the subsequent low interest
rate environment, investors have been engaged
in a search for yield and greater diversification
given the high correlation between listed
equities and fixed income markets.129 This has
led to a greater focus on alternative assets,
including growth-oriented assets such as private
equity or venture capital and income-generating
assets such as real estate, infrastructure or
natural resources.130

2.4.1.3 How big is the institutional
investor universe?
The Thinking Ahead Institute estimates global
institutional investors’ assets under management(AUM) to amount to approximately $154 trillion.
This includes pension funds, insurance companies,
SWFs, endowments and foundations and mutual
funds (see Figure 2.5).126 To put this in context,
the 2019 gross domestic product (GDP) of theUnited States was around $21 trillion. Only asmall proportion of institutional assets are heldin emerging markets. For example, the African
Development Bank (AfDB) estimates that African
institutional investors held about $1.8 trillion in
2020.1272.4.1.4 How are institutional
investors allocating assets?
Institutional investors typically allocate their assets
between four main asset classes: listed equities,
fixed income (bonds), cash and cash equivalents,and ‘alternatives’. The latter includes real estate,
infrastructure (often grouped together with realestate as real assets), private equity and debt,
hedge funds, commodities and other usually lessliquid, often longer-term assets (see also panel
in Section 1.4.1.2). Historically, listed equities andfixed income have dominated most institutional
investors’ asset allocations. Relatively few havesignificant direct exposure to most of the alternative
assets. The Blended Finance Taskforce estimatedin its 2019 report that infrastructure investments
accounted for less than 1% of pension fundassets.128

As noted in Section 1.2.1 and further analysedin the report by Workstream A of the Impact
Taskforce, interest in applying ESG and impact
standards is gaining traction across the investor
community. Although the starting point ofintegrating ESG factors into investment decisions
has been defensive, with a focus on managing
investment risk and avoiding harmful activities(i.e., responsible investing), movement along thespectrum of capital is capturing more attention,from sustainable investing to impact investingthat actively seeks robust financial returns andpositive impact.
Indicators of growing institutional investor
interest include:• Over 3,000 investors have signed up to the
UN backed Principles for Responsible
Investment (PRI), including over 500 asset
owners;131 in April 2021 the PRI released
a new report outlining pension beneficiary
preferences on ESG issues and a four-stepguide for asset owners132• The Task Force on Climate-related Financial
Disclosures (TCFD), chaired by Michael R.

“In the space of six or 12 months,
investors have gone from thinking
about ESG as a side issue tothinking about it as completely
core to the future of their funds.
It is a big shift. And in my career,
I haven’t seen a shift quite like it.”Roger Urwin, advisor to the MSCI

Source: MSCI
(2021): “Investment
Insights” 2021

51
51

Mobilising institutional capital towards the SDGs and a Just Transition

Bloomberg, counts more than 2,300 supporters
across 88 countries133• In its 2021 investor survey of some 200
investors owning approximately $18 trillion ofassets, Morgan Stanley Capital International(MSCI) observed a clear trend towards anincreased integration of ESG factors into
investors’ decision-making processes;
MSCI further noted that this trend has been
accelerated by Covid-19 and climate-related
events, including wildfires in Australia andCalifornia and the warming in the Arctic,
building “a powerful narrative around ESG
investing”• The green bond market has exploded in recent
years (see Section 1.4.1 and Figure 3.6).

133

MSCI (2021): “Investment
Insights 2021”

134

European Commission: “EU taxonomy forsustainable activities”;
https://ec.europa.eu/info/
business-economy-euro/banking-and-finance/sustainable-finance/eu-taxonomy-sustainable-activities_en

135

S&P Global: “What is the
Impact of the EU Sustainable Finance Disclosure
Regulation (SFDR)”; https://www.spglobal.com/marketintelligence/en/news-insights/blog/what-is-the-impact-of-the-eu-sustainable-finance-disclosure-regulation-sfdr

SPOTLIGHT• The EU is developing a ‘EU taxonomy’,a science-based classification system toestablish a list of economic activities that canbe considered environmentally sustainable.
The objective is to “create security for investors,
protect private investors from greenwashing,help companies to become more climatefriendly, mitigate market fragmentation andhelp shift investments where they are mostneeded”134• The European Union (EU) Sustainable Finance
Disclosure Regulation (SFDR), introduced in
March 2021, has set out specific rules on whatsustainability-related information financial
market participants and financial advisors needto disclose to avoid green-washing of financial
products and advice135• In a growing number of jurisdictions, fiduciary
duties are shifting from a single focus on financial
performance to include environmental and social
considerations as well

New models of impact manager
evolving
As the impact investing market develops, several
trends in asset management are emerging:
Mainstream managers moving into impact:
Mainstream asset managers are recognising theopportunity to attract capital from institutional
asset owners who are beginning to compare
managers on the basis of their impact practice andperformance as well as their financial performance.
The Operating Principles for Impact Management,
launched in April 2019 by 60 institutions (see panel
below), have been signed by a total of 141 asset
managers across 34 countries, representing close
to $420 billion in assets (as of 30 September 2021).
Examples include:• Texas Pacific Group (TPG)’s Rise Funds, whichinvest in companies driving measurable socialand environmental impact alongside businessperformance and strong returns. The first Rise
Fund raised $2 billion in 2017; TPG’s second
fund, Rise Fund II, attracted $2.5 billion in 2020;
in July 2021, TPG announced the first closingof its TPG Rise Climate Fund, having raised$5.4 billion• Kohlberg Kravis Roberts (KKR)’s $1.3 billion
Global Impact launched in 2018, financing
companies that provide commercial solutions toan environmental or social challenge, focusing
on the Americas, Europe and Asia
• Bain Capital’s US-focused Bain Double Impact
Fund II closed in 2020 at $800 million, up from$390 million for the first fundImpact investors - the pioneers‘Impact investors’ are playing a pioneering role in deploying
capital to generate positive social and environmental results,
paving the way for institutional investors. Impact investors
include development finance institutions (DFIs), multilateraldevelopment banks (MDBs), foundations and certain family
offices. Several insurance companies and pension funds,
including faith-based investors, have made allocations
to impact investing, demonstrating it is possible for large
institutional investors to deploy capital in pursuit of positive
impact.
Many have capitalised investments with demonstrable
impact results by, for example:
1 Demonstrating and developing the investability ofemerging markets through track record and performancedata, thereby growing the size of the investable universe
2 Backing emerging managers by taking a risk on first-time

52

2.4.1.6 Managers engaging more with
impact investing and attracting
institutional asset owners

managers with compelling strategies, many of which have
now grown to a stage of attracting institutional capitalwhile continuing to seed further cohorts of new managers
3 Stimulating and spreading market expertise, local
networks and access to local transactions
4 Providing anchor funding and de-risking support to selecttransactions and blended funds in order to mobilise
institutional capital into impactful investments in emerging
markets.
Many impact investors have higher risk appetite and benefit
from flexible or more patient capital. They are thus willing toinvest in high-impact enterprises, earlier stage companies,
innovative business models or more challenging jurisdictions.
Their needs-driven and pioneering role in the search forintentional and measurable impact is crucial in meeting the
Sustainable Development Goals and Just Transition targets.

What are the units of action for moving markets towards the SDGs?

Operating Principles for Impact Management
Principle 1
Define strategic impact
objective(s), consistent with theinvestment strategy.
Principle 2Manage strategic impact on a
portfolio basis.
Principle 3
Establish the manager’s
contribution to the achievementof impact.
Principle 4
Assess the expected impact ofeach investment, based on asystematic approach.
Principle 5
Assess, address, monitor andmanage potential negative
impacts of each investment.

Principle 6
Monitor the progress of each
investment in achieving impact
against expectations and respond
appropriately.
Principle 7
Conduct exits considering theeffect on sustained impact.
Principle 8
Review, document and improve
decisions and processes basedon the achievement of impact andlessons learned.
Principle 9
Publicly disclose alignment with
the Principles and provide regular
independent verification of thealignment.

Source: “Operating Principles for Impact Management”

136

137

Schroders (2019): “Schroders acquires majority stakein leading impact investor
BlueOrchard”; https://www.schroders.com/en/
media-relations/newsroom/all_news_releases/
schroders-acquires-majority-stake-in-leading-impact-investor-blueorchard/Goldman Sachs (2015):“Deepening a Commitment
to Sustainability, GSAM
Acquires a Leading Impact
Investing Firm”; https://www.goldmansachs.
com/our-firm/history/moments/2015-imprint-capital.html• There is also a growing trend towards manager
specialisation, with established strategies
becoming more focused through spin-offs andplatform extensions, such as Brookfield’s Global
Transition Fund, which announced a $7 billion
closing in July 2021, or the above mentioned TPG
Rise Climate Fund, announced in the same month
Institutional investors’ management arms
moving into impact: Further contributing to thedevelopment of the impact investment market, anumber of institutional investors have expanded
their investment management arms to offer
sustainable products to third parties. Leading asset
management offerings include AXA Investment
Management, Nuveen and Allianz Global Investors’
impact investing platform.

SPOTLIGHT

Impact managers growing: At the other end of
the manager spectrum, formerly niche and small
impact managers are now building sufficient size
and track record to attract institutional investors.
Examples include:• LeapFrog Investments is a purpose-driven
asset management company, whose Emerging
Consumer Fund III raised $743 million, which hasentered into a $500 million strategic partnershipwith Temasek, the market-leading investmentcompany headquartered in Singapore• responsAbility, founded in 2003, has to dateinvested over $11 billion across almost 70
countries and has $3.5 billion of AUM• Bridges, founded in 2002, has to date raised$1 billion of capital after the close of its GrowthBusiness, Long-term Capital and Social
Outcomes vehicles
Manager partnerships: A third observable
trend among asset managers is the growth inpartnerships between mainstream and impact
managers (see Section 2.6.7). These have included
the partnership between NN Investment Partners
and Dutch development bank FMO to launch theEmerging Markets Loans Fund, a $272 million
private debt fund. Other ventures include theacquisition of impact managers by mainstream
houses, such as Schroders' acquisition of
BlueOrchard in 2019136 or Goldman Sachs’ 2015
acquisition of Imprint Capital.137
MDBs and DFIs adopting manager roles:
A further important impact investment trend is
MDBs and DFIs taking on the role of manager
for third-party institutional capital. An example
is International Finance Corporation AssetManagement Company (IFC AMC), which isinvesting third-party capital alongside the IFC inemerging markets. IFC AMC funds include the IFC
Global Emerging Markets Fund of Funds and the
IFC African, Latin American, and Caribbean Fund.
FMO Investment Management is another example(for further information, see Section 2.6.7.3).

Schroders’ acquisition of BlueOrchard

In 2019, Schroders acquired a majority stake in the impact investment manager BlueOrchard.

“Schroders’ partnership with BlueOrchard supports the expansion of its
sustainability capabilities. This will help to better serve clients who areincreasingly seeking investments which have a beneficial impact on society
and the environment, as well as generating positive financial returns.
It also accelerates the growth of Schroders in private debt and private equity
investments in emerging markets.”
Source: Schroders (2019): “Schroders acquires majority stake in leading impact investor BlueOrchard”

53

Mobilising institutional capital towards the SDGs and a Just Transition

SPOTLIGHT

Key thematic trends in impact investing• A growing focus on gender, building a gender lens into investment
strategies and an extension to combine gender with other equity
themes, such as racial justice, the LGBTQIA+ community, andintersectional identities• A continued focus on the environment, moving from the impact
investment niche into more mainstream investment models• A focus on technology for inclusion, whereby digital infrastructure is
helping to leapfrog traditional distribution models
Source: Palladium (2021): “4 Impact Investing Trends to Watch in 2021”

The trend towards managers that combine scaleand credibility is crucial to the achievement of the
SDGs. At the same time, it is imperative that the
integrity of offerings is scrutinised on a consistentand transparent basis, as further outlined in thereport of the Impact Taskforce’s Workstream A.
Combined, these trends will provide competitive
clarity among managers and their offerings, while
also expanding awareness as to whether and how
progress towards the SDGs is being advanced byinvested capital.

138

IMP: “A forum for building
global consensus on how
to measure, assess andreport impacts on people
and the environment”;
https://impactmanagementproject.com/

139

IFRS: “Sustainability-related Reporting”; https://www.ifrs.org/projects/
work-plan/sustainability-reporting/140

IFRS: “An update on the
ISSB at COP26”; https://www.ifrs.org/news-andevents/news/2021/11/
An-update-on-the-ISSB-atCOP26/

141

J .P. Morgan (2020): “J.P.
Morgan Launches Development Finance Institution”;
https://www.jpmorgan.
com/solutions/cib/investment-banking/2020-dfi-announcement

54

Disclosures Standards Board (CDSB), which aims
to include climate-related matters into financial
reporting, and the Value Reporting Foundation(VRF – which houses the Integrated Reporting
Framework and the SASB Standards).140 Anotherclimate-related initiative is the TCFD, which wasformed by the Financial Stability Board (FSB) andprovides recommendations on the disclosure of
information on the financial implications of climaterelated risks and opportunities. Increasingly,
institutional investors and regulators are focusing
on quality assurance of TCFD reporting. Current
reporting often separates climate and social
indicators but outcomes need a joint approachin order for asset owners and managers inparticular to understand, assess and monitor theinterdependence between environmental andsocial objectives.

Universe of supporting advisors/intermediaries is increasing

While the focus on scale is central to this report,
the importance of fostering and investing in new
generations of impact managers – that may scalein the future – cannot be overemphasised. Many
impact investors fund such emerging managers
with a view to growing the universe, in particularwith a view to the building of local manager
ecosystems in emerging markets.

A growing universe of intermediaries and advisers
is providing critical support to asset owners andmanagers seeking to invest for impact. These
range from mainstream placement agents andlarge investment banks with sustainability clientgroups to specialised firms with impact investment
expertise. On the buy-side, some investment
advisors and consultants (which count many large
institutional investors as clients) have developed
capabilities to source, underwrite and monitor
impact products. For example, J.P. Morgan has
created a development finance institution-likeoffering to advance its development-oriented
advisory services in private investment in emerging
markets.141

Efforts being made to standardise
ESG and impact management

Media and event focus on impact isincreasing

Extensive efforts to improve standardisationand the robustness of impact performancemeasurement and management are also underway. This is in response to growing investor,
regulator and media concerns about the use of
ESG and impact marketing labels on investment
products without proper accountability ofthe marketed claims, leading to claims of‘greenwashing’ and ‘impact washing’.

Press coverage of impact investing in mainstream
publications, including by the Financial Times andBloomberg (including Bloomberg New Energy
Finance (BNEF) and Green reporting channels), andthe inclusion of impact topics at major conferences
is growing rapidly. More and more institutional
investors are participating in impact investing
events. Organisers of such events include the GIIN,
the Global Private Capital Association (GPCA,
formerly EMPEA), the Global Steering Group (GSG)
and the National Advisory Boards (NABs), amongst
many others.

Key initiatives to strengthen the way in whichinvestment products and those who manage
them can be assessed on impact practice andperformance include the Impact Management
Project (IMP)138 and the International Financial
Reporting Standards Foundation (IFRS)’s efforts
on sustainability-linked reporting.139 The IFRS
announced the formation of an International
Sustainability Standards Board (ISSB) at COP26
that will develop global baseline sustainability
standards. The ISSB will integrate both the Climate

2.4.1.7 Participation by developed
markets institutional investors
Most emerging markets are either absent from ormake up only a miniscule portion of the portfolios
of institutional investors based in developed
markets. According to data collected from

What are the units of action for moving markets towards the SDGs?

Figure 2.6

Number of private equity funds by primary geographical focus

Encouraging and supporting international
institutional investors to invest more into emerging
market propositions that advance the SDGs anda Just Transition does not provide the complete
solution, however. To scale up private capital for
positive impact and build sustainable financing
routes and ecosystems within developing
countries, it is also important to strengthen local
institutional capital providers and local capital
markets.

4,500
4,00
No. of Funds Raising

2.4.1.8 Participation of emerging
markets institutional investors

3,500
3,00
2,500
2,000
1,500
1,000
500

North America

EuropeAsia

Rest of World

Jan-21

Jan-20Jan-19Jan-18Jan-17Jan-16

Jan-15Jan-14Jan-13Jan-120

Source: Preqin (2021): “2021 Global Private Equity and Venture Capital Report”

Morgan Stanley, global investors have allocatedbetween 6% and 8% of their portfolio to emerging
markets.142 In 2019, the Blended Finance Taskforce
estimated institutional investors’ asset allocation in
private alternatives in emerging markets at just $2.1
trillion.143 A survey by Preqin shows that few private
equity funds have a geographic focus outside ofNorth America, Europe or Asia (see Figure 2.6).

142Morgan Stanley (2021):“Emerging Market Allocations: How Much to Own?”

143

Blended Finance Taskforce(2018): “Better finance,
better world”; including intheir analysis pension funds,
insurance companies,
SWFs, banks, private equity
funds and asset/wealthmanagers

144

Vontobel Asset Management (2020): “Vontobel
study confirms investors
want to increase their allocation to emerging markets”;
https://am.vontobel.com/
en/news/vontobel-studyconfirms-investors-want-toincrease-their-allocation-toemerging-markets

However, a survey of 300 institutional investors
and wealth managers in 2020 by Vontobel
Asset Management found that more than half of
respondents expect to increase their allocationin equities and bonds to emerging markets in thefollowing five years in a search for new sources ofreturn and alpha.144 There is also growing evidence
of institutional investors making impact investmentsin emerging markets across all asset classes.145

145

Impact Investing Institute(2021): “Impact investingin emerging markets:
Opportunities for institutional
investors”; https://www.impactinvest.org.uk/our-casestudies/emerging-markets/

The Covid-19 pandemic has, however, frustrated thistrend in the short term, with many investors keeping
allocations steady or even reducing allocations as
they seek more conservative positions.

146

OECD (2021): Mobilising
institutional investors forfinancing sustainable
development in developing
countries: Emerging evidence of opportunities andchallenges.

147

Société Générale (2020):
The Rise of Institutional Investments in Africa; https://www.securities-services.
societegenerale.com/en/insights/views/news/rise-institutional-investments-africa/

148

African Business (2021):
AFC can help transform
infrastructure investment
in Africa

Although there is positive traction, many
institutional asset owners in developed markets
continue to struggle to place emerging markets
investments within their existing mandates andasset allocation strategies (see also below in thebarriers discussion in Section 2.4.2).
Action is needed to create accessible
allocations for emerging markets investments
and appropriate incentives for asset
managers and consultants to include relevanttransactions in institutional investors’
portfolios.

Such activity is still mostly at a very early stage inthese markets. Rising wealth levels and a growing
institutionalisation of savings and capital markets
are helping to grow the local institutional investor
universe, contribute to the development of local
securities markets and improve the stability of
the financial systems. Local institutional investors
typically have a greater understanding andknowledge of their local investment landscapeand associated risks. So they are well positioned
to make investment decisions about local assets.
Many emerging markets’ institutional investors arelooking for local investment opportunities and are
an important source of funding for local currency
denominated emerging markets assets.146
But it is still the case that underdeveloped capital
markets (see also Section 2.4.2), a general lackof investable pipeline, excessive regulation or thelack of investor sophistication often constrain theability of institutional investors to pursue local
investments.
For example, in Africa, a conservative investment
outlook and regulatory constraints mean that many
African institutional investors favour sovereign
bonds over other (mostly scarce) listed assets,
including equities and corporate bonds, andtend to invest in more mature exchanges suchas Morocco or South Africa. Although private
equity, real estate and infrastructure are growing
as asset classes in Africa, they are often viewed
as inadequate or too risky. Between 2011 and2017 African institutional investors accounted fora mere 1% of private placement in infrastructure.
In 2018, the African Investment Forum called formore regional investments from African institutional
investors, claiming they amounted to no more than
10% of the total portfolios.147 Increasingly, therefore,
asset managers are looking to encouragesovereigns into the space.148 The Africa FinanceCorporation (AFC), for example, has developed
a partnership with the Nigerian government for an
infrastructure fund, seeded by the Central Bankof Nigeria (which is also an AFC shareholder),the Nigerian Sovereign Investment Authority(NSIA), and the AFC, with initial funding of about$2.5 billion. This familiar pattern is found in otheremerging market environments.

55

Mobilising institutional capital towards the SDGs and a Just Transition

Mobilising local institutional investors with their
deeper understanding of the local investment
ecosystem provides a significant near-term
opportunity. Local capital investment could
empower more domestic capital to contributeto achieving the SDGs at a local level and would
instil confidence among international players.
The multiplier effect on domestic savings andearnings could also offer further support tolocal governments as they seek to fulfil national
development plans.

2.4.2 Institutional investors’
key barriers to investing inemerging markets in privatetransactions
Institutional investors (as asset owners) face realand perceived barriers to participating in emerging
markets’ private transactions, which we explore
below. Such barriers can be classified as either
external or internal. Most apply across asset
classes, but some are particularly relevant for
certain asset classes, such as ratings for fixedincome and private debt investment offerings.
Similarly, while most barriers detailed affectall institutional investors, some present moresignificant impediments to certain institutional
investors because of their regulatory status. For
capital to move at scale, these barriers need tobe acknowledged and adequately addressed.
Throughout the following sections we showcase
examples of how one or more of these barriers canbe successfully navigated to unlock capital flows.

2.4.2.1 External barriers
Institutional asset owners, even when willingand qualified to invest in pursuit of impact, often
struggle to find investable assets in emerging
markets for the following reasons:• Real or perceived investment risks
Although higher-income emerging markets are
increasingly on the radar screen of investors
seeking yield, many lower-income markets’
macro-economic and political risks are
considered substantial and are often not wellunderstood by institutional investors.
~ M acro risks, including political andeconomic stability, are difficult to quantify
and risk mitigation can be complex – or even
impossible. Legal risks include unenforceable
or weak property rights, restrictions on
repatriation of capital, weak bankruptcy andinsolvency frameworks and limited minority
shareholder rights. Foreign exchange risks

56

are also often substantial and impossible
or expensive to hedge as many emerging
economy currencies are volatile, thinly tradedand at times subject to political interference~ L ack of quality data exacerbates macro risks,preventing proper analysis of opportunities
against relevant benchmarks and leading toincreased risk perception~ E xpected returns in emerging markets areoften not higher than in developed markets
and hence fall short of what investors require inorder to accept (real and perceived) risks. With
respect to impact investments there continues
to be a perceived trade-off between financial
returns and impact, despite growing evidence
challenging this assumption• L ack of size and pipeline
Apart from a few distinct sectors within higherincome developing countries (such as finance,
telecoms and mining), direct investment
opportunities in emerging markets are mostly too
small for institutional asset owners to consider.
Likewise, there are few local investment funds
and other intermediated vehicles aggregating
direct investments, and they are usuallysignificantly smaller than their developed market
counterparts. Most investments by institutional
investors are currently focused on the so-called
BRICS countries (Brazil, Russia, India, China
and South Africa), where most of the sizable
and mature deals occur. Other markets are
fragmented and mostly below the size thresholds
of institutional investors. Looking at opportunities
that explicitly pursue positive local impact
towards the SDGs, the challenge becomes evenmore pronounced as impact strategies are often
smaller in size and include new business models
that are often perceived as higher risk.
• Lack of reliable information
Private investments in emerging markets often
provide non-standardised, limited and at times
unreliable information. This presents challenges
across the investment cycle, but particularly during
the due diligence assessment of an investment
opportunity. There is little pricing transparency on
private investments. Historical performance data
and track record are often missing. Emerging
markets funds frequently target early-stage
enterprises or enterprises that are pursuing lessproven business models, making assessment
and relative value decisions difficult. Reporting
is often weak and lacks the standardisation that
institutional asset owners demand.
• L ack of liquidity
Liquidity is a major concern in the investment
decision-making of institutional investors, eventhose whose balance sheets are structured with

What are the units of action for moving markets towards the SDGs?

SPOTLIGHT

The evolving understanding of fiduciary duty: Example from the UK

Responsible, sustainable or impact investing approaches areoften wrongly perceived to be incompatible with the fiduciary
duty of pension fund trustees to act in the best interest of
their scheme members. In the UK, since a landmark casein 1985, many have seen this duty as synonymous withmaximising short-term financial return. This interpretation
has been increasingly questioned, however, as it may leave
pension funds exposed to risk over the long term andprevent them from capitalising on the opportunities offered
by responsible, sustainable and impact investments.
Pension scheme trustees have an obligation to use theirpowers to achieve the pension scheme’s purpose –
namely, to provide retirement benefits for its members. But
investment professionals are becoming aware of risks tofinancial returns arising from weaknesses in companies’
environment, social and governance (ESG) profile. Thoserisks must be considered in relation to a pension scheme’s
investment time horizon, which can usually be measured

in decades. Many companies now have significant risk
exposure in the transition to a low-carbon global economy.
Social issues, including diversity and inclusion, workforce
protections within companies and their supply chains, andhealth and wellbeing can also impact the long-term successof an investee company.
An investment that enhances the risk/return profile of aninvestment portfolio, while also generating a positive social
and/or environmental impact, will therefore generally beconsistent with trustees’ fiduciary duty.
Reflecting this evolving understanding of fiduciary duty,
there are now many instances of such investments acrossUK pension portfolios including investment in environmental
infrastructure, waste management, sustainable forestry, social
housing, private equity, private debt and venture capital.
Source: Impact Investing Institute (2020): “Impact investing by pension funds:
Fiduciary duty – the legal context”

long-term liabilities. Whereas traditional tradedasset classes usually offer daily liquidity, this is
not the case with private investments,149,150 andeven less so in emerging markets. In private
equity, the immaturity of investment markets inmost emerging market jurisdictions (both withrespect to capital markets, with a view to a future
initial public offering (IPO), and with respect tomergers and acquisitions activity by financial
and strategic investors) restricts visibility on exit
opportunities. As a consequence, some investors
automatically charge liquidity premiums totransactions without acknowledging the potential
matching of their long-term liabilities with thelong-term investment opportunities.
149

Law Commission (2017):“Pension funds and social
investment”

150APPG on Alternative Investment Management (2019):“UK Pension Schemes andAlternative Investments”

151See Impact Investing
Institute (2020). “Impact
investing by pension funds:
Fiduciary duty – the legal
context”; https://www.impactinvest.org.uk/wp-content/uploads/2020/11/
Impact-investing-by-pension-funds-Fiduciary-duty-%E2%80%93-the-legal-context.pdf; and PRI(2020): “The modern interpretation of fiduciary duty”;
https://www.unpri.org/
fiduciary-duty/the-modern-interpretation-of-fiduciary-duty/6538.article• L ack of ecosystem of suitableintermediaries
Historically, institutional investors have typicallyworked with asset managers and consultants
with whom they have long-standing relationships.
These managers and consultants are usuallyfocused on liquid asset classes in developed
markets whereas SDG-focused impact
managers, while building track record andgaining market momentum, have historically been
rejected by asset owners as lacking adequate
size and track record.
• Statutory and general law duties andregulatory requirements
Institutional investors’ mandates are often directly
or indirectly restricted by regulatory oversight andrequirements. For example, pension fund trustees
need to meet fiduciary responsibilities, which
may be perceived as limiting focus to financial
returns,151 and comply with statutes and law.

Insurance companies operate under the Solvency
II framework, binding them to match assets andliabilities (meaning that they will largely need toinvest in their liabilities’ countries and currencies)
and providing stringent liquidity requirements
and rules on capital adequacy. These latter rules
effectively limit the investable universe to fixedincome with investment-grade ratings as capitalcharges are significantly higher for non-investment
grade transactions. Financial institutions alsoneed to adhere to capital adequacy rules under
Basel III. Regulators themselves often lackawareness of, and familiarity with, emerging
market loss rates and other market indicators,
which further exacerbates the way in which
existing regulation is applied to emerging market
investment opportunities.
• Credit ratings
Most emerging markets’ sovereign ratings
are sub-investment grade, providing an extra
challenge for many institutional investors,
particularly those that incur high capital charges
for sub-investment grade debt assets (see also
the discussion of ratings in Section 2.3.4.1).
• Costs
Emerging markets transactions are often
expensive to execute, particularly when they
are being undertaken as a new activity for
an investor. While building the experienceand knowledge base inside an investment
organisation, underwriting emerging markets
deals may require extensive support fromexternal advisors. Impact transaction
management can further add to the overall
costs of a vehicle.

57

Mobilising institutional capital towards the SDGs and a Just Transition

SPOTLIGHT

Credit ratings

In considering the important role of credit ratings inmoving institutional capital, questions within the industry
have been raised regarding the criteria, benchmarks andprocesses used to generate ratings for emerging markets
issuers. Without diluting the rigour of ratings analysis, it
should be possible to update current approaches to ensurethat relevant benchmarks are applied (e.g., collateralised loan
obligations (CLO) models of homogeneous assets do notoffer a useful reference point for emerging markets multisectoral assets), models are calibrated and current country
level track record is used as input. If ratings processes are
not thoughtfully examined and calibrated, e.g., with respect
to portfolio correlation, they will continue to keep emerging
markets issuers stubbornly below the investment-grade
threshold required by most institutional investors.

There are further questions about the current market
separation between credit and sustainability ratings.
Investors increasingly recognise that the performance ofan investment should be assessed on both its financial
and sustainability results, so is it not time that the ratings
agencies take the same step? Some commentators havealso suggested exploring ways to use credit ratings so thatissuers are incentivised to use proceeds of bond issues todeliver explicit environmental and social impact.
Sharing relevant performance data with rating agencies anda joint engagement on the re-calibration of certain models toreflect emerging market realities may enhance the agencies’
ability to assess real risks and reduce penalties on emerging
markets issuers for perceived uncertainties or diversification/correlation mismatches.

2.4.2.2 Internal barriers
Beyond external factors, institutional asset owners
also face internal barriers that prevent them fromengaging more meaningfully in private transactions
in emerging markets:• Limited risk appetite
Institutional investors’ mandates usually default
to restrict risk taking, often exacerbated byregulatory requirements as described above. This
limits their ability to invest in illiquid investmentsthat are perceived as risky, especially withinemerging markets.
• Rigid allocation policies, guidelines orframeworks and mandate restrictions
Allocation policies and frameworks often do notaccount for private ‘alternative’ assets and/or
emerging markets. Changing such frameworks
often requires significant effort and time.
• L ack of awareness and access
Given their historic inexperience in emerging
markets investments, and in impact investments,
institutional asset owners often lack the required
networks and market connectivity to source
suitable pipeline.
• S taff capabilities, expertise and market
familiarity
Institutional investors often lack in-house
expertise to analyse private and emerging
markets investments. When extending theirinvestment focus to such markets, resources
need to be assessed including to what extent
they should look to specialist intermediaries
for help, build in-house expertise, or adopt a
combination of the two. The familiarity requiredwith local market practices and culturaldifferences in order to provide for an effective

58

investment process is not to be underestimated.
The need to invest in building some baseline
capability of expertise is a requirement for any
asset owner serious about investing to advancethe SDGs.
• I ncremental effort
On listed exchanges in developed countries,
pricing is transparent and information is typicallyreadily available and standardised, leading to an
efficient sourcing, assessment and execution
process. Private transactions, and those inemerging markets especially, usually require
more time, effort and specialist expertise to
identify, perform due diligence on, execute andmonitor deals, demanding more human capital
investment. Given the need to consider risks
which may be less familiar to the asset owner,
specialised external advisors are generally
required, including local legal counsel andaccounting and sector experts. Consequently,
many asset owners charge a ‘complexity
premium’ or similar underwriting fees, adding tothe overall costs of these deals.

2.4.2.3 Overview of potential
approaches to address barriers
To increase institutional investor allocations toadvance the SDGs generally, and a Just Transition
specifically, particularly in emerging markets,
investment vehicles need to be designed toovercome the external and internal barriers facedby asset owners.
In the table on the next page, we assess the key
barriers to institutional investment in emerging
market impact and how they are being, and can befurther, addressed.

What are the units of action for moving markets towards the SDGs?

Barrier

Relevance acrossinstitutional
investor types
and asset classes

Possible approaches to address the barrier

Actors to support
the proposed approaches

External
Real orperceived
risks ofinvestments
and returns• Real andperceived
macro risks
relating togeography
and market• Insufficient
track recordand data
points• Uncertainty
and/or levelof expected
returns

Universal

There are multiple structuring approaches (see also
Section 2.5 on blending) including various instruments and tools that can help address the risk/
return challenge, bridging the information asymmetry(for perceived risks) and mitigating the real risk. Such
instruments can be concessional or at market rate.
A few examples include:

Impact investors (including MDBs,
DFIs and private impact investors)
across risk mitigating instruments,
performance data and partnerships• Subordinated capital, including first-loss equity,
junior debt and other (for more, see Section 2.6.1)• Credit guarantees (for more, see Section 2.6.2)• Insurance, e.g., political risk (for more, see Section
2.6.3)

Insurance companies (insurance
products)• Concessional returns or shared upside
participation• Grant funded technical assistance facilities, thatprovide direct capacity support to investees andselectively to managers for the establishment of
new vehicles

Donors (for grants)• Hedging

Hedging providers

SPOTLIGHT

SPEED Platform

The Special Situations Partnership to Expedite
Energy Decarbonisation (SPEED) Platform
is a platform designed to identify, prioritise andinvest into strategic energy system tipping points
to accelerate near-term, Net Zero-aligned energy
transitions.
It aims to mobilise $10 billion by investing $1 billion
into projects with significant systemic emissions
reduction. The ambition is to avoid 10 giga tonnes
CO2e through catalysing systemic shifts in energy
markets.
Financial returns and measurable emissions
reduction will be blended into a single decision
metric – climate adjusted internal rate of
return.
The vehicle provides a flexible capital structure,
combining climate-first fiduciary capital with an
explicitly catalytic pool. The fund aims to syndicate
transactions to increase scale of impact and alignpartners.
The platform will also provide advisory services andcommunity engagement.
Source: SPEED information

An additional approach, in particular where the challenge is perceived risk, is the provision of relevant(e.g., performance) data and track record, to help
investors in their risk assessment. More and contextualised information across asset classes can spur
institutional investor participation.
Related are partnership approaches; e.g., many
MDBs and DFIs offer syndication platforms, where
institutional investors can participate pari passu in
the originating MDB’s loan, benefiting from theirsuperior market knowledge (and even preferredcreditor status).
59

Mobilising institutional capital towards the SDGs and a Just Transition

Barrier

Relevance acrossinstitutional
investor types
and asset classes

Possible approaches to address the barrier

Actors to support
the proposed approaches

External
Lack of size
and available
pipeline

60
60

Universal

Syndication and co-investment opportunities areoffered by many MDBs and select DFIs (see also
above).

MDBs/DFIs (syndications)

MDBs and DFIs can be enabled by theirshareholders to consider more proactive selling ofsome of their more mature assets, either directly or
through securitisation structures, thereby allowing
institutional investors to step into performing
assets with relevant track record. Such efforts
require consideration of internal changes, including
amendments to the internal incentivisation structures
and, potentially, changes to team composition andcapabilities.

MDBs/DFIs and larger funds(co-investments)

The increased use of fund of funds structures (orsimilar platforms), aggregating smaller vehicles into
a combined portfolio is another route to sizable anddiversified transactions.

Asset managers

Dedicated managers, with growing track record,
are ramping up pipeline; investors can engage withthese managers both in order to stay abreast oftrends and to inform investment strategies coming tomarket.

Asset managers and institutional
investors

National policy makers should ensure their country
provides for an enabling regulatory environmentthat allows for viable investment propositions. For
example, professionally managed infrastructure
project tenders, in particular targeting Net Zero and/or decarbonisation commitments, with clear rulesof engagement and tariff structures create investor
comfort and enable such projects to become viablepipeline deals. The same applies for professionallymanaged public procurement tenders for social
investments (e.g., affordable housing, healthcare
facilities, education, etc.).

National policy makers

There are also initiatives specifically targeting project
development with the goal of fuelling pipeline
generation of deals that can ultimately attract
institutional capital. To effectively galvanise capital
flows at scale, the full investment lifecycle requires
continued attention.

E.g., PIDG’s InfraCo Africa andInfraCo Asia; IFC’s InfraVentures;
Global Energy Alliance for People
and Planet

What are the units of action for moving markets towards the SDGs?

Barrier

Relevance acrossinstitutional
investor types
and asset classes

Possible approaches to address the barrier

Actors to support
the proposed approaches

External

SPOTLIGHT

Global Energy Alliance forpeople and the planet

In June 2021, the IKEA Foundation andthe Rockefeller Foundation announced theestablishment of a joint $1 billion global Energy
Alliance platform to fight climate change and energy
poverty by catalysing investments in distributed
renewable energy with a focus on the availability ofinvestable deals.
The platform aims to reduce 1 billion tonnes ofgreenhouse gas emissions and empower 1 billion
people with distributed renewable energy, focusing
on sources such as mini-grids, rather than central
sources like power plants.

“While funding to support energy transition
has increased at a global level, manyorganisations struggle to identify viable,
investment-ready projects. As a result,many emerging economies still depend on
unreliable and polluting energy sources.
By creating a platform to deploy catalytic
capital more efficiently, and at scalethat supports the expansion of local
renewable energy projects, governments
will be better able to achieve renewableelectrification and development targets.”
Source: Ikea Foundation (2021): IKEA Foundation and Rockefeller
Foundation join forces to set up a historic $1 billion initiative to catalyse investments in distributed renewable energy

61
61

Mobilising institutional capital towards the SDGs and a Just Transition

Barrier

Relevance acrossinstitutional
investor types
and asset classes

Actors to support
the proposed approaches

Possible approaches to address the barrier

External

SPOTLIGHT

Breakthrough Energy Ventures

Breakthrough Energy was founded in 2015 byBill Gates and several organisations that seek tohelp lead the world to Net Zero emissions by 2050
by supporting research and development, investingin companies that turn green ideas into clean
products and tools, and advocating for policies thatspeed innovation from lab to market.
Breakthrough Energy Ventures, announced in2016 as an investor-led fund, to date has raisedover $2 billion from a group of ultra high-net-worth
individuals. The fund provides patient, flexible
funding to technology companies across sectors,
aiming to help building “the new, cutting-edge
companies that will lead the world to net zero
emissions” and ensuring affordable, reliable andclean energy for all.
While the fund seeks to make money, it targets
investments that can demonstrate that they canscale up to achieve a reduction of at least 500
million metric tonnes in annual CO2 emissions –about 1% of global emissions.
Source: Breakthrough Energy

Lack ofreliable
information

Universal

Access to, and dissemination of, reliable, consistent
data is slowly improving, with more and more impact
follow-on funds coming to market that build on the
successful implementation of the marketed strategy,
data and performance of earlier funds.

MDBs/DFIs hold long term data;
other impact investors have also
accumulated valuable data over
several years

DFIs and MDBs can do more (and need to beenabled by their shareholders to do more) to provide
transparent information and data to allow others,
including private investors and rating agencies, toassess the risks of relevant investments in emerging
markets.152 Impact investors are well-positioned
to continue to challenge the traditional perceptionthat there is an inverse relationship between social
or environmental impact and financial return. It
is the actors with relevant, market-specific trackrecord who are best placed to share such data andinformation, with appropriate analysis and context.
152

62

Some DFIs and MDBs have started this effort,
see Global Emerging Risk Database Consortium (GEMs); https://www.gemsriskdatabase.
org/What are the units of action for moving markets towards the SDGs?

Barrier

Relevance acrossinstitutional
investor types
and asset classes

Possible approaches to address the barrier

Actors to support
the proposed approaches

External

SPOTLIGHT

GEMs database

The Global Emerging Markets (GEMs) Risk
Database Consortium, established in 2009, is
one of the world’s largest credit risk databases for
emerging markets. It pools (anonymised) data on
credit defaults, recovery rates and credit ratings on
its members’ loans. Its member institutions are 24
MDBs and DFIs.
Source: GEMs Risk Database Consortium

Possible approaches that address information
asymmetries include:• Partnership structures, including syndication
platforms (see above)• Sharing of performance data and information (seeabove)• Use of local advisors• Technology solutions that are showing promise• Funding support to local managers to develop
more efficient information systems to extrapolate
data from operating businesses
Lack ofliquidity

Universal; aparticular challenge
for private equity
is high uncertainty
of exits; within
asset classes,
low liquidity may
be a problem forsecurities andrelated vehicles
listed on emerging
markets exchanges
that lack trading
depth

Many investors, such as life insurers or pension
funds, have long-dated liabilities that have theability to sustain longer investment horizons. Suchinvestors are able to get comfortable with private
investments without asking for liquidity premia.
For private equity, more sales of assets by impact
investors, in particular MDBs and DFIs, would create
a deeper secondary market, increasing investor
confidence of sufficient access and liquidity.

SPOTLIGHT

Particularly MDBs and DFIs, but also
other impact investors; supported
by advisors, such as investment
banks

Creating liquidity: Schroder
BSC Social Impact Trust

Big Society Capital (BSC) in partnership with
Schroders, designed the Social Impact Trust, listedon the London Stock Exchange, creating liquid andfreely tradable shares and providing retail investors
with access to private market impact investment for
the first time, hence bringing in additional capital tohelp social enterprises and charities.
Source: Big Society Capital (2021): “Schroder BSC Social Impact
Trust plc: Investing to improve lives in the UK”

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Mobilising institutional capital towards the SDGs and a Just Transition

Barrier

Relevance acrossinstitutional
investor types
and asset classes

Actors to support
the proposed approaches

Possible approaches to address the barrier

External
Lack ofecosystem ofsuitable intermediaries

Statutory andgeneral law
duties andregulatory
requirements

Universal acrossasset classes andinvestor types

Relevant acrossasset classes
with different
implications;different investors
can face specificregulatory
frameworks, also
differentiated byjurisdiction

The universe of specialist intermediaries andadvisors is growing. Strengthening the capacity ofthese managers can be encouraged and supported
by investors and development agencies by way offirst-time manager allocations, development support
for fund design, shortened capital raising cycles, aswell as grant support for bolstering management
teams.

Asset managers, investment
consultants, investment banks andother advisors

Partnership models can also help overcome thisbarrier and there is increasing activity in bringing
more examples to market for investor participation.
See also Section 2.6.7 for more information on
partnerships.

Across financial market actor types

Law and policy makers and regulators can work
more effectively with the investor and asset manager
community to overcome regulatory barriers.

Law and policy makers andregulators working with asset
managers and engaged institutional
investors

Efforts to increase awareness among regulators of
emerging market data points and deal dynamics isa necessary first step. Lack of awareness reinforces
conservative assumptions and maintains highbarriers to investment activity in emerging markets.
Examples of ongoing discussions include the active
debate of fiduciary duty and the relevance of ESG
considerations. The Impact Investing Institute’s
Impact Investing Principles for Pensions paper calls
for pension funds to adopt a ‘transitional mindset’
and include in their considerations financial risk
mitigation with respect to societal and environmental
risks, and also the search for opportunities byidentifying resilient and ‘future-fit’ companies.153
The UNEP Finance Initiative and the UN PRI issued
a report that states that fiduciary duties require
investors to:154• “Incorporate ESG issues into investment analysis
and decision-making processes, consistent with
their investment time horizons• Encourage high standards of ESG performance inthe companies or other entities in which they invest• Understand and incorporate beneficiaries’and savers’ sustainability-related preferences,regardless of whether these preferences arefinancially material• Support the stability and resilience of the financial
system• Report on how they have implemented thesecommitments”

64

153

Impact Investing Institute (2021): “Impact
Investing – Impact Investing Principles for
Pensions”

154

PRI and UNEP Finance Initiative (2021): “Fiduciary duty in the 21st century”

Barrier

Relevance acrossinstitutional
investor types
and asset classes

Possible approaches to address the barrier

Actors to support
the proposed approaches

External
Another example is EIOPA’s recent discussion
around climate adaptation insurance products.

SPOTLIGHT

EIOPA on climate adaptation
insurance

The European Insurance and Occupational
Pensions Authority (EIOPA) investigates theopportunity for (re)insurers to contribute to climate
adaptation and mitigation and provide non-life
insurance products based on risk-based pricing andcontractual terms and with multi-year duration.
EIOPA explores whether such contracts deserve
lower capital charges and if it should incorporate‘impact underwriting’ concepts in distribution andgovernance requirements.
Source: Big Society Capital (2021): “Schroder BSC Social Impact
Trust plc: Investing to improve lives in the UK”

Credit ratings

Relevant for fixedincome bondissuances or
securitisations;
across investor
types; insurancecompanies areoften the mostrestricted byregulators in holding
sub-investment
grade assets

Credit ratings are a crucial factor in assessing bonds
and securitisations. As discussed in Section 2.3.4.1,
emerging markets’ issuers are challenged by country
ceilings and at times rating models that may not fullyreflect the realities of emerging markets portfolios

Ratings agencies working withactors that have data and regional/
sector experience (asset managers,
impact investors, etc.)

Approaches that can be pursued to achieve
investment-grade ratings include:• Diversification across emerging markets but also
across developed and emerging markets (e.g.,
BlueOrchard’s Schroder International Selection
Fund BlueOrchard Emerging Markets Climate
Bond fund) includes developed markets bonds toachieve an investment-grade average rating of its
overall global bond portfolio (see Section 3.4.6)• Guarantees, in particular by highly rated MDBs and
DFIs, can provide substantial support to vehicle
portfolios’ ratings• Insurance, including non-payment insurance
coverage or particular risk coverage, such aspolitical insurance• Subordinated capital

65

Mobilising institutional capital towards the SDGs and a Just Transition

Barrier

Relevance acrossinstitutional
investor types
and asset classes

Actors to support
the proposed approaches

Possible approaches to address the barrier

External
Costs

Universal, acrossasset classes andinvestor types

Costs of private transactions, particularly inemerging markets, are higher than institutional
investors generally accept in listed markets.
Investors prepared to invest in emerging markets
will need to make some investment to build a
degree of internal capacity to make investment
decisions, an investment that can be expected tobe realised by greater volume of investment activity.
Fair assessment of the fees required by managers
operating in emerging markets to execute on theirinvestment strategy in the local context warrants
consideration and flexibility.
Targeted and time-limited grant support tovehicles may at times help cover certain upfront
or transaction costs where a vehicle pursues new
and riskier avenues in private emerging markets
transactions.

Donors or impact investors

Although institutional investors need to satisfy theirrisk/return requirements in making investment
decisions, it is important to disaggregate theserequirements to identify the parts of portfolios
where SDG emerging markets investments canfit. Quantifying long-term liability exposureswith investment opportunities that match these
exposures can open new investment activity. This
analysis can support a specific allocation within
the investor’s portfolio for emerging markets’ SDG
investments.

Institutional investor leadership;potentially specialised advisor
supportInternal
Limited risk
appetite

In principle
universal, acrossasset classes andinvestor types;
however, risk
appetite varies
by investor type,e.g., life insurers,
pension funds andalso some SWFs
typically can havemore appetite forlonger investment
time horizons

A specific allocation offers a starting point for aninvestor to operate within their existing tolerances
while building experience in and performance dataon emerging markets’ SDG investments.155
When allocating to these assets, investors canengage with market actors, including impact
investors, MDB/DFIs and leading managers, toensure that deals and vehicles are structured tosatisfy their requirements. Early engagement andpartnerships can ensure that concerns are being
addressed, in particular, by using blended structures(including the use of risk mitigation and protection
through insurance, guarantees, subordinated capitallayers and others).

All

In addition, investors can actively engage with MDBs
and DFIs to establish a better view on risks, basedon real data and track record in relevant markets.
Approaches that can be pursued to address risk
appetite include:• Allocation commitment• Diversification• Guarantees and insurance• Subordinated capital
155

66

Impact Investing Institute (2021): “Impact
Investing in Emerging Markets: The Opportunities for Institutional Investors (webinar
summary)”; https://www.impactinvest.org.uk/
events/impact-investing-in-emerging-markets-opportunities-for-institutional-investors/

What are the units of action for moving markets towards the SDGs?

Barrier

Relevance acrossinstitutional
investor types
and asset classes

Possible approaches to address the barrier

Actors to support
the proposed approaches

Internal
Rigid
allocation
policies orframeworks
and mandate
restrictions

Universal, acrossasset classes andinvestor types; animportant driverfor change is
the institution’s
leadership andthe voice of its
members

Amendment of mandates, policies and allocation
frameworks, allowing for more investment
engagement in emerging markets and to support theSDGs, is an area for proactive internal engagement.

Institutional investor leadership(trustees/boards) and shareholders

Where the asset owner is a pension fund, themandate may be published to scheme members/
pension holders to highlight the progress in reflecting
a commitment to the SDGs in executing investment
responsibilities.
Incentives may also be set for asset managers andinvestment consultants to actively pursue relevanttransactions.
In addition, a growing group of asset owners led by
the Global Investors for Sustainable Development(GISD) Alliance is working to reframe mandates withat least a positive tilt towards investing in the SDGs
through the lens of alignment, stewardship andaccountability to address these barriers.

Lack ofawareness
and access

Universal, acrossasset classes andinvestor types

There are ways to access transactions that can help
deliver the SDGs, particularly in emerging markets,
such as partnerships and syndication platforms, inparticular working with MDBs and DFIs or SDGfocused investment managers such as the ILX Fundand others.

SPOTLIGHT

All, including impact investors(MBDs/DFIs, private), asset
managers, advisors, etc.

ILX FundThe ILX Fund, managed by Cardano Development,
is an SDG-focused emerging markets credit fund,investing in diversified portfolios of loans originatedand structured by DFIs through syndication
structures, hence seeking to provide investors witha balanced risk and return proposition.
Source: ILX Fund

Engagement with more mature impact managers
can also be established. Many funds provide forco-investment, allowing investors to start direct
engagement alongside a vehicle and its professional
manager.
There is also a growing universe of specialist
advisors that can support in-house teams andprovide access to relevant deals.
With increased engagement, awareness and direct
deal access should follow.
Staff
capabilities,
expertiseand market
familiarity

Universal, acrossasset classes andinvestor types

Same as above.

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Mobilising institutional capital towards the SDGs and a Just Transition

Barrier

Relevance acrossinstitutional
investor types
and asset classes

Possible approaches to address the barrier

Actors to support
the proposed approaches

Internal
Incremental
effort

Universal, acrossasset classes andinvestor types

Private transactions, in particularly in emerging
markets are often more intensive to assess, atleast initially if the asset owner does not yet haveexperience considering such deals.
While appreciating the time and effort required inunderwriting any new set of opportunities, asset
owners can resist the common request to charge a‘complexity premium’ or similar underwriting fees.
Although there is a legitimate need for investors to
get comfortable with the underlying risk/return of the
proposition, it is not unreasonable to expect asset
owners to develop the expertise and skills needed toconsider emerging market investment opportunities
in light of the scale of the opportunity, as set forth in
Section 1.4.

All, including institutional investors
but also asset managers, advisors,
including investment consultants
and investment banks, to invest timeand resources to educate and learn

There is a growing universe of specialist advisorsthat can support in-house teams in the review ofinvestments. In addition, as asset owners become
more familiar with such investments, more available
quality data and information can be expected toreduce the required effort over time.

Section 2.6 provides a more detailed discussion
on some of the instruments and tools mentioned
above and shows some of these instruments andtools ‘in action’, providing specific examples of
institutional investor participation.
Given the diverse range of institutional investors,
there will not be one solution that fits all. Eachmay have their own specific set of challenges,
depending on the regulatory framework andjurisdiction under which they operate, and theirindividual appetite for engagement, which may
be determined by their leadership, including
boards, management or trustees. Consequently,
early engagement with targeted investors anddistinct partnerships and co-creation of vehicles
are important to get significant money into Just
Transition solutions in emerging markets.
In order to mobilise private capital at scale,
it is necessary to address the barriers that
institutional investors face and structure
investable vehicles that respond to theirneeds. As pathways for action are created,
institutional investors are encouraged
to commit to proactively explore andtake up these opportunities. This form ofdynamic engagement is an example of thesimultaneous action needed by various actors
for progress to happen at scale.

68
68

Other actors in the financial universe, including
asset managers, investment consultants, advisors,
and rating agencies also need to step up, engage
constructively and work together to accelerate
capital flows into emerging markets towards the
SDGs. Collaborative and coordinated action
can ensure that such enhanced capital flows
are not a one-off occurrence but are insteadsustained efforts that will yield lasting andsystemic change.
The challenges to investment that exist
today should not be an excuse for inaction.
As shown in the sections that follow,
intentional effort and well-structured
partnerships between investment actors
are overcoming current barriers to achieve
meaningful capital allocations to address the
SDGs. The tools and instruments needed tomobilise capital exist today; when used andcombined at greater pace and volume they canmobilise private capital at scale. Institutional
asset owners can take clear and bold steps
to show that they are ready, willing and able
to deploy capital to meet the challenges andopportunities confronting society today.

What are the units of action for moving markets towards the SDGs?

2.5 The role of blended finance in structuringsolutions2.5.1 Overview of blended
finance
2.5.1.1 Background
Blended finance is a structuring approach enabling
private commercial capital to invest in impactful
opportunities. The approach has received
increased attention particularly when applied toinvesting in emerging markets. Blended structures
are often used to address one of the main barriersof private investors: risk (whether actual or
perceived) and return. By combining private capitalwith other types of capital willing to accept different
terms, blended finance can direct private sector
capital into impact investment opportunities indeveloping countries that would otherwise remainon the sidelines.

2.5.1.2 Definition
The Organisation for Economic Co-operation
and Development (OECD) defines blended
finance as “the strategic use of development
finance for the mobilisation of additional financetowards sustainable development in developing
countries”.156 It is recognised that blended financeis, however, used not only in emerging markets but
also developed markets. In practice, this approach
to finance blends capital that has a developmental
mandate with capital which does not, in order
to attract more private capital into relevant
investments by making them more investable.
Blended capital can be provided either at market
or concessional rates. In recent years, there has
been significant movement in both commercial andconcessional blending instruments and structures.

156

OECD: “Blended Finance”;
https://www.oecd.org/dac/financing-sustainable-development/blended-finance-principles/157

 lended Finance TaskforceB(2018): “Better finance,
better world”

158

 hat are consideredW
blending tools andinstruments depends
across the literature; e.g., asecuritisation is, by others,
not considered a blending
per se

The critical element of any blended investment
transaction is to be clear why the blending isneeded. Successful blended finance deals
demonstrate a clear rationale for the amount anduse of capital with different expectations andterms, e.g., in the different capital layers in theblended structure. This clarity enables participating
institutional investors to determine whether andhow their risk issues are being resolved by theother capital in the deal.
Platforms including the Sustainable Development
Investment Partnership (SDIP), Climate Policy
Initiative (CPI)’s Climate Finance Lab andConvergence, the global network for blended
finance, are working to connect, educate andsupport investors to execute blended financetransactions more efficiently in order to increaseprivate sector investment in emerging markets.
Convergence publishes case studies to inform theinvestment community and supports the incubation

The OECD DAC Blended
Finance Principles
1 Anchor blended finance use to adevelopment rationale
2 Design blended finance to increasemobilisation of commercial finance3 Tailor blended finance to local context
4 Focus on effective partnering for blended
finance5 Monitor blended finance for transparency
and results.
Source: OECD (2021): “The OECD DAC Blended
Finance Guidance”

and launch of blended finance deals that have thepotential to influence the market.
In order to establish a common policy framework
and understanding, OECD Development
Assistance Committee (DAC) members adopted,
in 2017, ‘Blended Finance Principles’, aiming toensure that blended finance is deployed and usedeffectively (see panel above).
The ultimate objective of all these efforts is toincrease development impact and crowd-in private
investments with minimum concessionality andincreased trust and transparency.

2.5.2 Overview of blending
types
According to the Blended Finance Taskforce, there
are numerous tools available to address different
investor risks, which are context-dependent andmust be evaluated at the local level (see Figure2.7). The primary blended finance instruments toaddress these risks include:157,158• G uarantee: A guarantee is a promise of
performance to the beneficiary if a third party fails
to perform. Guarantees can cover different typesof risk, such as credit, liquidity or currency risks(for more detail, see Section 2.6.2)~ Example provider: GuarantCo, Swedish
International Development Cooperation Agency(Sida)• Insurance: An insurance provides protection
by promising to compensate for a specified loss
or damage in return for payment of a specified
premium. Insurance products in the blended
finance context can cover different risks, such aspolitical risks (for more detail, see Section 2.6.3)

69

Mobilising institutional capital towards the SDGs and a Just Transition~ Example provider: Multilateral Investment
Guarantee Agency (MIGA)

to achieve the desired outcomes or results, tying
at least a portion of payments to achievement~ Example provider: Bill and Melinda Gates
Foundation• H edging: Hedging reduces the risk of adverse
price movements in a currency (can also apply toother assets and their associated earning stream)• G rants: Grants are capital which is paidin without any expected repayment orcompensation over a fixed period of time.
In the blended finance context, it often relates
to money used for technical assistance or project
preparation to bring a project to bankability~ Example provider: The Currency Exchange
Fund (TCX)• S ubordinated capital: Subordinated or juniorcapital protects senior investors by taking asubordinated ranking and hence prior losses on
the value of the security. Subordinated capitalcan be in the form of equity or debt (for moredetail, see Section 2.6.1)~ Example provider: The Rockefeller Foundation
These blending tools can be implemented atvarious levels, including project, fund, fund-offunds, institutional or market level.

~ Example provider: Kreditanstalt fürWiederaufbau (KfW) and the German Federal
Ministry for Economic Cooperation andDevelopment (BMZ)159

An offtake agreement is
an agreement pursuant towhich the offtaker buys allor a substantial portion of
the output from a facility orenterprise, hence providing
a reliable revenue stream

160

Convergence et al. (2018):“Who is the Private Sector?
Key Considerations for Mobilizing Institutional Capitalthrough Blended Finance”

161

 lended Finance TaskforceB(2018): “Better finance,
better world”

The use of blended finance has grown in recent
years, particularly to advance an explicit impact
objective or to expand the flow of capital to lessfamiliar places. In addition to risk mitigation andresulting capital mobilisation, blending has also
been a powerful tool to engage new investors in
impact transactions, allowing them, with reduced
risk, to familiarise themselves with new territories.
Transactions that incorporate blended finance into
their structures have spanned all alternative subasset classes, including private equity, and private
debt/illiquid credit (including notes and bonds),
and infrastructure. According to Convergence,
the asset classes relevant to blended financeare estimated to account for around $6 trillionof alternative investment portfolios globally.160 To
date, most of these investments have been private
investments, as opposed to publicly listed equities
or bonds.161• S ecuritisation: Securitisation refers to theprocess of transforming a pool of illiquid assets
into tradable financial instruments (securities) (formore detail, see Section 2.6.4)~ Example provider: European Investment Bank
(EIB), African Development Bank (AfDB)• Contractual mechanisms: Various contractualand project finance arrangements can support
the development of companies, including
bankable infrastructure projects with public
and private offtake agreements159 or agriculturalprocessing companies with offtake agreements~ Example provider: Ofgem• Results-based incentives: Results-based
instruments provide incentives and disincentives

Figure 2.7

Blended finance de-risking methods
RISKS
MACRO
Political/
country
risk

Currency
risk

CREDIT/COMMERCIAL
Credit risk

Liquidityrisk

1. Guarantees

INSTRUMENTS

2. Insurance
3. Hedging
4. Junior/subordinated capital
5. Securitisation
6. Contractual
mechanisms
7. Results-based
incentives
8. Grants

Source: Blended Finance Taskforce (2018): “Better finance, better world”

70

Demandrisk

TECHNICAL
Construction risk

Operation
risk

FINANCE
Access tocapitalINFRA SPECIFIC
Lack ofpipeline

Offtakerisk

What are the units of action for moving markets towards the SDGs?

SPOTLIGHT

Philanthropic capital

Philanthropic funders are key providers ofconcessional blending capital across sectors
and regions, offering different instruments,
including subordinated capital, guarantees andgrant funded technical assistance support.

in excess of $1.5 trillion. A recent example of aphilanthropic initiative launched at scale is theBezos Earth Fund aiming to spend $10 billion
on transformational solutions for environmental
justice in one decade.

They are important actors in the mobilisation
discussion, in particular in deeper impact
vehicles, where they can play a catalysing role.

Activating philanthropic players to participate
in the higher risk capital layers of investment
vehicles, rather than within individualtransactions, is an opportunity for scale.

According to the UBS Global Philanthropy
report, there are more than 260,000 foundations
across 39 countries, 60% of which are inEurope and a further 35% in North America.
These foundations are estimated to hold assets

2.5.3 Blending trends

162

Convergence (2021): “TheState of Blended Finance
2021”

163

EDFI (2020): “DFI Working
Group on Blended Concessional Finance Private
Sector Projects”, Joint
Report, December 2020
UpdateAccording to Convergence’s ‘The State of Blended
Finance’ report, one significant downward trend
is that blended finance flows have dropped
substantially, by 50% year-on-year in 2020. As thereport notes, this precipitous drop is likely due todonors and investors pivoting to protect existing
portfolios and programmes during the Covid-19
pandemic.162 The sharp decline aside, funds
continue to be the largest recipients of blended
finance flows, particularly private equity funds. In
terms of geography, Sub-Saharan Africa continues
to be the primary destination of flow. Agriculture,

Source: Harvard University Kennedy School of Government(2018): The Global Philanthropy Report: Perspectives on the
global foundation sector; Bezos Earth Fund

specifically climate-smart agriculture, has seen
increased interest in the last year, with healthalso having received further focus with the recent
pandemic. With respect to blended finance within
the DFI community, Figure 2.8 gives an overview ofthe geographical breakdown of DFIs’ concessional
finance deployment in 2019 according to EDFI.163
Compared to 2018, committed DFI concessional
funds increased by about 29% in 2019 with agrowing focus on low-income and lower-middle
income countries. There was a 70% increase in
the total volume of projects financed, with 80%
growth in private mobilisation and a doubling of

Figure 2.8

Total DFI blended concessional finance project cost by region*
3000
2750
2500

$ millions

2250
2000
1750
1500
1250
1000
750
500
250
0
East Asia &Concessional

Europe &Latin America

Central Asia

& Caribbean

Middle East

Other Public/Private concessional contributions

North Africa

DFI

Sub-Saharan

Other Africa

AfricaRegionPrivate Mobilization

South Asia

Public Contribution* Note: The ‘Other Africa’ region represents volumes in Africa that are not able to be separately broken out into ‘North Africa’ and ‘Sub-Saharan Africa’.
Source: EDFI (2020): “DFI Working Group on Blended Concessional Finance for Private Sector Projects”

71
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Mobilising institutional capital towards the SDGs and a Just Transition

Mobilisation using blended financeAccording to Convergence, “the mobilisation mandate is still a tertiary business for development
organisations (exemplified by an annual allocation of only around 2–3% of official development
assistance (ODA) to private sector mobilisation), and a secondary focus for MDBs and DFIs. Veryfew have meaningful mobilisation targets and activities (except for the Multilateral Investment
Guarantee Agency (MIGA), which is expressly focused on mobilisation).” The mobilisation of MDBs,
according to their 2016–19 results, depicts a direct mobilisation ratio of around $0.40 of private
capital for every $1 of their own resources”.
Convergence further states that “each dollar of concessional capital in a blended fund mobilises
on average $4 in commercially-priced capital. The average private sector mobilisation ratio has
been only 1.10, with $2.90 coming from non-private sector sources (i.e., MDBs and DFIs)”.
Source: Convergence (2021): “The State of Blended Finance 2021”

DFI contributions. Sectors seeing the strongest
growth included agribusiness, climate finance andsmall and medium sized enterprises (SME) finance.
The percentage of senior loans in 2019 declined
compared to 2018, with a consequential higher
percent of subordinated debt and guarantees/
risk-sharing facilities. The trends referenced above
highlight two challenges:• The need to identify and expand sources ofcapital willing to accept higher risk in capital
structures, particularly on a concessional basis• The need for MDBs/DFIs to utilise blended capitalin ways that expand private capital mobilisation
It is possible to consider blended finance on amarket level. Appendix 1 includes an analysis
produced by SYSTEMIQ explaining how blended
finance can play a vital role in supporting theenergy transition in South Africa.
Blending and the use of relevant instruments
need to be expanded in order to mobilise
more private capital. A targeted use ofblended capital is to mobilise the large
amounts of capital needed from institutional
investors into SDG-relevant transactions.
However, blending capital is scarce and needs to
be used conscientiously to optimise its potential.
Risk-tolerant capital is only provided by a few
actors within the impact investor community,
including select private impact investors, inparticular foundations and family offices, and tosome extent by DFIs and MDBs.

72

The market needs to be disciplined in the use ofthis limited capital and (i) use it where it is truly
needed to mobilise investors and (ii) maximise themobilisation multiples in order for the capital tobenefit as many transactions – and investors – aspossible. All investors, in particular the receivers ofrisk mitigating capital instruments, need to engage
to apply blending tools effectively and judiciously.
Scrutiny should be applied during structuring toensure that the blended capital is really necessary
and to outline tangible pathways for how blending
capital will be reduced over time as data andtrack record are generated. In most transactions
blending support should be a temporary measure,decreasing over time as at least perceived risk
asymmetries are being addressed with increased
performance data.
Blended finance is a highly effective andwidely used approach enabling privatecommercial capital to invest for social and/or environmental impact. Blended structures
can provide investors with the opportunity
to increase portfolio exposure to an asset
class such as emerging market private debt
or infrastructure, which demonstrate strong
fundamentals but are associated with highperceived risk.
In the following section we profile in detail someof the tools and instruments that can be used tomobilise institutional capital at acceptable levelsof risk, with and without blended finance.

What are the units of action for moving markets towards the SDGs?

2.6 Instruments and tools to accelerate andexpand the flow and effectiveness of capital
into investment
Having explored the barriers to investment, thisSection provides a deeper dive into some of the
instruments and tools that are helping to direct
institutional capital to finance the SDGs, particularlyin emerging markets. The potential of these
instruments and tools to be expanded is evidenced
by real examples that demonstrate how capitalcan be mobilised at scale. It is important thatthese instruments and tools are not considered inisolation. They can be effectively combined in order
to direct significant amounts of institutional capital
into relevant investments. It is also important toreiterate that there is no one solution that fits all.
Institutional investors have specific requirements,
appetites and challenges, so solutions need to be
designed with specific investors in mind. MDBs
and DFIs feature in nearly all of the instruments andtools highlighted, underscoring their vital role inmobilising institutional capital.

2.6.1 Subordinated capital
Background
Subordinated or junior capital, be it in the form ofequity or debt, protects senior investors by taking
a subordinated capital tranche in a vehicle’s capital
structure.
Subordinated capital tranches are often provided
by impact investors, including public and private
funders. For institutional investors they provide animportant de-risking mechanism, as senior ranking
tranches benefit from loss protection by their juniorcounterparts, and at times a boost to their financial
returns if the junior tranche accepts lower returns
in the transaction structure. Such tranching may
also be driven by regulatory requirements faced bycertain institutional investors.
164

Convergence (2018):“Leverage of Concessional
Capital”; https://www.
convergence.finance/
resource/35t8IVft5uYMOGOaQ42qgS/view

The capital structure may also offer several risk
layers to suit investors with different risk appetites.
Subordinated capital layers can be concessional,
where the provider of the capital is willing to accept
unremunerated risk, or at market rate, which

Figure 2.9

Subordinated capital – example structure
VehicleInstitutional investors

Commercial debt/
equityImpact investors

Subordinated debt/
equityallocates the risk/return differently between theinvestor participants.
Sometimes, junior tranche investors benefit
from deeper market knowledge, information anddata, allowing them to accept certain risks, thatare perceived by institutional investors as aninvestment barrier, e.g., information asymmetry
and risk perception. At times, they also have theappetite and flexibility to take on more risk in the
pursuit of the investment strategy and intended
impact outcomes of the vehicle.

Structure
The core feature of subordinated capital structures
is that the junior tranche in principle absorbs losses
first, so that the senior tranche is only affected bylosses once the subordinated tranche is ‘wiped
out’.
This basic concept can manifest itself in different
ways (see Figure 2.9). The capital tranches canbe equity and/or debt; there can be one or more
subordinated capital layers; and the relative size ofthe junior tranches versus the senior tranche mayvary depending on the (perceived) risk profile of thevehicle. Another differentiating factor may be that,as already noted, the junior tranche may or may nothave a concessional return profile.

Mobilisation of capital
Subordinated capital is probably the most widelyused blended finance tool in vehicle structuring for
impact investing where the perception of risk may
deter participating investors. While syndication
platforms, discussed later in this report, havedemonstrated significant volumes of mobilised
capital, the use of subordinated capital directly
targets risk sharing among investors.
Convergence found in its 2018 report that blended
finance funds with concessional first loss capitallayers (including grants, debt and equity) showed
an average leverage ratio of 3.3x. So, for every $1
of first loss concessional capital deployed, $3.3
of senior commercial capital has been mobilised.
This ratio, however, includes significant amounts of
MDB and DFI commercial capital. When excluding
the mobilisation of MDBs and DFIs, the ratio for themobilisation of purely private commercial capital is
only 1.4x.164
This differential supports the consistent narrative of
this report that all actors, including MDBs and DFIs,
need to move beyond their current comfort zone;
given their development mandates, it is reasonable
to expect subordinated capital to go further inattracting more private capital than development
institution capital over time. Regarding geographic
divergence, Convergence observed that the
average observed leverage ratio (including MDBs
73

Mobilising institutional capital towards the SDGs and a Just Transition

and DFIs) in Latin America and the Caribbeans at
5.1x had been twice that of Sub-Saharan Africa at
2.4x. Larger funds (>$250 million) also generallyachieved higher leverage levels,165 which may be
due to commercial investors investing more inlarger funds due to their size requirements andfocus on more mature investments.

Advantages and challenges
Advantages: In principle, subordinated capitalis a straightforward tool that can be used acrossasset classes and there are no prerequisite
requirements regarding, for example, credit ratings.
Consequently, it is the most widely used credit
enhancement tool used by impact investors.
Challenges: The power of subordinated capital
to reallocate the perception of risk and mitigate
real risk in a deal is limited by the scarcity ofsupply. There are simply too few investors willing
and able to provide subordinated capital inemerging markets vehicles and too many investors
demanding high levels of subordination.

165

166

167

168

74

Convergence (2018):“Leverage of Concessional
Capital”; https://www.
convergence.finance/
resource/35t8IVft5uYMOGOaQ42qgS/view
OECD (2014): “External
Financing for Development– Guarantees for development”; https://www.oecd.
org/dac/financing-sustainable-development/GURANTEES%20report%20
FOUR%20PAGER%20
Final%2010%20Mar%20
14.pdf
OECD (2021): “The role ofguarantees in blended finance”; https://www.oecd.
org/dac/the-role-of-guarantees-in-blended-finance730e1498-en.htm
GIIN (2017): “Scaling theuse of guarantees in US
community investing”;
https://thegiin.org/research/publication/guarantees-issue-brief

A further challenge regularly encountered in the
structuring of layered capital vehicles is sizing.
Risk-taking capital is scarce and should be usedconsciously and responsibly. All actors, including
senior investors, subordinated investors andmanagers, need to be disciplined in determining
the size of a junior layer. First, the drivers of therequired subordination (for example, actual risks
that are backed up by data, perceived risks
or regulatory requirements) should be clearly
determined and articulated. Second, available data,
financial modelling and scenario analysis tools
should be used to size the subordinated tranches,minimising them to what really is necessary, toallow senior investors to commit and address theimpact goal agreed.

Relevance
Subordinated capital is relevant and used acrossasset classes and fund types. It is also relevant as
an effective credit enhancement across institutional
investor types. It is most effectively used toaddress an investor’s risk appetite, particularly
when an investor is entering a new market or
strategy. The expectation is that the investor’srisk appetite will increase over time as they gain
experience, resulting in less or no subordinatedcapital being required to participate in a similar
opportunity in future.

Providers
Providers of subordinated capital are typicallydevelopment agencies, foundations (including
private foundations) and select family offices. DFIs attimes provide subordinated capital but are also often
on the receiving end of risk mitigation layers. Some

DFIs and MDBs are stepping up their deploymentof subordinated capital to vehicles with the specificobjective of mobilising the private sector funding –yet there is much more to be done.

ExamplesExamples of vehicles that use a layered capital
structure are showcased later in this report andinclude AllianzGI’s AfricaGrow Fund (see Section
3.4.2), BlueOrchard’s InsuResilience Investment
Fund (see Section 3.4.3), and Ninety One’s
Emerging Africa Infrastructure Fund (see Section
3.4.4).

2.6.2 Guarantees
Background
The OECD defines guarantees as “a type of
insurance policy protecting banks and investors
from the risks of non-payment”,166 whereby certain
risk is transferred to the guarantor.167 The guarantor,
i.e., the provider of the guarantee, agrees to pay
the investor or lender in the event that the investee
or borrower is unable to do so, typically against thepayment of a fee.
Guarantees have multiple uses in development
finance. A typical example is guarantees issued
to financial institutions in emerging markets.
These can be structured in different ways toachieve various objectives: de-risk underlying
portfolios and enable them to improve pricing to
the underlying borrowers; increase loan volumes;
or to lend to borrowers that are otherwise
considered too risky and unbankable. By derisking a proposition they allow institutional
investors to participate in investments they would
not be able to do, based on their risk appetite
or limited prior experience with the investment
opportunity.
Guarantees can enable a proposition to achievea certain (investment grade) rating that allows
investors to come into the deal. Guarantees aremainly issued on specific deals but can also be
assigned at the portfolio or vehicle level. Credit
enhancement at an aggregated level can improve
the scale and reach of investment vehicles willingto go into areas perceived as higher risk (be it interms of market, sector, business model, etc.).
In their pursuit of the SDGs, such vehicle orportfolio level guarantees have the potential tomobilise significant institutional investor support.
A GIIN report on guarantees in the US found thatthe median guarantee amount was $2 million anda median fund or project size was $20 million,
creating a 10x mobilisation ratio of guarantees
in the US impact market.168 In emerging markets

What are the units of action for moving markets towards the SDGs?

investment vehicles guarantees are relatively
nascent. There is, however, significant demand
to grow this instrument as an alternative credit
enhancement tool alongside cash funded
subordinated capital.
Guarantees have an array of features and forms.
They can:• Cover different instruments – e.g., equity or debt
• Cover different types of risk – e.g., credit risks,
construction risks, FX risks or liquidity risks• Be applied at different structural levels –e.g., a single loan or pooled portfolio/fund
169

170

European Commission(2021): “The EU External
Investment Plan – A rangeof financial guarantees”;
https://ec.europa.eu/eu-external-investment-plan/sites/default/files/documents/efsd_guarantees-feb_2021-en.pdf
GuarantCo (2021):“Enabling long-term
infrastructure finance inlocal currency Quarter 32021; https://guarantco.
com/wp-content/uploads/2021/11/GuarantCo-CorporatePresentation-Q3-2021-v101121.pdf”• Provide full or partial coverage• Differ on the exact payments they cover –e.g., principal and/or interest• Sit subordinated to or pari passu with theinvestors they provide coverage to• Be unfunded or funded: in a funded guarantee,
cash is set aside by a party for the benefit of
the transaction; an unfunded guarantee is thecontractual obligation by a party to pay and istypically relying on the rating of the guarantor

Structure
Guarantees can be applied differently in different
structures. Figure 2.10 shows an example of a

Figure 2.10

Guarantees – example structure
Exemplary structure:
Partial subordinatedguarantee

VehicleInstitutional investors

Commercial debt/
equityGuarantor

Guarantee

Exemplary structure:
Partial pari-passu guarantee

VehicleInstitutional investors
Guarantee
Guarantor

Commercial
debt/ equity

partial guarantee that sits pari passu with part ofthe commercial funding, i.e., part of the commercial
funding absorbs losses simultaneously with theguarantee.

Mobilisation of capital
A powerful use of guarantees is for the mobilisationof private capital. For example, the European Fundfor Sustainable Development (EFSD) Guarantee
from the EU has stated a mobilisation target
ratio of 10x.169 GuarantCo to date has achieveda mobilisation ratio of up to 3x.170 The multiplierpotential of guarantees to address the risk (actualand perceived) barrier of institutional investors andmobilise capital at scale is significant.

Advantages and challenges
Advantages: Guarantees have several advantages
as a risk mitigation instrument. They typicallydo not require an immediate outflow of funds
by the guarantors, enabling them to use theirbalance sheet more efficiently. This also invites
creative design in considering the maximum size
appropriate to a specific investment opportunity.
Beyond directly helping to mobilise private capital,
guarantees can also be a useful tool to freeup capital on the balance sheets of institutions(particularly banks), allowing them to extend newloans, often directing such new loans to underserved
borrower segments such as SMEs. For example, theSwedish International Development Agency (Sida)
extended a $155 million sovereign loan guarantee
to the Asian Development Bank (ADB), which freed
up three times the amount guaranteed on the ADB’sbalance sheet for new lending.
Challenges: Although a tool with tremendous
mobilisation power, guarantees need to be carefully
structured. Consideration needs to be given to thespecific risks covered by the guarantee. But to avoid
moral hazard behaviour by the beneficiary, alignment
questions also need to be asked relating to theevents that will trigger payment of the guarantee.
Alignment considerations become increasingly
important depending on the level of cover provided.
Given their strengths, the question is why
guarantees are not more widely used. One limiting
factor for non-banks is that unfunded guarantees
usually require high investment-grade rating.
Funded guarantees, on the other hand, require anorganisation to put cash aside and are hence notvery efficient. Another challenge can be the needfor an appropriate institutional set up, including indepth structuring knowledge for what can be quite
a complex instrument.

Relevance
Guarantees are generally relevant across sectors
and asset classes – particularly infrastructure.

75

Mobilising institutional capital towards the SDGs and a Just Transition

On the institutional investors side, guarantees are
typically an effective tool across investor types tomobilise capital.

Providers
The main providers of guarantees in transactions
that further the SDGs are government agencies,
DFIs and MDBs that benefit from theirgovernments’ sovereign credit ratings. Some ofthese specialise in the provision of guarantees:• Sida, the Swedish International Development
Cooperation Agency, provides flexible guarantees
across many different sectors and investment
levels171

GuarantCo (2020): “Developing local currency
guarantors to support
the development of local
capital markets: InfraCredit
Nigeria and beyond”;
https://guarantco.com/
blended-knowledge/developing-local-currency-guarantors-to-support-the-development-of-local-capital-markets-infracredit-nigeria-and-beyond-2/

172

InfraCo Asia: https://infracoasia.com/our-portfolio/
infrazamin-pakistan/173

SunFunder (2021): “SunFunder completes SET
Fund with new investors
including OeEB and Bankof America”; https://www.
sunfunder.com/post/
sunfunder-completes-setfund-with-new-investorsincluding-oeeb-and-bankof-america

174

175

IFC: “MCPP Infrastructure”; https://www.ifc.
org/wps/wcm/connect/4c9e0868-12324212-b4f2-a5c39d177afa/
MCPP+Infrastructure+Flyer+2018.pdf?MOD=AJPERES&CVID=mcoa4bt
ADB and IFC (2019): “MDB
Joint Report – Credit
Insurance Extract”; https://www.adb.org/sites/
default/files/institutional-document/672691/
mobilization-private-finance-mdbs-dfis-2019.pdf

176

IFC EM Compass (2018):“Note 52”; https://www.
ifc.org/wps/wcm/connect/
c3df56c2-0532-4d0fb79c-0696b0c8d326/
EMCompass_
Note_52-MCPPCreditInsurance_R3+-+April+12.pdf?MOD=AJPERES&CVID=mbstuiT177

ADB and IFC (2019): “MDB
Joint Report – Credit
Insurance Extract”; https://www.adb.org/sites/
default/files/institutional-document/672691/
mobilization-private-finance-mdbs-dfis-2019.pdf

76• The United States Agency for International
Development (USAID) provides partial guarantees
mainly at the individual loan level through its
Development Credit Authority (DCA)• GuarantCo, part of the Private Infrastructure
Development Group (PIDG) backed by a numberof governments, provides guarantees forinfrastructure projects across Africa and Asia
• InfraCredit Nigeria, established by GuarantCoand the Nigerian Sovereign Investment Authority,
provides local currency guarantees to enhance
the credit of debt instruments issued to financeinfrastructure projects in Nigeria171• InfraZamin Pakistan, an initiative by the PIDG
developed by GuarantCo, provides credit
guarantees for infrastructure-related debt
instruments in Pakistan172• The European Fund for Sustainable Development(EFSD), a €5.1 billion guarantee vehicle, waslaunched by the EU in 2021
Governments themselves can also be a provider
of guarantees. Notably, emerging market
governments often leverage their ability to issue
sovereign guarantees to guarantee development
projects in their own countries.

Examples• In emerging markets guarantees are to dateprimarily used directly, in particular withcommercial banks and infrastructure projects• There are few vehicle-level guarantees, andthese are primarily used in impact investing.
One example is SunFunder’s Solar Energy
Transformation (SET) Fund. The $70 million SET
Fund, SunFunder’s third debt fund, is a nineyear blended finance vehicle for distributed solar
and storage investments in African and otheremerging economies. The fund has a junior layer
as well as a senior tranche. It also has risk tools
from partners such as Sida, the US International
Development Finance Corporation (DFC) and
MFX Solutions 173• Among alternative structures, a well-recognised
example is the IFC’s MCPP Infrastructure
B-loan programme with Allianz and Axa. These
are supported by an IFC investment in a 10%
subordinated capital layer, which allows therespective facilities to achieve the investment-grade
profile that the investors need for their own internal
capital requirements. IFC’s investment in turnbenefits from a partial credit guarantee from Sida174

2.6.3 Insurance
BackgroundInsurance provides protection against specificrisks, whereby the risk of the insured loss istransferred to a risk pool administered by the
insurer against payment of an insurance premium.
In emerging markets among SDG-relevant
insurance products, the most prevalent examples
are political risk insurance, (short-term) trade credit
insurance and (long-term) non-payment insurance.
There are two main ways in which insurance canmobilise private capital into emerging markets.
First, it can cover specific risks so that institutional
investors are able to participate in an investment
vehicle. This can enable greater participationof institutional investors in emerging markets
transactions focused on the SDGs.
Second, it can increase the current lending activityof an institution by expanding the balance sheet
reach of commercial banks and MBDs/DFIs. For
example, an insurance company can provide
unfunded non-payment credit insurance (or asimilar guarantee product) to share the risk of MDB
or bank loans. This allows the MDB or commercialbank lender to provide larger loans or move risk
capital to other opportunities, thereby increasing its
lending capacity. Unfunded insurance products arealso an effective way to scale up the participationof insurance companies, allowing them to engage
in SDG-relevant loans in emerging markets throughthe liability side of their business, allowing themto leverage their risk capital instead of using theiroften-restricted investment funds and using theirinsurance risk expertise.
Insurance companies have risk-bearing capacityand established businesses that specialisein assessing risk. They also have appetite for
emerging markets financial risks, which areuncorrelated to other risks they typically cover(such as life, property or liability), providing
important diversification for their portfolio.175,176
There is a significant opportunity to unlock further
participation of insurance companies by building
out the use of unfunded insurance products, inparticular strategies and vehicles that seek toefficiently pool insurances provided for single
loans or the use of portfolio-level insurances. This
could include a replication of models pioneeredby the MDBs from emerging markets banks aswell as from seasoned asset managers of large
debt funds. One constraint to this expansion is thedepth and history of performance data that MDBs
have and that insurance companies often need fortheir underwriting. As this market expands beyond
MDB players, supporting credit enhancement mayWhat are the units of action for moving markets towards the SDGs?

be required, at least initially.
To date, insurers working with MDBs have mainly
underwritten financial institutions and infrastructure
debt; however, they have expressed a willingness
to expand into new sectors, including agriculture
and health care.177
Another potential area of expansion for unfunded
insurance products could be local currency
lending (see also under Section 2.6.3), which isa challenging area for many impact investors,
including MDBs. Unfunded insurance structures
can allow more insurers to support local-currency
lending, drawing on MDBs’ often privileged accessto emerging-market currency pools and ability
to raise capital in local markets. The ADB has
developed and used template insurance contract
language for local currency transactions in multiple
emerging markets.178

Structure
As discussed, there are two insurance structures
to consider: the first is a de-risking offering aiming
to address a specific risk in an investment vehicle;
the second is a balance sheet enhancement thatallows the lending institution to materially expand
its lending activity. In both cases, the purchased
insurance operates in a manner similar to aguarantee, whereby certain losses are covered.

Mobilisation of capital

178

179

180

ADB and IFC (2019): “MDB
Joint Report – Credit
Insurance Extract”; https://www.adb.org/sites/
default/files/institutional-document/672691/
mobilization-private-finance-mdbs-dfis-2019.pdf
ADB and IFC (2019): “MDB
Joint Report – Credit
Insurance Extract”; https://www.adb.org/sites/
default/files/institutional-document/672691/
mobilization-private-finance-mdbs-dfis-2019.pdf
ATI (2012): “Political Risk
Insurance: A Tool to Unlock
Business Potential in
Africa”; http://fanaf.org/
article_ressources/file/
fanaf_presentation_by_ati_
feb2012_22.pdf

in the market, it is necessary to consider alignment
between the insurer and the recipient of theinsurance coverage (and avoidance of moral
hazard). For example, market participants are
testing the limits of maximum participation of
insurers relative to the need for lending institutions
to retain so-called skin in the game.

Relevance
The first structural modality, i.e., insurance provided
by a specialist institution, is useful across asset
classes and institutional investor types, enhancing
the risk profile of the targeted deals and hence
catalysing institutional investor participation.
The second structural modality is most applicablewhen seeking avenues to expand the availability ofdebt to emerging market entities with products andservices that advance the SDGs. This multipliereffect has significant potential for material growth.

Providers• MIGA is one of the most prominent providersof political risk insurance in emerging markets.
Given the size and growth of this market, MIGA
is actively engaged in the reinsurance market,
stimulating other insurers to participate• Another provider is the African Trade Insurance
Agency (ATI), which provides political risk
insurance predominantly in Nigeria (petroleum
imports) and Angola (oil industry)180

In structures where the specialised insurance
provider covers distinct risks, such as political risk,
the mobilisation result depends on the quantum ofrisk perceived and the corresponding amount ofcoverage.

• For non-payment credit insurance, the growing
universe of experienced insurance providers
include Liberty Specialty Markets and Munich Re

In structures where lenders are insured to expand
lending activity, there is significant opportunity
to test the boundaries of efficient balance sheet
management. In 2019, the ADB used $921
million of credit insurance to bring insurance
providers into loans or portfolio of loans, of whichmore than $500 million was in local currency,
and the European Bank for Reconstruction andDevelopment (EBRD) used $950 million. The IFC
used close to $800 million in 2020 and expanded
its relationships with insurance companies under
its MCPP Financial Institutions Group (FIG) platform
significantly in June 2020.179• Actis’ Energy 4 fund uses political risk insurance
in its investment projects, where possible

Advantages and challenges
Advantages: Insurance can be very effective inseeking to reduce the risks holding an institutional
investor back from deploying capital.
There is also a growing universe of insurancecompanies ready to offer insurance to enablelending institutions to free up their balance sheet
capital for further lending. Both structures havedemonstrated their ability to materially expand andaccelerate the flow of private capital towards the
SDGs in emerging markets.
Challenges: As these transactions are replicatedExamples• The IFC’s MCPP’s FIG structure works with anumber of international insurance providers
who provide partial insurance cover to the IFC’s
senior loans, selected in accordance with preestablished criteria. By transferring the risk onpart of the eligible loans, the insurance coverage
allows the IFC to effectively take larger loans,increasing reach and impact.

2.6.4 Securitisation
BackgroundTraditional (true sale) securitisations are structures
where a special purpose vehicle (SPV) acts as
an issuer and purchases loans or loan portfolios
from one or more lenders (banks or other financial
institutions), and then sells their cashflows as
securities to investors, typically rated and tranched,backed by the loan portfolio.
Securitisations have historically been usedpredominantly in developed markets, but arestarting to be considered for emerging markets,particularly with respect to MDBs’ and DFIs’ loan
77

Mobilising institutional capital towards the SDGs and a Just Transition

portfolios. Securitisation can allow these players
to free up their balance sheets, while also allowing
institutional investors to participate in loans acrossdifferent risk tranches in accordance with their risk
appetite. While the current securitisation focus isaround MDBs and DFIs, growing demand is likely
to come from larger asset managers.

Structure
There are different securitisation structures, themain categories being fully funded (true sale) orsynthetic. With the latter, risk is transferred via
credit derivatives or guarantees, while the exposure
remains on the originator’s balance sheet.
Synthetic securitisations are currently the main
tool considered by MDBs, as only the credit risk istransferred to the counterparty while legal title tothe assets remain with the MDB, reducing potential
concerns regarding preferred creditor status andrating.

Mobilisation of capital
Securitisation, whether true sale or synthetic, has
the power to free up substantial amounts of funding
on MDBs’ and DFIs’ balance sheets, allowing
them additional capital to reinvest. Such structures
may also allow private players to get accessto MDBs’ and DFIs’ portfolios by purchasing
securities beyond individual syndication efforts. But
securitisation is still very new in emerging markets.
It is yet to be seen if these structures will be
adopted on a larger scale, as MDBs are currently
incentivised primarily to manage the deployment
and retention of capital on their own balance sheet.
Expanding securitisation transactions by MDBs/
DFIs will have implications for their businessmodels. Specifically, they will need to focus moreon origination, including project and transaction
preparation, which will have operational cost andhuman capital implications. But the mandateof MDBs and DFIs to invest for development,
combined with their demonstrated track recordof building investment portfolios, means they
are the most appropriate agent to stimulate thesecuritisation market. By accepting this role, they
will provide a familiar pathway for institutional
investors seeking to invest to achieve the SDGs inemerging markets.

Advantages and challenges
Advantages: As a tool to attract more institutional
capital to address the SDGs in emerging markets,securitisations can free up the balance sheetsof investors (MDBs/DFIs) with current emerging
markets exposure, allowing the reallocation of thatfunding to new opportunities. By offering different
tranches of risk, securitisations can address andsatisfy some of the risk challenges that currently
deter institutional investors from investing inemerging markets.
Challenges: Although familiar in developed
markets, securitisations can be relatively complex
and costly to establish, particularly at the outset.
If MDBs and DFIs are to be the (initial) focal point78

for securitisation efforts, it will be necessary toengage with the credit rating agencies to address
the parameters for securitisations (and also the useof guarantees) so that MDBs can retain their AAA
rating and preferred creditor status.

Relevance
As discussed, securitisation in emerging
markets is still at an early stage and currently
mainly discussed with respect to the private
debt portfolios of MDBs and potentially DFIs.
If and when gaining traction, participation insecuritisations could be interesting acrossinstitutional investor types.

Examples• Room2Run is the AfDB’s synthetic structure,
securitising a portfolio of AfDB private sectorloans. The securitisation was anchored by
Mariner Investment Group, a US asset manager,
alongside the Africa50 infrastructure fund.181
Room2Run provides a risk protection agreement
for a $1 billion pan-African loan portfolio. It is
the first-ever synthetic portfolio securitisation
between an MDB and private sector investors.
The securitisation transfers the mezzanine
credit risk on a diversified portfolio covering
47 AfDB non-sovereign loans across sectors
including power, transportation, financial andmanufacturing in Africa182• In 2019, responsAbility securitised a $175 million
portfolio of microfinance loans, offering threetranches of notes. While the DFC anchored thesenior notes, pension funds such as Alecta andCalvert Impact Capital invested in the mezzanine
and junior notes183

2.6.5 Local currency financing
Background
There is a lack of long-term local currency financing
for impact projects in many developing countries
due to underdeveloped and volatile local financial
markets and the absence of appropriate local
currency financing instruments. Domestic funding
markets tend to be constrained by poorly regulated
local bond markets. Hedging solutions, that might
counter local currency funding gaps, are mostly
underdeveloped, costly or unavailable, especially infrontier markets.

181

PRI (2019): “PRI Awards 2019 case study: Room2Run”; https://www.unpri.org/showcasing-leadership/pri-awards-2019-casestudy-room2run/4848.article

182

Africa50: “Room2Run Synthetic Securitisation”; https://www.
structuredcreditinvestor.com/article.asp?article=SCI%20
Capital%20Relief%20Trades%20Awards%202019&PubID=250&ISS=25035&SID=70757&SM=ALL&SearchStr=Africa50

183

responsAbility (2019): “responsAbility closes USD 175 million
microfinance securitization”; https://www.responsability.com/en/press-releases/responsability-closes-usd-175-million-microfinance-securitization

What are the units of action for moving markets towards the SDGs?

What local currency finance is available tends tobe short-term. The consequences of currency
mismatches can be particularly harmful when
they are used for infrastructure projects, such as
electric power or toll roads, or for financing local
businesses. When funded with hard currency
loans, especially SMEs are vulnerable to local
currency depreciation, which can significantly
increase costs to a young enterprise and ultimately
a vulnerable consumer base that is least equipped
to absorb additional costs.

hedging through TCX or multilateral local currency
facilities.

USD loans may offer lower interest rates andlonger tenors than local currency loans. But
these advantages can be more than offset if thefunded projects or enterprises in a country havemostly local currency revenues and the exchange
rate depreciates significantly. In order to alignborrowers’ operations with their financing, andstrengthen local capital markets, an increased
focus on local currency funding is required.

Providers

There are some approaches that seek to counterthe prevalence of hard currency financing indeveloping markets, including:• Non-market solutions, such as The Currency
Exchange Fund (TCX), provide opportunities
to hedge local currency loans. However, many
currencies remain too costly to hedge, hedges
are simply not available, or the amounts are often
limited and not available for required tenors nor ina deliverable format• Unfunded guarantee products (e.g., partial
credit guarantees) can be used to mobilise local
lending. However, the legal framework in manyhigher risk, less developed countries does notsupport their use. Often there are no third parties
willing to provide the funds to be guaranteed,particularly for long-term projects (see also
Section 2.6.3 above)
The limitations need to be addressed in individual
countries by policy makers, regulators and market
participants to develop local capital markets overthe longer term. But the immediate need for criticaldevelopment finance in local currency needs
multilateral solutions that are also supported bydeveloped countries. This would help to:• Many local currency funding solutions canonly be achieved by MDBs and some bilateralagencies, as special approvals and privileges toaccess local currency in domestic markets are
required (as opposed to specialised funds such
as TCX). Non-residents in a country may not beallowed to access local currency and special
approvals are needed from the local Ministry of
Finance, Central Bank or Securities Regulator forsuch access• There are also a few impact-driven solutions that
seek to provide local currency funding or increase
the ability to hedge emerging markets facilities

Examples• A local currency facility is deployed by the IFC
within the International Development Association(IDA) Private Sector Window (PSW) of the WorldBank Group. The PSW Local Currency Facility(LCF) is designed to complement existing
solutions and to fill existing hedging gaps withrespect to high impact projects in relevant
countries. The facility bears the credit risk of nontraditional hedging counterparts and currency
and interest rate risks of selected local currency
investments originated by the IFC for projects in
the relevant countries. The IFC itself bears thecommercial credit risk of the projects. The LCF
serves as an enabler of local currency solutions
by de-risking some of the available instruments,
helping create new instruments and fill gaps thatexisting commercial and non-commercial entities
are not able to address, or address fully

Mobilisation of capitalIn general, local currency should first be sourced
through market-based counterparts (international
and/or domestic) and capital markets-based
solutions wherever available. Only then should
non-market based solutions be pursued, such as• The IFC’s Masala bond programme is anotherexample of an MDB-led structure seeking
to unlock local currency funding and todeepen India’s capital markets (seealso Section 3.4.6 for more information)• Extend the flexibility and offering of available
hedging solutions, in particular with respect tovolumes, duration or the availability of swap types(e.g., fixed/floating rate)• Enable local bond issuances by covering creditrisk• Provide local currency loans
European Commission(2021): “The EU External
Investment Plan – A rangeof financial guarantees”;
https://ec.europa.eu/eu-external-investment-plan/sites/default/files/documents/efsd_guarantees-feb_2021-en.pdf

The current lack of local currency solutions,
including local currency facilities, guarantees or
hedging solutions is a major challenge for thedevelopment of domestic markets in developing
countries. More needs to be done and, inparticular, MDBs and DFIs must be called upon
to increase their support.

• The EU Market Creation Facility has a multi-tool
approach to enable TCX to take on more risk
and grow its risk coverage even in challenging
circumstances like the Covid-19 pandemic, byadding a guarantee. The increased capacity of
TCX allows its financial intermediary clients toprovide more funding to financial institutions.
These entities in turn are in a position to lend
more to people and businesses in Sub-SaharanAfrica and the EU neighbourhood. The facility
makes financial institutions more stable byshielding end-clients from foreign exchange
risk184• Unlock domestic bank financing and hedging
solutions, by covering credit risk

184

Advantages and challenges

79

Mobilising institutional capital towards the SDGs and a Just Transition• See also InfraCredit Nigeria above, which
provides Naira-denominated guarantees toenable infrastructure projects to raise debt
finance in local currency from the domestic
market2.6.6 Performance data andinformation
Background
The lack of reliable market information is a major
stumbling block to the mobilisation of private
capital in emerging markets. In particular, lack ofinvestment performance-related data is causing
a major blockage, leading investors to demand
substantial risk premiums or not invest at all.
However, many institutions, especially MDBs and
DFIs that have been working in these markets formany years, hold a large quantity of relevant data,
particularly crucial data on investment performance.
The GEMs (Global Emerging Markets) database
was therefore established in 2009 as a joint initiative
between the European Investment Bank (EIB) andthe IFC – see example below. There have beenother efforts to collect data and publish limited
data sets by, e.g., the Global Private Capital
Association (GPCA, formerly EMPEA) or Preqin.

Mobilisation of capital
The lack of data and information asymmetry
present a major hurdle to capital mobilisation in
emerging markets. Sharing data has the power
to make a fundamental change to the flow ofcapital to emerging markets – both with respect
to actual amounts invested but also by reducing
the risk premium demanded on emerging market
securities, potentially providing vast actual savings.
The mobilisation effect of data can also allow for
the fair and realistic risk assessment and pricing ofother instruments, such as subordinated capital,
guarantees, insurance products or securitisations.
Data held by impact players should be perceived
as a core tool to the furtherance of the SDGs anda global public good.

Advantages and challenges
The advantages are clear, as described above.
The challenges are around transparency and auniversal effort to make data a public good. Issues
also need to be addressed around data protection,
confidentiality, commercial sensitivity and liability
when making data available to the wider public.

Relevance
Making data available is relevant across asset
classes and for all types of institutional investors.

Providers
Relevant providers include all holders of data activein emerging markets, including impact investors

80

in general, but MDBs and DFIs in particular as
they own a large amount of relevant market andperformance data, given that some of them haveinvested for decades in the target emerging markets.

Example• The GEMs database was established in 2009 asa joint initiative between the EIB and the IFC. It
has grown to include 24 members across MDBs
and DFIs. Members have access to aggregated
GEMs statistics encompassing, e.g., observed
default rates, rating migration matrices andrecovery rates by geography, sector, timeperiod and various other dimensions• While highly useful and relevant, GEMs data iscurrently only available to member institutions.
In order to mobilise institutional investors at
commensurate capital costs that reflect actual(rather than perceived) risks, it is crucial to
make such data available to all. The ILX Fund(see Section 2.4.2.3), e.g., is an innovative
fund seeking to use the GEMs data to provide
investors with access to a diversified portfolio ofloans originated by MDBs and DFIs

2.6.7 Partnerships
In this Section we highlight three important types ofpartnership that can move and mobilise institutional
capital towards the SDGs.

2.6.7.1 Syndication partnerships

Overview
Syndications are an important way to mobilise
capital towards the SDGs and are used by many
MDBs and some DFIs. In a syndicated transaction
the lead investor, such as an MDB, syndicates partof its loan to third-party investors through a socalled ‘B-loan’. The B-loan holder sub-participatesin the MDB loan, while the MDB typically remains
the sole contractual counterparty of the borrower.
The institutional investor benefits from the MDB’s
sourcing capabilities, market network andexpertise and from its express developmental
focus. The participation structure also allows forclear alignment of interests and also for the B-loanholder to benefit from the MDB’s preferred creditor
status.
Since the IFC’s first B-loan, mobilised about 60
years ago, loan syndications have been MDBs’
primary tool to attract private capital into theirtarget markets.
In order to streamline the process and provide
institutional investors with a diversified pool ofloans, the IFC introduced its MCPP, providing for astructured way for institutional investors to partnerwith the IFC (see Spotlight panel on the next page).

Structure
Depending on the partnership, syndications canWhat are the units of action for moving markets towards the SDGs?
Figure 2.11

Syndication partnership structure

Challenges: The largest limiting factor is the
MDB’s limitations in sourcing and executing
transactions. This is exacerbated by the fact that inmany cases the MDBs are not really incentivised tosyndicate large parts of their balance sheets due tothe need to generate internal profits. The ability tosyndicate is also restricted by the need to maintaina portion of the balance sheet for alignment
reasons.

Borrowers
Loan agreement
for A- and B-loans
MDB
Participation agreement
for B-loans

Relevance

Institutional investors

have different structures – see figure 2.11 for thebasic form.

These platforms are relevant for all institutional
investors, as they can be tailored to the investor
type’s specific needs and preferences. With manyof these investors the value proposition is centredaround diversification, cost effectiveness andscale. Credit enhancement can be added where
necessary.

Providers

Mobilisation of capital

SPOTLIGHT

explicitly targets insurance companies and their
particular strengths.

The mobilisation rates for syndication platforms are
typically around 1–2x. The IFC’s mobilisation rateon its loan, is around 1.5x.

Many MDBs and DFIs pursue syndication
strategies. However, there are not yet many
portfolio-based programmes.

Advantages and challenges

ExamplesAdvantages: Key advantages of the MCPP
platform approach include the ability to provide
investors with bespoke portfolios, based on preagreed parameters, in a cost-efficient way as they
participate in larger loans. Beyond the bespoke
criteria, the platform can also be tailored todifferent investor needs and restrictions, as shownby the MCPP’s FIG offering (see above) which• The IFC’s MCPP is probably the largest
syndication platform focused on the SDGs andemerging markets• The ILX Fund, an SDG focused emerging markets
credit fund (see also Section 2.4.2.3 above), is
another example whereby the ILX Fund allows
institutional investors to invest in a diversified
portfolio of MDB and DFI loan participations

International Finance Corporation’s Managed Co-Lending Portfolio Program

Launched in 2013, the Managed Co-Lending Portfolio Program(MCPP) is the International Finance Corporation (IFC)’s
syndication platform to allow investors to increaseor get first-time exposure to emerging market debt
investments.
The MCPP provides investors with a platform for participation
in a diversified portfolio of emerging market projects acrossmultiple sectors, covering infrastructure, financial institutions andthe real economy. The MCPP leverages the IFC’s track recordand market knowledge to source opportunities that cater toindividual investor needs. The platform provides an efficient way
for investors to make one large allocation of capital, delegating
authority to the IFC to create a diversified portfolio of loanson their behalf, effectively sub-participating in IFC loans thatmeet the mandate’s criteria. All investments are commerciallystructured and designed to address development needs.
The platform includes three main strategies: (a) general sector
agnostic loan participation (structured as Trust Funds or
through B-loans); (b) infrastructure; and (c) financial institutions(FIG) providing tailored credit insurance solutions, targeting

insurance companies.
The programme currently has approximately $10 billion of total
funds raised across eight MCPP facilities.
MCPP One Planet was announced at COP26, seeking to scale
up the IFC’s MCPP platform. One Planet creates a new global
platform for climate smart-investment providing emerging
market loans in line with the Paris Agreement. The platform
intends to provide loans of up to $3 billion to private enterprises
in developing economies, combining institutional investors’
contributions with IFC’s own funds. The platform will leveragea range of partnership structures. In one, the Development
Finance team of Allianz Global Investors will manage avehicle on behalf of investors, while the IFC will originate andadminister the loans on behalf of the vehicle in addition toproviding first loss protection.
Source: IFC: Managed Co-Lending Portfolio Program (MCPP); Allianz GI(2021): “IFC and Allianz Group enter partnership for 1.5°C-aligned investmentsin emerging markets”; https://www.allianz.com/en/press/news/commitment/
environment/211103_Allianz-IFC-and-Allianz-Group-enter-partnership-for-1-5degrees-celcius-aligned-investments-in-emerging-markets.html

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Mobilising institutional capital towards the SDGs and a Just Transition

SPOTLIGHT

Global Investors for Sustainable
Development Alliance

The Global Investors for Sustainable Development (GISD) Alliance,
convened by the UN Secretary General, seeks to deliver concrete
solutions to scale-up long-term finance and investment in sustainable
development. The Alliance consists of 30 leaders of major financial
institutions and corporations spanning all the regions of the world.
Source: Global Investors for Sustainable Development(GISD) Alliance; https://www.gisdalliance.org/

2.6.7.2 Co-creation partnerships

Overview
Co-creation partnerships are alliances whereby
institutional investors and impact players, including
MDBs and DFIs but also others such as foundations,jointly design and sponsor the establishment of aninvestment structure or vehicle with the objective of
catalysing more capital towards the SDGs.

Structure
Structures coming out of co-creation processes
can take various and tailored forms, driven by theinstitutional investor’s requirements. They can
include, among others, investment vehicles ormanaged accounts.

Challenges: The key challenge is the willingness
by the participating parties to put effort into anoften time-consuming process. This requires clear
intention and the readiness to embark on a joint
journey that often requires compromise and acertain flexibility to achieve a meaningful result.

Relevance
Co-creation is relevant across asset classes andinstitutional investor types.

Examples• While still too few in number, there are several cocreation efforts entering the market. Institutional
investors that have been at the forefront ofdeveloping suitable products include AXA andAllianz• Distinct co-creation initiatives include the Global
Investors for Sustainable Development (GISD)
Alliance, a group of financial institutions andcorporations that is in the process of sponsoring
the design of an infrastructure investment
platform (see Spotlight panel on the left), and theRockefeller Foundation’s Global Energy Alliancefor People and Planet• See also under management partnerships below,
as such partnerships usually entail a collaborative
co-creation process by the respective asset
managers

Mobilisation of capital
A growing number of co-creation efforts can beseen in the market, with players teaming up toestablish tailored solutions. The mobilisation effecttends to be opportunity specific.

Advantages and challenges
Advantages: Co-creation offers investors a tailormade investment proposition.

SPOTLIGHT

Overview
Co-management partnerships are vehicles where
different managers with complementary skill
sets and expertise, in particular a mainstream
asset manager and an impact manager or
DFI, cooperate. This cooperation can be fundGlobal Social Impact Fund –GSII and MAPFRE co-management partnership

The Global Social Impact Fund (GSIF) is an
open-ended private debt fund which invests in
the growth of social business in Sub-SaharanAfrica which already have a proven businessmodel, targeting the world’s poorest people.
The GSIF is a product of the co-creation andmanagement partnership between Global
Social Impact Investments (GSII), a Madridbased investment manager, and MAPFRE AM,
the asset management arm of Spain’s largest
insurer and the country’s largest independent
asset manager. GSIF was developed from82

2.6.7.3 Co-management partnerships

a shared commitment to generate positive
impact. MAPFRE developed a strategy tocarry out impact investing, expanding upon its
responsible investing portfolio. GSII came in
as a partner, supporting on design, monitoringand impact reporting. To date, MAPFRE AM
has committed €20 million to the GSIF as seedcapital whilst also acting as investor advisor to
the fund.

Source: Information provided by manager

What are the units of action for moving markets towards the SDGs?

specific or an actual acquisition. The aim is toleverage respective capabilities, with a viewto a combined offering that is attractive to
institutional investors allowing the funds to scale.
The cooperation typically combines the deep
market expertise and connections of the impact
manager with the extensive management andback-office experience and capital raising andinvestor relations capabilities of the mainstream
manager.

2.6.7.4 Other innovative
partnerships

Structure

Such structures are currently used, in particular,
in deeper impact investing transactions. These
investments tend to attract limited institutional
capital where the investor has made an allocation
to impact and has an appetite to support
innovation. With more and more proof points, themarket is evolving and investors should keep an
eye on the further development and use of such
structures.

The form of cooperation can vary and is bespoke
to each situation and the parties involved. This canbe a partnership for a particular fund or take theform of an actual acquisition or formal long-term
partnership.

Relevance
Co-management is relevant across asset classes
and for all institutional investor types.
185

186

Schroders (2019): “Schroders acquires majority stakein leading impact investor
in BlueOrchard”; https://www.schroders.com/en/
media-relations/newsroom/all_news_releases/
schroders-acquires-majority-stake-in-leading-impact-investor-blueorchard/Goldman Sachs (2015):“Deepening a Commitment
to Sustainability, GSAM
Acquires a Leading Impact
Investing Firm”; https://www.goldmansachs.
com/our-firm/history/moments/2015-imprint-capital.html

Examples• NN Investment Partners and FMO Investment
Management partner on the Emerging Markets
Loans Fund, a $272 million private debt fund (seeSection 3.4.3 for more information)• GSII and MAPFRE’s, Spain’s largest insurer, cocreation and management partnership for GSIF
(see Spotlight panel on the previous page)• The EIB and Allianz Global Investors (AllianzGI)
announced the creation of the new co-managed
Emerging Market Climate Action strategy fund at
COP26 (see Spotlight panel in Section 3.4.2)• Acquisition examples include Schroders’acquisition of BlueOrchard in 2019185 (seeSpotlight panel in Section 2.4.1.6) or Goldman
Sachs’ 2015 acquisition of Imprint Capital186

SPOTLIGHT

Overview
There are other, innovative partnerships in themarket used in impact investing, including publicprivate partnerships, such as the Dutch Good
Growth Fund (see Spotlight panel below), or
outcomes structures that link return payments tothe achievement of targeted outcomes.

The instruments and tools presented
in this Section are familiar and tested.
The immediate opportunity is for these
instruments and tools to be activatedmore expansively and applied at scale forstrategies that mobilise more capital toachieving the SDGs.
Managers are encouraged to structure
investment vehicles for strategies that
advance the SDGs in emerging markets byusing one or more of the instruments andtools that are gaining traction and familiarity.
MDBs and DFIs are critical actors in financing
transactions in emerging markets. They
can expand the use of the tools available tothem to accelerate effective and large-scale
mobilisation of capital towards the SDGs.
Institutional investors have an invitation
to allocate time and effort to address theirDutch Good Growth Fund

Launched in 2014, the Dutch Good Growth Fund(DGGF) was established by the Dutch Ministry ofForeign Affairs and targets two main groups:
1 D utch entrepreneurs that want to dobusiness in emerging markets, by providing
loans, participations, guarantees, export
credit insurance and export finance(administered by Invest International, which
until 1 October 2021 was the Netherlands
Enterprise Agency)
2 Local emerging markets SMEs, byinvesting in funds that target SMEs, acting
as a €350 million fund of funds (managed by
PwC and Triple Jump)

The DGGF aims to improve development
results in terms of economic growth (throughimprovement of production capacity andtechnology transfer from Dutch companies), job
creation and social improvements (particularly
since the fund targets female and young
entrepreneurs in fragile countries and selects
Dutch SMEs that meet corporate social
responsibility standards).

Source: OECD (2016): “Private Sector Peer Learning:
Mechanism Profiles: Dutch Good Growth Fund (DGGF),
Netherlands Enterprise Agency”

83

Mobilising institutional capital towards the SDGs and a Just Transitioninternal barriers, cooperate with others and,
where necessary, co-create solutions thatallow them to invest at scale.
Intention and engagement are ingredients for
success. In short, there are actions everyone

SPOTLIGHT

Outcomes contracts

Social outcomes contracts are a relatively new
way to design and deliver public services in a
way that can be transformative.
A common structure in outcomes contracts
relates to financing public bodies (e.g.,municipalities, local commissions, etc.). The
commissioner commits to paying for theachievement of agreed delivery milestones linked
to measurable improvements in people’s lives.
Payment is based on outcomes, not on a feefor-service basis – the traditional procurement
payment structure.
Examples of outcomes contracts include thoselaunched by Bridges Fund Management, which

84

can take in the near term that will increase
capital flows for the benefit of people and theplanet. The rewards of coordinated efforts
made now, will be enormous.

to date has supported 52 outcomes contracts
with £68 million in outcomes payments
achieved. The Education Outcomes Fund,which is supported by UKAID, Ford Foundation,
UBS Optimus Foundation and a number of otherpartners, is a fund aiming to improve learningand employment outcomes of 10 million children
and youth.

Source: Bridges Fund Management: Social OutcomesContracts; Education Outcomes Fund; https://www.
bridgesfundmanagement.com/outcomes-contracts/
https://www.educationoutcomesfund.org/

3

How do we mobilise capital atscale towards the SDG s now?
asset class guidance for
Just Transition Financing vehicles
for institutional investorsFocusing on the opportunity of financing a Just Transition, this Section outlines
how we activate the units of action in a systematic manner that takes into
consideration the needs of institutional investors and the integrated applicationof the Just Transition Elements. This Section of the report provides clarity forinvestable vehicles across asset classes.

3.1 Section summary and key takeaways
A Just Transition vehicle is notestablished in isolation but
embraces multiple actors
A successful Just Transition vehicle, typicallydesigned by the prospective asset manager,
will reflect all relevant stakeholders’ (including
investors', investees', communities' and public
actors') considerations, such that the vehicle isboth investable and compatible with the three
Just Transition Elements. Also, all actors needto move with intent and purpose and cooperate
to achieve a meaningful Just Transition vehicle.

Introducing a Just Transition
Blueprint and underlying Principles
The Just Transition 'Blueprint' andaccompanying guiding Principles proposed inthis Section provide a tangible starting point fordeveloping investment vehicles that integrate
the three Just Transition Elements: Climate
and Environmental Action; Socio-economic
Distribution and Equity; and Community Voice.
The Blueprint and Principles are designed,in particular, for vehicles that seek to achieve
scale, mobilising meaningful – and ultimatelytransformative – funding from institutional
investors into Just Transition strategies.

Application of the Just Transition
Blueprint and underlying Principles
As well as providing a robust andcomprehensive framework with which toshape a vehicle’s ambition, investment
strategy, outcomes framework, structure,
governance and operations, these tools alsooffer clear, consistent and accessible means todemonstrate and monitor, throughout a vehicle’s

lifecycle, whether and how it is helping to delivera Just Transition. The additional asset classspecificity provided in the Principles highlights
the importance of a nuanced approach basedon asset class particularities and features.

Integration of the Just Transition
Elements into existing and new
vehiclesBy providing actionable pathways, the hopeis to encourage the use of the Just Transition
Elements by, and the resulting adaptation of,existing vehicles and to stimulate the design of
new vehicles that reflect each of the three Just
Transition Elements.

Just Transition investment
opportunities exist
Across the asset classes that this report hasprioritised for delivering a Just Transition andits Elements, a range of investment vehicles
already exist that – while not labelled explicitly
as Just Transition vehicles – successfully
demonstrate adherence to some, or even most,of the Principles of the Just Transition Blueprint
as introduced in this Section.

Case studies and examples
showcase existing and relevant(almost) Just Transition investment
opportunities
The featured case studies and examples
demonstrate how vehicles can pursue boldenvironmental and social impact and be
attractive to institutional investors – at times
with the need of blending or concessional
capital support.

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Mobilising institutional capital towards the SDGs and a Just Transition

Case studies and examples
showcase the breadth of Just
Transition investment opportunities

Transition Elements, Blueprint and underlying
Principles. We aim to inspire asset managers
and owners alike to develop and participate in
new vehicles in the future.

The featured case studies and examples
demonstrate the variety of possible Just
Transition-relevant investment strategies,
which can be led by climate or socio-economic
motivations.

Overcoming barriers for scaling
capitalThe Just Transition Blueprint and theshowcased case studies and examples also
help to demonstrate how to navigate thebarriers described in Section 2.4.2 in order tomobilise capital at scale.

The development pathway froma Sustainable Development Goal
(SDG) vehicle to a Just Transition
vehicle that follows the Principles
is possible

A Just Transition lens can be added
to existing outcomes frameworks

Many of the showcased case studies andexamples are close to meeting the Just
Transition Principles. By suggesting areas ofpotential Just Transition enhancement for eachcase study and example provided, we pointout how an existing vehicle can undertake
modest adjustments to be aligned with the Just

The introduced threshold questions andguidance provide direction for the addition of a
Just Transition lens to existing environmental,social, and governance (ESG) and impact
frameworks without the need to develop an
entirely new framework.

3.2 Using familiar vehicles for more effectivealignment with the SDGs and to delivera Just Transition
When setting up Just Transition vehicles, theproposed Just Transition Elements (see Section
1.3.4) provide a tangible starting point fordeveloping a vehicle’s design, from ambition to

strategy to operations, and across the vehicle’s
investment lifecycle, from screening to execution tomonitoring. Ambition, planning and delivery of
Just Transition parameters should be intentional.

Figure 3.1

Investment vehicle: Key actors and dimensions

A
B

Asset managers

Local stakeholders(investees, communities)
Informs (targets)

Informs(needs, pipeline)
Drives1

Ambition

Drives2

Investment
strategy
Drives3

Outcomes
framework

4

Structure5

Governance

Informs(accessibility)

D

86

Other
investors

Drives6
DrivesLaws and regulations;influence, investment

Informs(accessibility)

C

Institutional
investors

Laws andregulations;influence

Operations

E

PublicactorsHow do we mobilise capital at scale towards the SDGs now?

At the same time, for such vehicles to be attractive
to institutional investors, they need to be structured
and executed with target investor parameters,interests and constraints in mind. For existingvehicles, the Just Transition Elements – Climate andEnvironmental Action; Socio-Economic Distribution
and Equity; and Community Voice – can serve asa reference point to assess the degree of alignment
with Just Transition objectives. They can also be
used to consider ways in which the vehicle could
be enhanced to strengthen its integrationof environmental, social and community
engagement objectives.
Figure 3.1 shows a summary of key actors in,and core dimensions of, a generic investment
vehicle. The following Sections will consider how
a generic investment vehicle can be designed (oramended) to be a Just Transition vehicle at scale.
While the specific guidance provided is applied in
the context of a Just Transition, the guidance hasapplication relevance across the United Nations(UN)'s Sustainable Development Goals (SDGs). The
guidance can be applied across a wide range ofinvestment strategies as highlighted in Section 1.4.2.

3.2.1 The key actors in Just
Transition financing vehicles:
Roles and value propositions
A successful Just Transition vehicle, typicallydesigned by the prospective asset manager, willreflect all stakeholder considerations such thatthe vehicle is both investable and compatible with
the Just Transition Elements. Proactive outreach,and engagement and cooperation acrossactors, from asset managers and investors toinvestee enterprises, affected communities andworkers, as well as public actors, are needed.
The perspective of consumers, enterprises withinrelevant supply chains and other stakeholders
that are affected, marginalised or underserved,
should be considered and included in thedesign and implementation of a vehicle and its
strategy to bolster a Just Transition. Best-inclass managers are already familiar with thismulti-stakeholder approach to investment vehicle
design, proving the approach is doable andsetting the bar for investment propositions.

A Asset managerS
Engagement on demand andsupply side
The asset manager is usually the driver of a newvehicle from idea to execution. To effectively delivera Just Transition vehicle, the starting point shouldbe the capital demand side of the investment
proposition to ensure that the vehicle’s strategy isrelevant. Relevance is considered based on how
the vehicle addresses both the environmental andsocial needs of local communities.

Engagement on the capital supply side should
start early in the fund set-up process to ensure that
institutional investor barriers are considered andaddressed in the design and structure of the vehicle.
A tailored co-creation process with an anchor
investor or early engagement with a core group of
target initial investors are often the best paths toensure buy-in, viability, relevance and ultimately
the scale of a vehicle.

Mainstream credibility and local
expertiseHistorically, there has been a clear divide between
commercially focused mainstream asset managers
managing large vehicles for institutional investors
and niche impact-focused managers managing
small vehicles for impact investors. That divide
is narrowing at a reasonable pace, a trend thatshould be encouraged. As shown in Section
1.4.1.2, mainstream managers are moving into
responsible, sustainable and impact investing,and niche impact managers are setting up larger
funds, gaining track record and achieving scale.
As critical actors in the investment value chain,more managers are needed, including local
emerging market managers, to achieve the SDGs
in general and a Just Transition in particular. As
the community of managers grows, institutional
investors should be willing to establish new
relationships beyond the limited universe ofmainstream managers with whom they have been
investing in the past. Given the growing recognitionof the need to integrate environmental andsocial considerations (as outlined in Section 1.3),
selection criteria for new managers should explicitly
include environmental, social and governance(ESG) and impact parameters, including climate
and social investing expertise.
For a vehicle to be attractive to institutional
investors, the credibility of the manager isparamount, including reputation and relevant
investment track record. At the same time, forthe vehicle to deliver a Just Transition strategy,
local expertise combined with local presenceor networks is crucial, particularly for vehicles
investing in emerging markets.

Value proposition of a Just Transition
vehicle for managers• Attention and differentiation: As notionsof fairness associated with financing climate
solutions continue to gain traction, a Just
Transition allows managers to market theirvehicles to a recognised theme. Integratingclimate parameters with a social and community
narrative allows managers to delineate theirfunds from others. In addition, robust andcredible measurement and reporting systems
will allow the vehicle to deflect charges of‘green washing’ or ‘impact washing’• Reputation: A Just Transition approach may
improve a manager’s reputation in the market,
including with investors, but also with public
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Mobilising institutional capital towards the SDGs and a Just Transition

institutions and the general public. In addition,
it may have a beneficial effect on staff attraction
and retention

B Local stakeholders
Place-based needs driven strategy
A Just Transition strategy needs to be oriented toreflect the local context of the places in which it isinvesting and aiming to deliver impact, including
its Just Transition starting points and transition
trajectories (as discussed in Section 1.3.1.3).
A strategy’s envisaged climate and socio-economic
Just Transition pathways should always be
expressed taking into account local needs andopportunities.
As a result, engagement with local stakeholders
needs to include two main groups:• I nvestees: The investment strategy needs tobe grounded in the financing requirements andfunding gaps of target investee companies (orprojects). It should ensure that the vehicle provides
responsive and affordable support to help thecompany or project achieve long-term sustainablegrowth. Workers in the targeted companies
or projects should be a key part of strategy
considerations as they are critical to delivering
long-term growth• Communities: A Just Transition vehicle needs
to consider the potential effects of its investment
objectives and strategy on local communities andexplore ways to mitigate any negative impacts
through close dialogue with these communities.
Without necessarily having all answers upfront, thestrategy should be framed to ensure that relevant
questions are asked along the way

Inclusion, voice and participation
Participation should be as inclusive as possible.
Considerations may include:• I ntegration of an equity lens: A Just Transition
strategy, beyond the integration of general greensocial outcomes, may expressly consider equity
parameters with a view to increasing diversity andsocial justice, including around gender and race
• Integration of supply chain considerations:
A Just Transition strategy may go beyond a focus
on the direct investee companies and consider
effects on supply chains with specific considerationof small and medium enterprises (SMEs) in thechain
A needs and opportunity assessment isrequired, based on active engagement with local
stakeholders, to ensure relevance of the investment
proposition (i.e., what is the capital solving for?).
This is important not only with a view to the socioeconomic imperative of a Just Transition, but also

88

in order to help de-risk an investment strategy byensuring local buy-in and community support.
When engaging local stakeholders, particularattention should be given to population segmentsthat have been traditionally excluded, marginalised
or underserved, for example, women or specificracial groups.
Value proposition of a Just Transition vehicle for
local stakeholders:• Local investments: A Just Transition vehicle
brings accessible and affordable funding into
local communities• V isibility: With a Just Transition underlying goalof leaving no one behind, disadvantaged andmarginalised communities are considered asmaterial participants informing investment activity
and not as passive beneficiaries• I ntegrated change: A balanced and inclusive
Just Transition vehicle will provide communities
with funding and integrated solutions that benefit
from a holistic lens integrating the environmental
and social impacts of investments and granting
a participatory voice• Voice: Universally adopted Just Transition
Elements will provide communities with alouder voice and inclusion in decision-making
processes. This will help to incorporate relevant
local context into vehicles and lead to tailored,
place-based interventions

C Institutional investors
Addressing institutional investors’
barriers
When designing a Just Transition vehicle with theobjective of attracting institutional investor capital,
recognised investment barriers for institutional
actors, as discussed in Section 2.4.2, need tobe addressed to facilitate and scale institutional
investor participation. Barriers differ by investor
type, geography and individual institutional investor.
Therefore, early in the process, the vehicle’s
manager should consider the target investor
type and, ideally, engage with one or several key
potential investors. This enables a process where
each party is able to push its boundaries in orderto make meaningful movements towards meetingthe envisaged outcomes.
To gain traction with institutional investors,
the framing of a concise story is important.
An evidence-based approach supported by data
combined with a place-based story expressing
the investment opportunity is most compelling.
Together, these components can provide clarity
around an investment vehicle’s Just Transition
ambition and its targeted outcomes across sectors
and themes, reflecting all three Just Transition
Elements.

How do we mobilise capital at scale towards the SDGs now?

Alternative Just Transition investment pathways
for institutional investors beyond investment vehicles
While this report focuses on investment
vehicles that aggregate capital investments,
there are alternative solutions that can beused by institutional investors to invest in Just
Transition relevant transactions in emerging
markets.
• M anaged accounts: A managed accountcan be set up with an asset manager who will
invest on the institutional investor’s behalf.
A managed account can be highly tailored tothe investor’s needs, in terms of investment
strategy, targeted objectives, risk-returntargets, and the amount of control needed by
the investor. An example is Obviam, a Swiss
impact manager that manages accounts
for clients including the Swiss government,
financial institutions, foundations andindividual investors• B -loans/ co-financing: A number ofmultilateral development banks (MDBs),
including the International FinanceValue proposition of a Just Transition
vehicle for institutional investors• I nvestment risk mitigation: Just Transition
broadens the understanding of systemic risks
from climate change by also factoring in risks
stemming from social exclusion and increasing
inequality. Examples of relevant environmental
risks include the physical impact of global
warming and risks associated with transition toa low-carbon economy, such as global policychange, technological advancements andmarket sentiment; and social risks, including

Corporation (IFC) and the European Bank for
Reconstruction and Development (EBRD),
offer so-called ‘B-loans’ to institutional
investors. This involves effectively syndicating
their loan portfolio, with the MDB retaining
a portion of the loan (the ‘A-loan’) andremaining the sole lender of record. A/Bloan structures allow institutional investors
to benefit from the MDB's preferred creditor
status, as well as its market access andexpertise, structuring skills and its leadershipin ESG and impactful investing practices andreporting (see also Section 2.6.7.1)• C o-creation or partnerships: Other
tailored partnerships can be sought
between institutional investors andmanagers, including for the creation of
investment vehicles. The partnershipapproach is increasingly pursued, building
relationships of trust and cooperation(see also Section 2.6.7)

changes to labour regulations, impacts on healthand effects of inequality. Not paying attention
to risks, regulatory changes and the shifting
market sentiment can lead to devalued or evenunsellable ‘stranded assets’ in an investor’s
portfolio187,188• Investment opportunities: Increasingly it isacknowledged that factoring climate change
into investment decisions is not only beneficialfrom a risk perspective but also uncovers newopportunities – see panel below. The same riskplus-opportunity consideration applies to the

Recognising the rewards of moving to Net Zero
The UN Special Envoy on Climate Action and Finance, Mark Carney, has stated:187

E&Y (2016): "Climatechange – the investment
perspective"; CFA Institute(2020): "Climate change
analysis in the investment
process"; or Robeco:"Stranded Asset"; https://www.robeco.com/en/
key-strengths/sustainable-investing/glossary/stranded-assets.html

188

Sharesight (2021): "Spotlight on the ‘S’ of ESG:
The rise of social factors";
https://www.sharesight.
com/blog/spotlight-on-thes-of-esg-the-rise-of-socialfactors“The dialogue has shifted from viewing climate change as a risk,
to seeing the opportunity, and really translating that into asingle objective, which is to move our economies to Net Zero as
quickly as possible. That’s a tremendously exciting development
because what we have now in private finance is a focus on a clear
goal – Net Zero – and finding the opportunities to advance thatand to be rewarded by it. […] And what we are seeing increasingly[…] is societies putting tremendous value on achieving Net Zero.
Companies, and those who invest in them and lend to them, and
who are part of the solution, will be rewarded. Those who are
lagging behind and are still part of the problem will be punished.”

Source: UN (2021): “Mark Carney: Investing in net-zero climate solutions creates value and rewards”

89

Mobilising institutional capital towards the SDGs and a Just Transitionsocial dimension. For example, a consideration of
corporate practices, respect for human rights andlabour standards should lead to improved staff
satisfaction and retention, and result in revenue,
productivity and efficiency gains.189 Interrelated
aspects of climate and social dimensions can bematerial long-term value drivers of economic andbusiness performance, drive innovation, improveresale opportunities and, at times, provide
efficiency gains, ultimately generating better
financial returns190• Consistency with fiduciary duty:
An investment approach that considers
environmental and social factors as proposed in
our Just Transition Elements is consistent withpension funds’ fiduciary duty and commitment
to responsible investment and the integrationof ESG factors.191 Across the world, policy andregulatory frameworks are changing to explicitly
require ESG integration as long-term value
drivers. In its 2020 report on Fiduciary Duty inthe 21st Century, the UN-supported Principles
for Responsible Investment (PRI) counts over
730 hard- and soft-law policy revisions globally,“that support, encourage or require investors
to consider long-term value drivers, including
ESG issues”.192 A holistic application of the Just
Transition Elements offers a tangible and relevant
application of ESG factors• A lignment with objectives: For investors who
have committed to ESG, the SDGs, Net Zero ora Just Transition, such as the 587 signatories to
the Global Investor Statement to Governmentson the Climate Crisis193 or the 450 financial firmsthat form part of the Glasgow Financial Alliance
For Net Zero (GFANZ), that announced their intent
to align their own businesses and their lending
and investing activities with Net Zero goals at
COP26,194 a Just Transition vehicle aligns with
their stated objectives• A lignment with financial beneficiaries’
preferences (e.g., pension scheme
members): Just Transition responds togrowing beneficiary preferences for sustainable
investments.195 The increase in interest inand engagement with sustainability among
beneficiaries in recent years has been substantial,
and is expected to increase with generational
shifts• Reputation: Investors’ reputation will benefit fromcontributing to societal goals and achievementof the SDGs, as many cite an investor’s licenceto operate as linked to its demonstration of
responsiveness to both social and environmental
issues; Just Transition investments allow
investors to demonstrate an integrated approachto addressing both environmental and socioeconomic reputational exposure

90

D Other investors
Alongside institutional investors, vehicles also
often include other investor types. Important topoint out here are those investors that provide thetools and instruments, including blending support,
outlined in Section 2.6. As discussed, these are,in particular, impact investors, including public
players such as development finance institutions(DFIs) and multilateral development banks (MDBs)
and private players such as foundations andfamily offices. When designing and structuring avehicle, depending on the investment strategy, theasset manager may need to consider the use ofrisk mitigation instruments such as subordinatedcapital, guarantees or insurance, that are needed,
at times, in order to structure a risk proposition thatis accessible for institutional investors.

Value proposition of a Just Transition
vehicle for other investors,
in particular impact investors
Achievement of integrated impact objectives:
Impact investors intentionally pursue measurable
impact objectives alongside financial objectives.
A Just Transition vehicle allows them to pursue andachieve integrated climate and social objectives.
Mobilisation: A number of impact investors
prioritise capital mobilisation targets, seeking
to catalyse institutional investors into impactful189 trade: "The S in ESG: Why investors should care about aQcompany’s social impact"; https://www.qtrade.ca/en/investor/
education/investing-articles/new-to-investing/esg-portfolios-2.
html; or S&P Global: "What is the “S” in ESG?"; https://www.
spglobal.com/en/research-insights/articles/what-is-the-s-in-esg;
or Russell Investments (2021): "Spotlight on the ‘S’ of ESG";
https://russellinvestments.com/us/blog/esg-spotlight-on-s

190

E&Y (2016): "Climate change  – the investment perspective"; or"CFA Institute (2020): Climate change analysis in the investment
process"

191

Impact Investing Institute (2020): "Impact investing by pension
funds: Fiduciary duty – the legal context"; https://www.
impactinvest.org.uk/wp-content/uploads/2020/11/Impact-investing-by-pension-funds-Fiduciary-duty-%E2%80%93-the-legal-context.pdf

192

PRI and UNEP Finance Initiative (2020): "Fiduciary Duty in the
21st Century"

193

UNEP Finance Initiative (2021): "Global investor statement: Investors urge governments to undertake five priority actions before
COP26"; https://www.unepfi.org/news/industries/investment/
nearly-600-investors-urge-govts-to-undertake-five-priority-actions-before-cop26

194

GFANZ (2021): "The Glasgow Financial Alliance for Net Zero –Our progress and plan towards a net-zero global economy"

195

PRI (2021): "Understanding and Aligning with Beneficiaries’ Sustainability Preferences"; see also Make My Money Matter: https://makemymoneymatter.co.uk. A DFID survey of UK pension
fund members also found that 25% of savers – rising to 44%
of wealthier savers and 35% of millennials – were supportive ofsome of their assets being invested in Africa. See DFID (2019):"Investing in a Better World"; https://assets.publishing.service.
gov.uk/government/uploads/system/uploads/attachment_data/
file/834207/Investing-in-a-better-wold-full-report.pdf

How do we mobilise capital at scale towards the SDGs now?

investments. Their participation and catalyticrole in certain vehicles may allow these vehicles
to mobilise institutional investor capital. Such acatalytic role can be achieved through the provisionof risk mitigating instruments or risk-tolerant capital(at market rate or concessional) or also by playing
a leading, anchoring role in the capital raisingprocess.

E Public actors
National and local governments and related
institutions can support Just Transition vehicles
directly and indirectly:

National governments

196

Governments also play
an important role in thedecommissioning of legacy
fossil fuel plants, making
their early retirement
feasible.

SPOTLIGHT• Role: Allocation of public funding
nationally and internationally
A core role of governments in the context of a
Just Transition is to allocate funding to projects
and constituents, often through their ministries offinance. An important planning tool for allocations
is a country’s National Development Plan (NDP),
where it exists, which sets out the country’s
climate pathway. The NDP typically establishes thecountry’s main priorities and areas of government
support and resources. The local NDP may be
relevant for financing vehicles that are seeking
public monies to support their structure in a
blended transaction. It may also guide a vehicle’s
investment strategy in a certain jurisdiction, basedon needs and public focus.196• Role: Shareholder of public anddevelopment institutions
Governments are often the sole shareholders of

their sovereign wealth funds (SWFs) and DFIs
as well as joint shareholders of MDBs and otherquasi-government institutions. As such, theydecide on the amount of their contributions, theresulting investable capital of such institutions
and set their investment mandate. The investment
mandate expresses the parameters of the risk,
return and impact appetite of an institution. These
institutions have the potential to play a criticalrole in catalysing Just Transition investmentsin emerging markets (as they have done withgender-lens investment through the 2X Challenge,see Spotlight panel below). As a consequence,shareholders of these institutions can provide
strategic direction to the SWFs, DFIs, MDBs
and others, mandating greater ambition aroundand commitment to deliver SDG outcomes witha specific near-term opportunity to deliver Just
Transition outcomes.
In their ownership role, governments canalso consider the inclusion of targeted capital
mobilisation mandates and/or the strengtheningof existing mobilisation mandates with clear
incentive structures. Although mobilisation is often
already included in many institutions’ strategy,
incentivisation of investment teams is often still
geared towards deployment of the institution’s own
balance sheet. Development institutions such as
DFIs and MDBs can also be incentivised further
to seek aggregating opportunities to package
and move well-performing assets off their balance
sheets, including through portfolio syndicationor securitisation structures (see Section 2.6.4).
Using the investment track records of these assets
to attract private capital into emerging markets

2X Challenge

The 2X Challenge: Financing for Women is an ambitious
target that calls on DFIs to mobilise their own funds, as wellas private capital, to unlock resources that will help advance
women as entrepreneurs, as business leaders, as employees
and as consumers of products and services that enhancetheir economic participation.
In 2018, the DFIs from G7 countries – Canada (FinDev), theUnited Kingdom (CDC), the United States (DFC), Italy (Cassa
depositi e presiti – Cdp), France (Proparco) and Japan (JBIC
and JICA), with support from Germany (DEG) – committed touse innovative ways, including blended finance, to support
investments and initiatives that provide women in emerging
markets with access to leadership opportunities, quality
employment, finance and enterprise support.
In order to create a shared understanding of what investing
in women looks like, DFIs defined the 2X Criteria. Today,the 2X Criteria is a key framework enabling DFIs and otherinvestors to carry out gender-smart investments.

While the 2X Challenge was initially a DFI-oriented initiative,
its scope broadened with the 2X Collaborative whichseeks to build on the momentum to involve a larger spectrumof investors in gender-lens investing. Founding membersof the 2X Collaborative include the European Bank for
Reconstruction and Development (EBRD), the United Nations
Capital Development Fund (UNCDF) and Citigroup.
The 2X Collaborative’s objective is to serve investors making
their first gender-focused investment as well as investors at
the frontier of the field. It is a member-driven initiative andincludes peer groups made up of DFIs, MDBs, pension
funds, asset and fund managers, financial institutions
and corporates. The Collaborative provides a platform fortraining, co-investment, investment tools and peer learning to
its members. It also hosts member-driven initiatives, such as
the 2X Gender and Climate Finance Taskforce.
Sources: 2X Challenge; 2X Collaborative; CDC

91

Mobilising institutional capital towards the SDGs and a Just Transition

could stimulate deeper and functioning secondary
markets in targeted jurisdictions. The enhanced
use of risk-mitigating capital and guarantee
structures to mobilise commercial institutional
capital also has the potential to move more
institutional investors into SDG and Just Transition
relevant vehicles in emerging markets.
• Role: Legal and regulatory framework
National governments set the legal and regulatory
frameworks of their countries. These frameworks
include the laws and regulations covering theenvironment for doing business and aroundnational and international investments. Relevantlaws and regulations also cover social priorities,
such as the Broad Based Black Economic
Empowerment legislation in South Africa. In
emerging markets, however, the local legal andregulatory environment is often not well alignedwith institutional investor requirements, as
discussed in the earlier Section 2.4.2 on barriers
to investment in these markets. Continued effort
is needed to develop and strengthen emerging
markets’ legal and regulatory systems so they
can be regarded as reliable and accessible for
institutional investment capital.
•R ole: Convener
Governments are also a crucial convener,
bringing an important voice to the Just Transition
discussion. At the national level, they may push
for transparent and standardised reporting on
environmental and/or social outcomes. Examples
include the UK Government’s proposed Green
Taxonomy. As outlined in Section 1 and analysed in
more detail in the report of the Impact Taskforce’s
Workstream A, several governments are supporting
the development of international impact reporting
standards that harmonise metrics across themes
and jurisdictions, helping activity and progress to
be more easily compared by country, sector orcompany.

Regional and local governments
Regional and local governments can havesignificant power to act and achieve the SDGs anda Just Transition within their respective regions ofinfluence, depending on their specific powers andmandates. An example is the Ruhr area in North
Rhine-Westphalia, Germany, where state-level andlocal-level debate on coal mines, the last of which
was closed in 2018, started in the 1990s and where
policy actors across levels worked together andwith an array of local constituents.197

Value proposition of a Just Transition
vehicle for public actors
197

92

 WF Germany (2019):
W"Just Transition for Regions
and Generations – Experiences from structuralchange in the Ruhr area"• Planning: A good understanding of how
investment activity is – or is not – advancing thedevelopment agendas of countries and regions
is important for public sector stakeholders andtheir planning. Alignment to NDPs enables
further capital flows to essential parts of theeconomy while also supporting the growth ofa green economy, with better outcomes for all
stakeholders through, for example, decreased
levels of pollution or climate-aligned job growth.
Clarity around who is being served and who
is being left out of a particular investment
opportunity set allows public decision makers
to understand and spotlight which needs andopportunities remain to be addressed. It canalso help them to further enable the market byunderstanding the funding gaps and building
additional opportunities and redistributing gains/expenses to other worthy projects.
• Capital mobilisation: Engagement around
Just Transition vehicles offers opportunities
for additional capital mobilisation by unlocking
the growing pools of capital seeking to achieveboth environmental and social impact. This may
be of particular interest to donor countries, as
leveraging these pools of capital provides further
opportunities for the achievement of global
developmental and climate finance commitments,
in the context of pressure on public finances andoverseas aid budgets.

3.2.2 Vehicle dimensions
This report identifies six key investment vehicle
dimensions that follow the familiar arc of a genericinvestment vehicle:

1 Ambition
2 Investment strategy
3 Outcomes framework
4 Structure
5 Governance
6 Operations
The six dimensions form the backbone of the Just
Transition ‘Blueprint’ developed in the following
Section. This Blueprint is intended to provide
guiding principles (‘Principles’), as set out below,
for each of the dimensions for an institutional grade
Just Transition vehicle. The Principles convey coreideas on which each dimension can be developedand invite a range of possible actions. They are
expressed as Principles to provide consistency andclarity for progressive efforts by asset owners andmanagers. Although also applicable to other SDG
strategies, the Principles offer specific guidance
for any investment vehicle that has the intention ofcontributing to a Just Transition.

How do we mobilise capital at scale towards the SDGs now?

3.3 Just Transition Blueprint for investment vehicles

T

he Just Transition 'Blueprint' sets out
a set of Principles together with guiding
questions that can inform the design of any
investment vehicle across asset classes,
including those not prioritised in this report.
The Just Transition Blueprint offers clear,consistent and accessible pathways to ascertain
whether and how an investment meets the Just
Transition Elements as presented in section 1.3:
• Advance Climate and Environmental Action• Improve Socio-economic Distribution
and Equity• I ncrease Community VoiceThe set of Principles is as follows:

1 Ambition
Principle 1.1
The ambition is grounded explicitly in the
integrated Just Transition Elements: Climate
and Environmental Action; Socio-economic
Distribution and Equity; and Community VoicePrinciple 1.2
The ambition is grounded in local context andneeds

2 Investment strategy
Principle 2.1
The investment strategy is Just Transition
relevant

Principle 2.2
The investment strategy is investable byinstitutional investors

3 Outcomes framework
Principle 3.1
The outcomes framework has an integrated
focus on each of the three Just Transition
Elements: Climate and Environmental Action;
Socio-economic Distribution and Equity; andCommunity VoicePrinciple 3.2
The outcomes framework fosterstransparency and accountability

4 Structure
Principle 4.1
The structure and terms enable the capital
invested to advance a Just Transition

Principle 4.2
The structure and terms allow for institutional
investor participation

5 GovernancePrinciple 5.1
The governance structure holds the vehicle
accountable to its Just Transition ambition
and the Just Transition Elements

Principle 5.2
The governance structure enables broad
stakeholder voice

6 Operations
Principle 6.1
The vehicle or manager staff are capable andincentivised to implement and execute theJust Transition ambition

Principle 6.2
The Just Transition strategy isoperationalised during the investment
horizon and beyond

Principle 6.3
Just Transition considerations are integrated
across policies and procedures

Providing Principles and a set of key questions
and guidance notes allows for consistent take-upof the proposed Just Transition Elements acrossinvestment vehicles, while also ensuring relevanceto local context and different investment strategies.
The questions are intended to be straightforward.
This approach acknowledges that managers needflexibility to determine precisely how their vehicle
reflects the Principles and how they respond to
the questions; the intention is to provide guidance
without requiring a single approach or structure
across investment opportunities. At the sametime, the Principles and questions establish acommon basis on which all stakeholders may
consider investment vehicles and their alignment
to the integrated Just Transition Elements in themarketplace. By providing actionable pathways, thehope is to encourage the use of the Just Transition
Elements by, and the resulting adaptation of,existing vehicles and to stimulate the design of newvehicles coming to market that reflect each of thethree Just Transition Elements.
The Principles, universal questions and guidancenotes set forth in the blueprint below arecomplemented with asset class specificity for93

Mobilising institutional capital towards the SDGs and a Just Transition

the priority asset classes identified in Section 2,
reflecting the asset class’s particular features,
where relevant. They may be applied both toexisting investment vehicles as well as to those still
to be designed in the market. The bottom line isthat every investment vehicle which seeks to
be a Just Transition vehicle should be able
to answer the key questions in a mannerthat demonstrates alignment with the three
integrated Just Transition Elements.

1 Ambition
Principle 1.1
The ambition is grounded explicitly in the
integrated Just Transition Elements: Climate
and Environmental Action; Socio-economic
Distribution and Equity; and Community Voice
Key question: Is the vehicle sufficiently clear
on its ambition across each of the three Just
Transition Elements to be considered a Just
Transition finance vehicle?
The ambition statement clearly articulates thethree Elements of a Just Transition that are

being addressed, based on clear and concise
parameters, defining what the vehicle sets out
to achieve and who will be affected, including
the geographic scope, environmental scopeand socio-economic scope. It is important tostate what the vehicle will contribute to, while
understanding that each vehicle will focus on
distinct opportunities and challenges and be partof the solution set. The ‘magnitude’ of the ambition
will depend on the vehicle’s size and depth of
impact sought.
Not every vehicle, and within a vehicle not every
investment, can achieve all climate or social
objectives at once. Each vehicle needs to express
its transition and development ambition andcontribution clearly, formulating who is being
reached, served and affected by an investment –and who is not.
The ambition expresses quantifiable outcome
targets. These targets are realised within the life of
the vehicle.
A clear ambition or purpose will allow the setting of
Just Transition targets ex ante and the measurementof Just Transition achievements post investment foreach investment and on a portfolio level.

Example of an ambition statement: responsAbility
The responsAbility Access to Clean Power Fund (ACPF) states the following ambition:
The fund targets companies providing solutions to households without access toelectricity and businesses looking for cleaner, cheaper and more reliable energy.
Beyond financing the off-grid sector, it actively addresses the solar potential for thecommercial and industrial (C&I) sector.
Fund ambitions include:• Climate and Environmental Action: Reduce CO2 emissions by 6m tonnes,
2,800 GWh of clean energy generated, 2,000 MW renewable energy capacity by end of fund life
• S ocio-economic Distribution and Equity: Access to energy for 170 million people,
5,200 SMEs with improved access to electricity, 5,750 new full-time jobs, 37 million products
sold by portfolio companies, all by the end of fund life
• Community Voice: Ongoing feedback data sought from initiatives such as GOGLA

Additional asset class specific considerations
Asset class vehicles

Specific considerations

Private equity

Universal; no additional specificity

Private debt

Universal; no additional specificity

Infrastructure• It is particularly important to include a clear articulation on the inclusion of
local community aspects into targeted infrastructure projects and, ideally,
inclusion of the local supply chain

Real estate• In the case of real estate projects, it is particularly important to include aclear articulation on the inclusion of local community and neighbourhood
aspects and, ideally, the local supply chain• It is particularly important to provide clarity on the targeted socioeconomic population segment, depending on the real estate type,including, for example, workers, consumers or tenants

Fixed income
94

Universal; no additional specificity

How do we mobilise capital at scale towards the SDGs now?

Principle 1.2
The ambition is grounded in the local context
and needs
Key question: How does the vehicle ground
its ambition in the local context of the specified
geographies, including environmental and socioeconomic needs?
The ambition needs to express the local context
and relevance within the context for each of thethree Elements. When setting an ambition, local
context is important.

In emerging markets, accessibility and affordabilityof solutions are threshold considerations. The
countries themselves, in addition to their internal
regions, communities and individuals, areunderserved and marginalised relative to developed
countries. Inclusion of cross-cutting themes
such as gender, race or other disadvantaged
communities can be valuable components forframing an ambition, in particular to ensure thatmarginalised, underserved and affected segmentsof societies are expressly included and theirinterests are addressed.

Additional asset class specific considerations
Asset class vehicles

Specific considerations

Private equity

Universal; no additional specificity

Private debt

Universal; no additional specificity

Infrastructure• Infrastructure vehicles ensure that a local needs assessment is integrated
into each project design, that procurement processes include local
community considerations and that operationalisation aspects are
informed by community interests

Real estate• Real estate vehicles ensure that a local needs assessment is integrated
into each project design, that procurement processes include local
community considerations and that operationalisation aspects are
informed by community interests

Fixed income

Universal; no additional specificity

2 Investment strategy
Principle 2.1
The investment strategy is Just Transition
relevant
Key question: How is the vehicle’s investment
strategy explicitly aligned with the three Just
Transition Elements?

The investment strategy sets out how the Just
Transition ambition will be met. Starting withthe market opportunity, grounded in market
needs and including both environmental andsocio-economic factors, the investment strategy
of a Just Transition vehicle expresses a clear
and concise Just Transition intention andprogression.

Examples of possible Just Transition fund investment strategies
Just Transition fund investment strategies span an extensive range of climate-first and social-firstinitiatives. A few are highlighted below but see also Figure 1.11 in Section 1.
•R enewable energy private equity fund, providing decent jobs for workers and including
community support and participation~ Clean energy, decent jobs and community support, community engagement~ Example: Actis’ Energy Fund 4 (see Section 3.4.4)•A ccess to renewable and affordable energy debt fund, including community engagement~ Clean energy, access to affordable energy of underserved communities, gender impact,
community engagement~ Example: responsAbility’s Access to Clean Power Fund (see Section 3.4.3)•F orestry private equity fund, including local community engagement~ Emissions sequestration and biodiversity, health/clean air, community engagement~ Example: New Forests’ Tropical Asia Forest Fund (see Section 3.4.2)•A ffordable green housing private equity real estate fund, including neighbourhood support~ Emissions mitigation, affordable housing, community engagement~ Example: IHS’ IHS Fund II (see Section 3.4.5)

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Mobilising institutional capital towards the SDGs and a Just Transition

Examples of Community Voice in action• Community engagement with local community bodies or stakeholders• Community or relevant NGO representative on an advisory committee orpanel or the board• Survey instruments, such as 60 Decibels pulse surveys (see Section
3.5) or focus group surveys to gather end customer/ client/ beneficiary
feedback• Renewals data, for example, for insurance contracts• Leadership with ‘lived experience’• Employee engagement, for example, worker satisfaction
surveys/grievance policies• Community liaison officer or representative,
particularly for infrastructure and real estate
For more resources on integrating Community Voice, see Appendix 4

The strategy provides more specific detail to themeaning of the ambition statement: ‘what’ is being
addressed and ‘who’ is being reached and served.
That specificity can be expressed in terms oftarget investee or investee client segment, income
parameters, demographic data or other descriptive
data points. The strategy also acknowledges ‘what’
and ‘who’ are not included, to satisfy transparency
expectations.
A distinct understanding of how the Just Transition
strategy targets selected regions, sectors,
environmental challenges and demographic
groups, and what financial products and additional
support are satisfying market need, is paramount.

Therefore, demand-side considerations will:• Be grounded in place-based demands and needs– and resulting opportunities. The investment
strategy will reflect market opportunity andaddress specific and tangible environmental
and social needs, based on local context andpriorities and include each of the three Just
Transition Elements• Include measures for negatively affectedstakeholders; considered stakeholder groups
will include workers and communities, andspecifically underserved and marginalised
segments of communities, including genderand racial aspects. Implications for local supply
chains are also considered• Consider the inclusion of social activities in thestrategy and related costs. For example, training
or re-skilling of workers or community support
While all three Elements must be present in a Just
Transition vehicle, the investment strategy can be
expected to be anchored and led by the climate
or social Element (see also Section 1.4.2 for an
illustrative list of the breadth of strategies to which
the Just Transition can apply).
One key indicator of the robustness of the strategy
is the clear and transparent inclusion of Just
Transition considerations across the investment
process, from investment screening to due
diligence, investment decision, portfolio monitoringand potentially divestment decisions (see also
Principle 6.2).

Additional asset class specific considerations
Asset class vehicles

Specific considerations

Private equity• A Just Transition vehicle strategy at design stage confirms how equity is
the appropriate instrument to address its Just Transition objectives• The strategy ensures accessibility and affordability of equity terms,
including fair investment valuations• The vehicle considers, in its investment selection, the opportunity to build
in continuity of the Just Transition Elements post investment exit

Private debt

• The investment strategy at design stage confirms how debt is theappropriate instrument to address its Just Transition objectives• The strategy ensures that debt service, including interest rate andrepayment structure (e.g., bullet, amortising, flexible, seasonal) including
maturity, is fair and not overly burdensome, leading to availability, accessand affordability of credit• The vehicle looks to ensure that the debt terms offered are appropriate
with a view to local market building, aiming to attract other investors, inparticular local ones

Infrastructure• T he investment strategy is clear on who will be affected by the targeted
infrastructure projects, both in the short term (in particular the construction
phase) but also in the long term (operational phase); those who benefit
from infrastructure can change over the long-time horizons of infrastructure
projects• T he strategy and project prioritisation consider positive and negative
externalities of each investment project across different stakeholders
and affected communities and population segments. Both positive andnegative externalities are considered and addressed from the outset andtracked over time

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Asset class vehicles

Specific considerations

Infrastructure• The strategy includes a clear positioning on the inclusion of local
community aspects, including (short- and long-term) local quality
employment opportunities and health and safety aspects• The inclusion of green aspects is specific, including, for example, materials
used, water usage, or energy efficiency, including also the supply chain,
where possible• The strategy also extends social considerations to the respective supply
chains• The strategy ensures that debt service terms, including interest rate,amortisation and maturity, or return expectations, as applicable, are fairand not overly burdensome, leading to availability, access and affordabilityof funding• The vehicle seeks to ensure, in its investment selection, the opportunity tobuild in continuity of the Just Transition Elements post investment exit

Real estate• The investment strategy is clear on the local market gaps and needs (forexample, housing) and how the targeted real estate investments support
the closing of a gap• The investment strategy is particularly clear on who will be affected by
the targeted real estate projects, both in the short term (in particular theconstruction phase) but also in the long term (operational phase). The
targeted clientele is specified based on, amongst other considerations,price and affordability, location/catchment area, size and finish• The strategy and project prioritisation considers positive and negative
externalities of each investment project across different stakeholders,affected communities and population segments. Both positive andnegative externalities are considered and addressed from the outset andtracked over time• The strategy includes a clear positioning on the inclusion of local
community aspects, including (short- and long-term) local quality
employment opportunities and health and safety aspects• The inclusion of green aspects is specific, including, for example, materials
used, water usage or energy efficiency, including also the supply chain,
where possible• The strategy extends social considerations to the respective supply chains• The strategy ensures that debt service terms at the investee level,
including interest rates, amortisation and maturity, or return expectations,as applicable, are fair and not overly burdensome, leading to availability,
access and affordability of funding• The vehicle seeks to ensure in its investment selection the opportunity tobuild in continuity of the Just Transition Elements post investment exit

Fixed income• The investment strategy is clear in its green and social objectives, providing
allocation expectations for both, where possible• Prioritisation is given to those bonds that align to all three Just Transition
Elements• The execution of the strategy includes not only a project review but also asocial and environmental assessment of the issuer, including the issuer’s
engagement with local communities, where possible

Principle 2.2
The investment strategy is investable byinstitutional investors
Key question: How does the vehicle’s investment
strategy enable institutional investor participationin the vehicle?
In order to attract significant amounts ofinstitutional investor capital, the vehicle’s
investment strategy must be investable byinstitutional investors, addressing investor appetiteand constraints. Supply-side considerations ofinstitutional investors can include (but are notlimited to):• Satisfactory risk/return profile of underlying
investments for targeted institutional investors,
acknowledging that institutional investors’
primary focus is usually on financial performance.
Specifically:~ The proposition allows for satisfactory returns,
complemented by other financial rationales
for an investment, such as a contribution to
portfolio diversification. The risk proposition
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Mobilising institutional capital towards the SDGs and a Just Transitionis data-based, where possible, and addresses
key emerging markets’ risks• Geographic target markets, including an analysisof respective macro and market risks~ If necessary and depending on the strategy,
a vehicle may need to include structuralenhancements that satisfy institutional
investors’ risk/return requirements. Often
this will be in partnership with MDBs or
DFIs or other impact-focused and flexible
investors and may employ blended financestructures (including, for example, layered
capital structures, guarantees or grant-fundedcapacity support – see Section 2.6 for moredetail on subordinated capital and guarantees).
Where enhancements are necessary, thevehicle is clear about the amount and use ofblended features to deliver the strategy• Market opportunity and viable pipeline,
demonstrating depth of opportunity for a vehicle
to operate at scale~ Sizable vehicle, enabling institutional investors
to deploy large capital amounts (considering
minimum vehicle size threshold levels; thevehicle can be smaller in some cases, with ademonstrable pathway to replicability and scale)

Applying this Principle to vehicle design requires
iterative engagement and movement by bothmanagers and investors. While the investment
vehicle must seek to satisfy the needs ofinstitutional investors, investors must also challengethemselves to move outside well-trodden pathways
and current comfort zones as they assess newopportunities that integrate environmental andsocial considerations.

~ Sizable and viable pipeline, backing up thetargeted vehicle size, demonstrating the viabilityof the vehicle size while meeting the investment
level criteria of a Just Transition vehicle• Diversification and target portfolio composition,
showcasing the risk and performance
contributions of diversification within the strategy• Clear and concise story ensuring that the vehicle
effectively communicates the Just Transition
angle of the investment, its opportunity and/or risk considerations in terms that institutional
investors can understand, and that is backed up
with data

Additional asset class specific considerations
Asset class vehicles

Specific considerations

Private equity

Particular private equity vehicle investor considerations when determining
investment strategy include:• Type of equity (growth equity or VC)• Profile and type of target investees (including growth/maturity profile)• Sector considerations (sector maturity, risk profile, etc.)• E xit strategy

Private debt

Particular private debt vehicle investor considerations when determining
investment strategy include:• Type of debt (senior, subordinated, mezzanine, etc.)• A mount, predictability and stability of current income• Security provided• Profile and type of target investees (including cashflow profile)• Sector considerations (sector maturity, risk profile, etc.)

Infrastructure

Particular infrastructure vehicle investor considerations when determining
investment strategy include:• Type of instrument (equity, debt, mezzanine, etc.)• Type of strategy (based on the risk profile, such as core, core+, etc.)• Profile and type of target projects, including contractor and othercounterparties (such as offtakers)• Sub-sector considerations (sector maturity, risk profile, etc.)• E xit strategy in case of equity investment
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Asset class vehicles

Specific considerations

Real estateParticular real estate vehicle investor considerations when determining
investment strategy include:• Type of instrument (equity, debt, mezzanine, etc.) and opportunity forpredictable and stable income• Profile and type of target projects (risk implications)• Sub-sector considerations (sector maturity, risk profile, tenants and leases,etc.)• Inflation protection• E xit strategy in the case of equity investment

Fixed income

Particular fixed income vehicle investor considerations when determining
investment strategy include:• Mix of developed and emerging markets bonds, with a view to average
portfolio rating• Targeted issuers, with a view to average portfolio rating and reputation• Types of use of proceeds/issuer types; International Capital Market
Association (ICMA) inclusion• Sector considerations (issuer, use of proceeds)

3 Outcomes framework
Principle 3.1
The outcomes framework has an integrated
focus on each of the three Just Transition
Elements: Climate and Environmental Action;
Socio-economic Distribution and Equity; andCommunity Voice
Key question: What are the targeted outcomesthe vehicle intends to deliver linked to the three
Just Transition Elements?
A Just Transition outcomes framework will bealigned with the Just Transition ambition and willflow from the vehicle’s strategy. The outcomesframework provides clear targets and outcomes
metrics across all three Just Transition Elements.
A vehicle’s inclusion of the Just Transition Elementsin the outcomes management may build upon theoutcomes framework and reporting methodologies

already utilised by the vehicle manager, particularly
where those are based on existing recognised
standards such as the International FinanceCorporation (IFC) Operating Principles, the Impact
Management Project (IMP), IRIS+ or the SDG
Impact Standards (see Section 3.5).
The outcomes framework can be as ‘light touch’as needed or more ambitious, depending on thevehicle’s envisaged impact and the starting point of
the vehicle manager. It includes, in all cases, clear
and tangible metrics showing the adherence to anddelivery of Just Transition Elements.
The vehicle’s outcomes framework and metrics
are applied both at the portfolio level and at theindividual investment level, where more detailed
strategy or sector-specific metrics may apply.

Additional asset class specific considerations
Asset class vehicles

Specific considerations

Private equity

Universal; no additional specificity

Private debt

Universal; no additional specificity

Infrastructure• As infrastructure projects are typically grounded in local communities,
infrastructure outcomes include an explicit assessment of community
engagement with respect to needs assessment, procurement and otherimportant aspects• For infrastructure, a Just Transition aligned outcomes framework extends
to include supply-chain considerations

Real estate• In the case of a real estate vehicle, the outcomes include a specific focus
on the targeted demographic group (as tenants, workers or consumers),
including, where relevant, underserved or marginalised clients or
consumers
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Mobilising institutional capital towards the SDGs and a Just Transition

Asset class vehicles

Specific considerations

Real estate• As real estate projects are typically grounded in local communities,
real estate outcomes include an explicit assessment of community
engagement with respect to needs assessment, procurement and otherimportant aspects• For real estate, a Just Transition aligned outcomes framework extends toinclude supply chain considerations

Fixed income• A Just Transition bond vehicle’s outcomes framework includes anassessment of not just the relevant bonds’ uses of proceeds but also anassessment of the underlying issuers

Principle 3.2

4 Structure

The outcomes framework fosterstransparency and accountability
Key question: How do the vehicle’s reporting
requirements ensure transparency of Just
Transition targets and achievements and resultin accountability of outcomes?
The vehicle includes transparent reporting andcommunication of targets and actual achievements.
External third-party verification is considered
to ensure accountability, strengthen the Just
Transition proposition and to avoid green or
impact washing.
Additional asset class specificconsiderations
Universal; no additional specificity.

Principle 4.1
The structure and terms enable the capital
invested to advance a Just Transition
Key question: How do the vehicle’s structure andterms enable the capital invested to advance a Just
Transition?
When structuring a Just Transition investment vehicle,
it is important to ensure that the structure, the choice ofasset class and the vehicle’s terms enable the delivery
of a Just Transition strategy and outcomes targets.
Examples of possible demand-side considerations
include:• Vehicle life and whether it is adequate to achieve thetargeted Just Transition outcomes• Distribution of risk and returns between investees andinvestors• Need for technical assistance support providing
capacity building to investees and local communities

Additional asset class specific considerations
Asset class vehicles

Specific considerations

Private equity

Private equity vehicle Just Transition considerations on structure and terms
include:• Vehicle life, capping equity investment hold periods• Management fees appropriate for the delivery of the strategy• Target vehicle internal rates of return (IRRs), driving underlying terms toinvestees, including fair valuation considerations

Private debt

Private debt vehicle Just Transition considerations on structure and terms
include:• Vehicle life, capping underlying loan maturities• Vehicle-level investor yields, driving accessible and affordable terms toinvestees• Interest rates linked to outcomes delivery (e.g., possible rate reduction to
the underlying investees based on environmental and social outcomes)• Local currency loans, de-risking loans for investees
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How do we mobilise capital at scale towards the SDGs now?

Asset class vehicles

Specific considerations

Infrastructure

Infrastructure vehicle Just Transition considerations on structure and terms
include:• Vehicle-level return expectations, driving underlying terms and access andaffordability of the project• Vehicle life and related timeframe considerations are particularly important
given the long-time horizon (development and operational periods) for mostinfrastructure investments• The structure considers the inclusion of community support andengagement given the essential services nature of many infrastructure
projects and direct impact on local communities

Real estate

Real estate vehicle Just Transition considerations on structure and terms
include:• Vehicle-level return expectations, driving underlying terms and access andaffordability of the project• Vehicle life and related timeframe considerations are particularly important
given the long-time horizon (development and operational periods) for mostinfrastructure investments

Fixed income

Fixed income vehicle Just Transition considerations on structure and terms
include:• Vehicle duration, depending on the targeted underlying bond maturities• Pricing linked to delivery of environmental and social outcomesPrinciple 4.2
The structure and terms allow for institutional
investor participation
Key question: How do the vehicle’s structuralcomponents and terms enable institutional
investor participation?
Vehicle structure and terms address target
investors’ specific investment appetite andinvestment barriers to allow for their participation.
Example considerations include:• Choice of asset class (for example, private debt
versus equity)~ Considering target investors’ allocation‘buckets’ and related targets, mandates andrestrictions~ Considering related features such as ratings(for fixed income offerings) or liquidity
considerations• Choice of proven and familiar vehicle
structure; adjustments may be appropriate/
needed depending on strategy; simplicity issought, where possible• Choice of proven and familiar vehicle
jurisdiction and legal form•T
 arget size, providing the scale necessary tomeet institutional investor minimum investment
requirements• Target returns/yields to be satisfactory
to investors• Choice of other key terms, including
for example:~ Vehicle life/ tenor~ Vehicle currency (including hedging,as relevant)~ Management fees
• Risk mitigation through diversification
targets/ investment restrictions• S tructural risk mitigation or return
enhancement (through blended structure,
concessional or non-concessional), where
necessary. (See Section 2.6 for a more detailed
discussion of structural tools.) Examples include:~ Layered capital structure and subordinatedcapital~ Credit guarantees~ Political insurance~ If blending is used, the role of blending in
the capital structure is specified, including
the contributions expected as a result of theamount, type and terms of blending
Early engagement with targeted institutional
investors in the design process, including, at times,
co-creation partnerships, may be advisable inorder to ensure investor appetite for the vehicle.

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Mobilising institutional capital towards the SDGs and a Just Transition

Additional asset class specific considerations
Asset class vehicles

Specific considerations

Private equity

Private equity vehicle Just Transition considerations on structure andterms include:• Appropriateness of typical PE vehicle tenor of 10 years• Appropriateness of typical 2/20 management fee or incentive structure

Private debt

Private debt vehicle Just Transition considerations on structure andterms include:• Structural considerations to include investor regulatory requirements,
such as Solvency II regulation on capital allocation requirement,
and the benefit of ratings• Target cashflow profile

Infrastructure

Infrastructure vehicle investor considerations on structure and terms include:• E xtended tenor, depending on the phase of the project (development,
construction, operation)

Real estate

Real estate vehicle investor considerations on structure and terms include:• E xtended tenor, depending on the phase of the project (development,
construction, operation)• Consider open-end and listed structures for operating assets

Fixed income

Bond vehicle investor considerations on structure and terms include:• Structure and legal form that allows for daily liquidity• Target average rating

5 GovernancePrinciple 5.1
The governance structure holds the vehicle
accountable to its Just Transition ambition
and the Just Transition Elements
Key question: How do relevant governancebodies of the vehicle’s structure adhere to Just
Transition Elements with transparency andaccountability?
The governance structure of the vehicle enables
the vehicle to adhere to the Just Transition
Elements. Considerations of the Just Transition

Elements are reflected across the relevant vehicle
bodies (the board, investment committee, advisorycommittee or other applicable formalised bodiesof the vehicle), grounded in the policies that govern
each body.
The vehicle’s governance strives to be transparent
across all levels, holding all bodies accountable
for adherence to and application of all three Just
Transition Elements across investments andactions. Transparency and accountability aresought internally and also with respect to the wider
public. Information about the composition of avehicle’s governance bodies is publicly available.

Additional asset class specific considerations
Asset class vehicles

Specific considerations

Private equity• O ften in private equity vehicles, control and decision making are
centralised with the manager. In a Just Transition vehicle, the manager is
not the single deciding voice in the governance bodies

Private debt

Universal; no additional specificity

Infrastructure• Effective governance structures and policies are particularly important as
infrastructure projects are often linked to local government entities• The vehicle ensures that the governance set-up includes active communityand stakeholder engagement (which, traditionally, is built into the planning
process for infrastructure investments), ensuring community relevance andsupport as well as feedback and local recommendations

102

Real estate• The vehicle ensures that the governance set-up includes active communityand stakeholder engagement (which, traditionally, is built into the planning
process for real estate investments), ensuring community relevance andsupport as well as feedback and local recommendations

Fixed income

Universal; no additional specificity

How do we mobilise capital at scale towards the SDGs now?

Principle 5.2

The vehicle's governance structure demonstrates
how different voices, and particularly the voices ofcommunities, are represented and incorporated
throughout the vehicle's life.

incorporated. For global or multi-regional vehicles,
such representation may mean participationof a relevant NGO, or community expert, able
to contribute credible community voice andperspective to the governance table, without
expecting such representation to speak for every
community the vehicle’s capital may reach. In sucha case, the selection of a representative voice willcontribute a relevant perspective but cannot be
expected to represent all relevant communities
targeted by the vehicle.

Across the governance bodies (board, investmentcommittee, advisory committee or others)
representation of at least one community member
from among the communities the fund is targetingor a person representing such communities is

The governance structure invites intentional
dialogue across stakeholders, including investors
as well as local stakeholders and communities; thisinteraction sparks informed feedback and dialogue
throughout the life of the vehicle.

The governance structure enables broad
stakeholder voice
Key question: How does the governance setup enable broad participation and inclusion of
relevant voices?

Additional asset class specific considerations
Asset class vehicles

Specific considerations

Private equity

Universal; no additional specificity

Private debt

Universal; no additional specificity

Infrastructure• Infrastructure projects are typically grounded in local communities.
Vehicles therefore put particular emphasis on community engagement andthe representation of a community voice within the vehicle’s governancebodiesReal estate• Real estate projects, in particular residential housing, are typicallygrounded in local communities. Vehicles therefore put particular emphasison community engagement and the representation of a community andneighbourhood voice within the vehicle’s governance bodies

Fixed income• Bond vehicles are mostly global or regional in nature. Therefore, theselection of a representative voice will contribute a relevant perspective but
cannot be expected to represent all relevant communities targeted by thevehicle6 Operations
Principle 6.1
The vehicle or manager staff are capable andincentivised to implement and execute theJust Transition ambition
Key question: How do the vehicle’s investment
professionals and back-office professionals
demonstrate the necessary training and expertise
to incorporate a Just Transition into theirrespective work? How does the vehicle’s staff
performance review and incentivisation scheme
account for Just Transition targets as well as
financial targets?
A vehicle ensures that it provides training
for relevant staff. This includes investment
professionals but also others, including
Just Transition outcomes specialists or risk
management specialists, so that, together, they
have the necessary training to ensure the delivery
of a Just Transition strategy, from pipeline building
to due diligence and monitoring. This may mean
greater diversity of management teams, reflecting
not only investment expertise but also local market

knowledge as well as socio-economic analysis andexpertise.
Staff performance reviews and bonus or incentive
schemes include not only financial performance
metrics but also performance metrics tied to thedelivery of Just Transition targets. Application ofsuch schemes can apply in vehicles across all
asset classes.
Additional asset class specific considerations
Universal; no additional specificity.

Principle 6.2
The Just Transition strategy isoperationalised during the investment
horizon and beyond
Key question: How does the vehicle integrate aJust Transition across its investment horizon andbeyond?
An investment vehicle includes Just Transition
considerations across its whole investment
lifecycle, from sourcing to investment to monitoring,seeking to take a long-term view that extends evenbeyond the vehicle’s actual investment life.
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Mobilising institutional capital towards the SDGs and a Just Transition• Investments and portfolio construction: Just
Transition considerations form an integral partof strategic portfolio construction parameters,
investment assessment, decision parameters,
expressed clearly and consistently• Monitoring: Just Transition considerations andtargets inform investee-level engagement for
improvement and potentially trigger divestment
decisions

Additional asset class specific considerations
Asset class vehicles

Specific considerations

Private equity• The vehicle pursues active Just Transition investee engagement in its roleas shareholder, including the use of shareholder vote, particularly in thecase of significant minority or majority holdings• The vehicle considers successive ownership and continuity of Just
Transition objectives in the event of its exit

Private debt

• The vehicle considers active Just Transition investee engagement, suchas through relevant and specific borrower undertakings (e.g., to increase
services to underserved communities or decrease emissions footprint)

Infrastructure• The vehicle pursues active Just Transition investee engagement(depending on investment instrument via shareholder vote or undertakings)• In the case of equity investments, the vehicle considers successive
ownership and continuity of Just Transition objectives in the event of its exit
and/or as a project moves into the next phase

Real estate• T he vehicle pursues active Just Transition investee engagement(depending on investment instrument via shareholder vote or undertakings)• In the case of equity investments, the vehicle considers successive
ownership and continuity of Just Transition objectives in the event of its exit
and/or as a development moves into operations

Fixed income• The vehicle scrutinises use of proceeds in terms of Just Transition
objectives not only at the time of disbursement but over the life of thevehicle with a particular focus on the end of the vehicle’s life

Principle 6.3
Just Transition considerations are integrated
across policies and procedures

procedures. These could include:

Key question: How are the vehicle’s Just
Transition ambitions and targets reflected acrossrelevant policies and procedures?

• Risk management policy

To ensure a successful execution of the Just
Transition strategy, Just Transition considerations
not only feature in a vehicle’s ambition and strategy,
but are also integrated across relevant policies and• Conflict of interest policy• Investment policy• ESG policy• Investment committee and board policies
Additional asset class specific considerations
Universal; no additional specificity.

3.4 Just Transition investment vehicles
by asset class
3.4.1 Overview
As discussed under Section 2.3.4 above, certain
prioritised asset classes are considered to be key
funding routes for accelerating and expanding
institutional investor participation in Just Transition
investments in emerging markets. To show how
solutions might be delivered, this Section profiles
a number of investment vehicles by asset classwhich, while not labelled explicitly as Just Transition

104

vehicles, demonstrate adherence with several or, insome cases, most of the underlying Principles of the
proposed integrated Just Transition Elements. The
referenced vehicles span strategies from climate-firstto social-first, demonstrating the wide application andrelevance of the Just Transition Elements.
A summary of these case studies and further
relevant examples are given in the table below.

How do we mobilise capital at scale towards the SDGs now?

Summary overview of case studies and examples per asset class
Asset class hierarchy

Private debt

Alternatives

Private equity

Private equity(Note: Forestry
included herein,
however, often
included in real
assets depending
on investor
allocation buckets)

Private debt

Real assets

Case study

ExamplesPrivate equity
fund (direct)

LeapFrog: Emerging
Consumer Fund III• DPI: African Development Partners III• N ew Forests: Tropical Asia Forest
Fund• TPG: Rise Fund II

Fund of funds• A llianzGI: AfricaGrow Fund

N/A• Credit Suisse: Climate Innovation
Fund
Private debt
fund

Ninety One: Africa
Credit Opportunities
Fund 2
responsAbility:
Access to Clean Power
Fund

Infrastructure

Fixed income

VehicleInfrastructure
fundActis: Energy Fund 4• FMO/NNIP: Emerging Markets
Loans Fund
• B lueOrchard: InsuResilience
Investment Fund• Triodos IM: Triodos MicrofinanceFund• Ninety One: Emerging Africa
Infrastructure Fund• Africa Finance Corporation:
Infrastructure Climate Resilient Fund

Real estate

Bonds

Real estate
fund

IHS: IHS Fund II SA

Bond fund

BlueOrchard:
Schroder International
Selection FundBlueOrchard Emerging
Markets Climate Bondfund (CBF)• D ivercity: Urban Property Fund• S chroders: Schroder Capital UK
Real Estate Impact Fund

Reasons for case study selection: Alongside theirclose alignment with the Just Transition Elements
and Principles, all case studies are notable for theirability to combine compelling environmental or social
outcomes with strong institutional investor interest.
They demonstrate how a vehicle can undertake
modest adjustments in order to be fully aligned with
the Just Transition Elements and Principles and alsooffer inspiration for the development of new vehicles.
To aid further development and improvement ofinvestment vehicles, this report includes a few
questions for each case study, suggesting selectareas of potential vehicle enhancements that could
lead to further traction and more explicit Just
Transition alignment. To be clear, these questions do
not strive to be exhaustive; rather they are offered asfood for thought and encouragement with a view toseeding future Just Transition vehicles.
Further examples: In addition to the detailed
case studies, we have highlighted other examples
across the priority asset classes to:• Show the variety, breadth and depth of themarket opportunity of investment vehicles for
institutional investors• A mundi/IFC: Amundi Planet
Emerging Green One• IFC: Masala bond programme(Note: Alternative structure)and social objectives, some of which sit at thecore of what the Just Transition approach is trying
to achieve (for example the InsuResilience Fund’s
climate adaptation and community strategy)• Present further examples that have historicallyfocused singularly on environment or social aspects
but where the strategy could be expanded in a
future fund to bridge the divide and achieve Just
Transition relevance• These latter examples are cited to provide a tangible
starting point for how asset managers and asset
owners can expand their current efforts in responseto the Just Transition imperative. An example fora possible expansion is the area of microfinancefunds, where a distinct integration of climate relevant
investment parameters could make many of the
microfinance vehicles Just Transition relevant
Similar to the treatment of the case studies, thisreport sets out questions suggesting areas ofpotential strengthening of the respective vehicle
towards a more robust Just Transition alignment.

• Highlight a range of managers, from traditional
managers to impact managers, and partnerships
between them which are bringing moreinvestment propositions to market; and/or

All case studies and examples are provided
for information and illustrative purposes onlyand should not be interpreted or construed
as solicitation, endorsement or investment
recommendation. Further, this report takes
no responsibility for the accuracy of any
information and figures presented.

• Present several Just Transition relevant investment
strategies in the market across a variety of climate

It is important to keep an open and creative mind on
the application of the Just Transition Elements to a105

Mobilising institutional capital towards the SDGs and a Just Transition

broad and expansive range of investment strategies.
This expansive approach is needed to scale a Just
Transition across geographies and ensure thatinvestment opportunities meet local needs. An
understanding of the sectoral impact of climatechange and social action, and of their place-based
relevance, is important. As discussed in Section
1.4.2, there are different ways to achieve climaterelevant investment vehicles, spanning climate
mitigation investments, climate sequestration
investments and also climate adaptation
investments. Similarly, socio-economic impact
can be achieved in different ways, for example, by
targeting decent jobs or access to and affordabilityof products and services for underserved population
segments or community development, to name justa few. New technologies for climate solutions as well
as digitisation to enhance delivery of basic goods
and services are also critically important trends towhich Just Transition can add meaningful results.

3.4.2 Private equity vehicles
3.4.2.1 Private equity vehicle:
Application of the blueprint toa case study and supporting
examples198

ND-Gain Matrix Country
Index: https://gain.nd.edu/
our-work/country-index/

199

UNCTAD (2017): "LDC The least developed countries report 2017: Facts andFigures"

There are many private equity funds targeting
emerging markets with integrated ESG
considerations or impact targets. While there
are no private equity funds in emerging markets
labelled ‘Just Transition’ yet, there are many funds
whose strategy is grounded in achieving climate
and/or social change, and even some that look
to incorporate community engagement into theirinvestment strategy and processes. Shown below
are selected funds that are relevant to many aspects
of Just Transition and which, with some targetedchanges, could meet each of the integrated Just
Transition Elements.
A noteworthy example of an institutional-grade impact
private equity fund that covers some of the Just
Transition Elements across its fund dimensions is
LeapFrog’s Emerging Consumer Fund III. The fundshows how significant social impact, targeting thoseliving on less than $10 a day with affordable and quality
products, can effectively be scaled and combinedwith substantial institutional investor participation. The$743-million fund is LeapFrog’s third fund and includes
over 50 limited partners across institutional investor
types, DFIs and MDBs and foundations. LeapFrog
has managed to scale from an originally niche impact
manager with a 2009 first fund at $135 million into an
institutional-grade manager, setting up a diversified
emerging markets fund, delivering strong social impact
without the need for blending support. LeapFrog
further managed to secure a large commitment fromSingapore-based investment company Temasek (seeSection 2.4.1.6 for more details), for ongoing support
for the manager and future funds.
The fund is evolving an approach that ensures
improved financial inclusion facilitates a transition
to clean technologies likes electric vehicles, smart
homes, and improved business processes. This
includes enhancing existing ESG reporting with
Climate and Environmental Action targets, a significant
step as many developing countries fall into the higher
climate change risk categories when looking at thevulnerability index (see section 1.3.1.3),198 while theleast developed countries of the world account forless than 1% of worldwide GHG emissions.199

Private equity: Market and trends
According to Deloitte, global private equity assets undermanagement (AUM) have grown by around 3x since 2009, fromunder $1.5 trillion to $4.5 trillion in 2019, driven by increasing
demand from institutional investors due to the expectationof high returns and low correlation, leading to better overall
portfolio diversification. While fundraising declined in 2020,
driven by the Covid-19 pandemic and a certain ‘lumpiness’in fundraising due to the closing of large mega-funds, as
highlighted by McKinsey, market experts expect private equity tocontinue to grow strongly: Deloitte expects global AUM to reach$5.8 trillion by 2025 and Preqin predicts an even steeper boomin the coming years leading to AUM of $9 trillion by 2025.

Emerging markets private equity AUM were estimated toaccount for about one-fifth of the global private equity market
in 2016, according to Financier Worldwide. Asia has controlled
the vast majority of private equity fundraising for emerging
markets in the last 10 years. Africa only plays a small role, withthe total value of private equity deals in Africa totalling $3.8 billion
in 2019, as per the African Private Equity and Venture Capital
Association's (AVCA) data tracker.

Funds of funds (FoFs) are a small sub-segment of the overall
private equity market, amounting to just $80 billion in 2016. They
have fallen out of favour given, amongst other reasons, investor
concerns about the double fee layers and increased institutional
investor sophistication. FoF managers have responded to thechallenges by an increase in consolidation activity, a generaldecrease of fees, or the use of alternative structures (e.g.,
separate accounts, co-investments or secondaries vehicles) andthe exploration of market niches, as noted by Preqin.

In Africa, DFIs and MDBs are the largest private equity investor
group, playing an important role as they provide funding, mobilise
private capital, provide capacity support and advocate forregulatory changes. Many international institutional investors havebeen wary of the continent in recent years. While the continent
has not yet recovered from the economic decline beginning in2015 with the commodity cycle downturn (GPCA), a change ininvestor sentiment seems to be emerging. A 2020 private equity
survey conducted by AVCA found that a broad cross-sectionof investors across type, size and location are positive on thecontinent and have shown a growing appetite for private equity in
Africa, with 86% of surveyed investors planning to increase theirprivate equity allocation in Africa over the next three years.

Source: Deloitte (2020): “The growing private equity market”; McKinsey (2021):“A year of disruption in the private markets”; Preqin (2021): “Future of Alternatives
2025: Private Equity AUM Will Top $9tn in 2025”; Preqin (2017): “Preqin special report:
private equity funds of funds”; Financier Worldwide (2017): “Emerging market private
equity assets surpass $500bn”; https://www.financierworldwide.com/emerging-mar-ket-private-equity-assets-surpass-500bn#.YRULhYgzZPY; AVCA (2021): “Annual African Private Equity Data Tracker”; GPCA (2020): “Africa Data Insight (Year-End 2019)”;https://www.globalprivatecapital.org/research/africa-data-insight-year-end-2019/;
AVCA (2021): “African private equity industry survey”; https://www.avca-africa.org/
research-publications/data-reports/african-private-equity-industry-survey-2021/

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CASE
STUDY

LeapFrog Investments: LeapFrog Emerging Consumer Fund III, LP

Overview
Ambition(including linkage to Just Transition)

Statement: LeapFrog aims to achieve ‘Profit with
Purpose’, combining outstanding financial returns
and outsized impact

Manager• Climate and Environmental Action: Drive adoptionof clean technologies through financial inclusion withenhanced ESG reporting

The manager operates from 8 offices with 70+ professionals.

•S ocio-economic Distribution and Equity: LeapFrog
helps deliver underserved consumers with access to thespringboards and safety nets that provide the opportunityand pathway out of poverty, focusing on essential
products and services in financial services and healthcare• Community Voice: LeapFrog supports customer-centricbusinesses that design products/services around theessential needs of emerging consumers

Description of Fund
The LeapFrog Emerging Consumer Fund III, LP (2017) is a$743 million fund offering exposure to high quality financial
services and healthcare businesses across Asia and Africa.
The fund aims to invest in businesses that provide quality,
relevant and affordable products to the two billion (andrising) underserved emerging consumers, living on less than
$10 a day.

LeapFrog Investments was founded in 2007 and has raised$2 billion across its funds.
LeapFrog’s investee companies now reach 227 million people
across 35 countries with healthcare or financial services.
They have also grown at 25% annually, on average, from thetime of investment.

Investors
Investors
The fund is backed by 50 limited partners (LPs) including
insurers (including Prudential Financial and AIG), otherinstitutional investors (including Morgan Stanley andNuveen), DFI/MDBs (including CDC, IFC and EIB) and manyfoundations/endowments (including Ford Foundation andRockefeller Foundation).
Key attraction points for institutional investors• Market rate returns and track record; combined with
• Strong social impact

By June 2021, the fund had reached 93 million people after
four years, surpassing the 70 million target for the full life of
the fund.

Key Terms
Fund LEVELINVESTEE LEVEL (investment strategy)• Vehicle / fund type: Close-end private equity fund• I nstrument(s): Equity•F und size: $743 million (original target of $600 million)• Target investee type(s): Growth stage companies inemerging markets•B lending and/or TA: No blending, some initiatives withportfolio companies are funded by technical assistancegrants• Target sector(s): Financial services and healthcare• Target geographies: Africa and emerging Asia•S ponsor/anchor: None• I nvestment tenor: 3-7 years•T erm/investment period: 10 years / 5 years• Average ticket size: $20-75 million• Target return: Confidential, hurdle rate 8%• I nvestment currency: Local currency or USD• M anagement fee/incentive fee: 2%• V intage (first close): 2017
• Co-investment rights: Yes

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Mobilising institutional capital towards the SDGs and a Just Transition

CASE
STUDY

LeapFrog Investments: LeapFrog Emerging Consumer Fund III, LP

Pipeline and portfolio
Market Opportunity
The Problem
By 2030, there will be 4 billion emerging consumers withsmall and irregular income flows, making it difficult to save
to withstand adverse events. Even families with savings
may fall back into poverty after an income-earner diesor a productive asset is lost. At the same time, these
consumers are seeking springboards out of poverty
through access to financial services like business loans
and housing finance.

The Opportunity
LeapFrog invests in innovative companies that seek to breakthis cycle by offering affordable, relevant and high-quality
products, often through new technology distribution channels.
When these purpose-driven businesses are able to attract
high quality staff, are customer-centred and have better
relationships with key stakeholder networks, they exhibit
lower levels of risk and greater growth potential creating bothoutsized impact and returns. This is the essence of the ‘Profit
with Purpose’ strategy.

ALLOCATION

Allocation - Geography

Allocation - Sector
Healthcare

21%

AfricaAsia

Financial Services

26%

Digital Financial
Services

38%

79%
36%

Just Transition in the Investment Process• LeapFrog operates solely in emerging markets and only
sources investment opportunities that clearly support
low-incomes consumers, resilient communities and strong
ESG principles• ESG and impact due diligence are conducted prior toinvestment, and are critical to Investment Committee
approval. This includes ESG scoring, analysis of emerging
consumer reach, articulation of clear theory of change andsupport for SDG goals

Structure and risks
LEGAL STRUCTURE

KEY RISKS

Investors

Key Risks

Mitigant(s)Geographic

Strong technical depth in healthcare
and financial services drives focus onresilient, high-growth businesses

Currency

Portfolio diversified across Africa andemerging Asia

Political

Investments supported by multiple
regional offices and in-country experts

LPs

LeapFrog Emerging
Consumer Fund III

Management

Businesses

LeapFrog
Investments

Jurisdiction: Mauritius
Legal form: Limited partnership
Capital structure: Partnership interests
Continued on next page108

How do we mobilise capital at scale towards the SDGs now?

Outcomes framework
Climate and social metrics

Framework and reporting

Examples include:

LeapFrog has a proprietary impact measurement framework:
Financial Performance, Impact, Innovation, Risk Management(FIIRM).

•C limate and Environmental Action: Exclusion list applies•S ocio-economic Distribution and Equity: People
reached (including low-income populations), quality of
products, affordability for low-income consumers andrelevance to meeting the customer need, job creation andgender equality metrics. In addition, sector-specific metrics(financial services and healthcare)• Community Voice: Customer experience and satisfaction
using renewal ratios, repeat clients and direct customer
interviews, adapted for each sector• Reporting standard: informed by the IMP; aligned to the
Operating Principles for Impact Management• Transparency: Details about the FIIRM and impact results
are available on the LeapFrog website• Third-party verification: Yes; audit of the impact against
the Operating Principles for Impact Management

Select areas of Just Transition enhancement• Is there an opportunity to further the current climate
and environmental linkage of the fund, from both within
the energy investments and across sectors, and build
other climate and environmental action aspects into thefund strategy that could be included in the metrics?
• Could the fund expand its ambition statement to include
targets for all three Elements of the Just Transition?

Investee in the spotlight
Investing in CarDekho

Background
For many millions of emerging consumers, mobility is the
key that unlocks opportunity – it dramatically increases
school enrolments, improves access to healthcare, broadens
employment opportunities, and is a major source of direct
employment for many emerging consumers. In a recent study,
50% of women in Chennai, India, reported being sexuallyharassed whilst travelling on public transport.In Bangladesh
the number is as high as 84%.
CarDekho is a leading auto-tech and mobility financing
company in India, operating auto sales, classifieds, finance, andinsurance businesses. It serves 3.6 million emerging consumers,and ~86% of Indian purchasers will visit the platform before
buying a vehicle. These low-income consumers are dramaticallyunderserved. For instance, used car loan penetration is ~17%
in India, compared to developed markets where penetrationis ~75%. CarDekho not only improves access to vehicle
insurance and finance, but also has made a concerted effort toimprove the quality of vehicles sold on its platform. It provides
documentation on each vehicle that validates ownership andaccident history, as well as promotes new and affordable electricvehicles (EVs), like those produced by Mumbai-based startup
Strom Motors and existing manufacturers like Tata, some ofwhich retail for as little as $6,000. CarDekho will be an important
platform in enabling India’s transition to EVs. In Q1 FY22, there
were more than 3m searches for EVs on CarDekho’s sites.

Investment
LeapFrog led a $250 million capital raising round in
October 2021.*

ImpactLeapFrog believes that balancing access to mobility withimprovements in transport safety and environmental impact
is key to delivering an overall improved quality of life to
emerging consumers.
Climate and Environmental Action: LeapFrog will workwith CarDekho on environmental programmes across its
platform, and to track and target key impact data, as well as
help catalyse an upgrade of existing vehicle fleets to EVs.
Socio-economic Distribution and Equity: LeapFrog’s
customer experience (CX) experts plan to support CarDekho
to grow across low-income consumers seeking access totheir first vehicle or to upgrade their existing vehicle. For
instance, CarDekho has the opportunity to expand used
vehicle finance products, which offer low-income consumers
access to more affordable vehicles, but which banks
typically eschew. LeapFrog will support efforts by CarDekho
to enhance diversity and inclusion.
Community Voice: Customer experience and satisfaction
using renewal ratios, repeat clients and direct customer
interviews.

Sources: Thynell, Marie (2017): "Roads to Equal Access: The Role ofTransport in Transforming Mobility." Transport and Communications
Bulletin for Asia and the Pacific No 87; Dipu, Tahmina Akter and Nasratul
Ferdous (2019): "A study of Women Harassment in public transports in
Bangladesh." International Journal of Science and Business Vol 3(6).

* This deal is subject to closing in accordance with the transaction terms.

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Mobilising institutional capital towards the SDGs and a Just Transition

In addition, to LeapFrog’s fund, there are otherprivate equity funds attracting institutional investor
interest and meeting at least some of the Just
Transition Elements.
One example is the African Development
Partners III Fund (ADP III), managed by
Development Partners International (DPI), a
commercial manager with deep African roots. DPI
is a commercially-driven manager targeting market
returns, while applying a strong ESG lens to its
investments at the same time.
The $900-million diversified pan-African fund,structured as a typical private equity fund,managed to reach scale and attract significant DFI
but also institutional investor participation, includingfrom a wide range of investors including leading
pension and sovereign funds, endowments andfoundations, insurance providers, asset managers,
impact investors and family offices. ADP III was
the first African fund signatory to the Operating
Principles for Impact Management, an international
market standard for impact investing and the firstto be granted 2x Flagship Fund status, as part ofthe 2x Challenge, a gender-lens initiative.

ADP III targets equity investments in growing
mid-sized companies that are led by women,
have significant female staff or target them asconsumers, across a range of high-growth sectors
serving the continent’s burgeoning middle class.
Beyond its gender focus, the fund expects tocontribute to the development of the region throughjob creation and the broad fostering of regional
economic integration.
Another example of a relevant private equity fundis New Forests’ Tropical Asia Forest Fund
(TAFF), managed by New Forests, a sustainable
real assets investment manager offering interesting
strategies in forestry, land management andconservation.
New Forests has historically focused on developed
markets, targeting the US, Australia and New
Zealand in particular, with significant institutional
investor interest. TAFF was their first venture into
emerging markets, building on their experienceand expertise built in prior funds. TAFF pursues
deeply relevant Climate and Environmental Action
objectives investing in forests and advancing
climate sequestration in Asia. At the same time,

EXAMPLE

Development Partners International: African Development Partners III Fund
Fund overview
The African Development Partners III Fund (ADP III),advised by DPI, is a $900-million African private equity fundwhich recently announced its close in October 2021. ADP
III will invest in Africa’s medium- to large-cap, established,profitable and growth-oriented businesses, operating inindustries benefitting from the continent’s fast-growing
middle class and the increasing digital transformation of thecontinent. ADP III was the first African fund to be granted 2x
Flagship Fund status, as part of the 2X Challenge, a genderlens initiative.

Structure
Closed-end private equity fund.

ManagerDevelopment Partners International (DPI) is an African
investment firm, headquartered in London, and has over
40 members of staff. DPI has over $2.8 billion of AUM
including co-investment. They have invested in 23 portfolio
companies operating across 29 countries.

Investors
ADP III has secured commitments from a wide range ofinvestors including leading pension and sovereign funds,
endowment and foundations, insurance, asset managers,
impact investors, family offices and development institutions.

Outcomes
DPI pursues three main SDGs: Gender (SDG 5), Job Quality(SDG 8) and Climate Change (SDG 13). They leverage their
dedicated in-house ESG and impact team to implement

110

their impact framework, which was informed by the IFC
Operating Principles for Impact Management, the UN
Guiding Principles on Business and Human Rights, the IFC
Performance Standards, the 2X Challenge, the Task Forceon Climate-related Disclosures (TFCD), the SMART Principles
for Customer Protection and the UN-supported PRI.
From a climate perspective, DPI aims to move towards clean
and affordable energy and improve energy, water, waste andwastewater efficiency. From a socio-economic perspective,
DPI focuses on improved job quality, including living wages,
benefits, wealth building opportunities, and feedback
forums for employees to provide input to management.
A further focus is gender, aiming to restructure and prioritise
female ownership, founders, board members, women in theworkforce and products that meet women’s needs.
The results gathered through the measurement process
are verified and disclosed to key stakeholders, including
investors. And, along with the ESG performance, impact
is reported annually to investors.

Just Transition enhancement opportunities• Is there an opportunity to add a clear climate and socioeconomic ambition including targets and allocation
expectations?
• Could the fund include in their assessment and potentiallyprioritise investees based on their demonstrated
community engagement?

Source: DPI website; manager information

How do we mobilise capital at scale towards the SDGs now?

EXAMPLENew Forests: Tropical Asia Forest Fund
Fund overview

Investors

New Forests’ Tropical Asia Forest Fund (TAFF) raised$170 million of capital commitments for investment into
sustainable forestry in Southeast Asia in 2013. TAFF’s
investment thesis was to invest in certified, sustainable
plantation forestry in Southeast Asia, integrating investment
in forestry, timber processing and environmental assets. New
Forests has also added value to assets through improved
forestry management, enhanced systems and processes
including governance and risk management, accessing
new timber markets, achieving forest certification, andcommunity engagement. The TAFF portfolio includes three
investment companies: Mekong Timber Plantations (MTP)in Laos, Acacia Forest Industries (AFI) in Malaysia andHutan Ketapang Industri (HKI) in Indonesia. MTP and AFI
are eucalyptus plantations supporting a variety of timber
products and HKI is a rubberwood plantation producing
latex.

TAFF has a diverse mix of investors including DFIs, pension
funds and other private investors. New Forests seeks toengage a range of investor types in emerging markets'sustainable forestry investment to scale the asset class anddeliver positive ESG outcomes.

To build off TAFF’s track record, further scale positiveenvironmental and social outcomes, and meet investor
demands, New Forests is launching TAFF 2 in the near term.
The company’s second Southeast Asian fund will have a
blended finance structure to attract a range of investors andcreate a financial structure that will enhance the capacityof the fund to invest in impact activities related to climatechange mitigation and biodiversity enhancement, and tosupport communities and livelihoods. Through responsible
active management and innovative investment products,
New Forests aims to support the growth of Southeast Asia’s
sustainable forest sector.

Outcomes
TAFF reports its impacts via New Forests’ Sustainable
Landscape Investment (SLI) framework, which includes
approximately 80 metrics across six material ESG themes.
The core SDGs pursued are 8 (Decent Work and Economic
Growth), 12 (Responsible Consumption and Production),
13 (Climate Action) and 15 (Life on Land).
Key performance indicators (KPIs) measured include:• SDG 8: Net hires, female employees (%); lowest wage paid
to a direct employee; the number of smallholders as thecompany works to develop sustainable programmes• SDG 12: Certifications acquired by the investee companies
to encourage responsible business practices; certified
timber harvest volume (or in the case of HKI, rubber
volume) to support a circular bioeconomy• SDG 13: Forest carbon – productive area carbon storage(CO2 equivalent); annual change in forest carbon• SDG 15: Conservation and protected area; rare, threatened
and endangered species; restoration area

Select areas of potential Just Transition
enhancement• Could the fund’s ambition set clear targets for all three Just
Transition Elements?

Structure
Standard closed-end 10-year private equity fund with oneclass of shares.

Manager
New Forests is a global investment manager in sustainable
forestry and related sectors, with $5.7 billion in assets undermanagement across over one million hectares (2.6 million
acres) of investments. New Forests is a Certified B Corp andoperates in Australia, New Zealand, Southeast Asia and theUnited States.

• Could the fund be clearer on the involvement ofcommunities in the execution of the strategy and reporton community engagement as part of its overall outcomes
reporting?

Source: New Forests website; New Forests (2013): New Forests Announces
Final Close of the Tropical Asia Forest Fund with $170 million of Capital Commitments and Completes Fund’s First Transaction; manager information

it aims to deliver on Socio-economic Distribution
and Equity and Community Voice by creating value
for stakeholders, including communities following
its "sustainable landscape investment framework".
This provides a mechanism for navigating climatechange, diversity loss and resource scarcity while
promoting social inclusion, equality and sustainable
development.
The fund managed to raise $170 million incommitments from DFIs, pension funds and otherprivate investors. For its follow-on fund, TAFF 2, New
Forests is considering the introduction of blending
elements into the structure to deepen its impact
delivery across environmental and social objectives
and to mobilise additional institutional capital.

TPG’s Rise Fund II is another interesting
example, given its scale and institutional investor
participation. At time of closing, it was the largest
impact private equity fund in the market, driven
by a mainstream manager who had first entered
the space with its first Rise Fund. TGP Rise II
shows how a structurally straightforward impact
fund can attract substantial institutional money
if managed by a tenured manager with strong
ties to institutional investors. While TPG’s teammarketed their first Rise fund with a combinationof TPG’s track record and the individual teammembers’ experience in impact investing,
Rise II was able to rely on the success of thefirst Rise Fund.
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Mobilising institutional capital towards the SDGs and a Just Transition

EXAMPLETPG Rise: The Rise Fund II
Fund overview

Outcomes

TPG’s The Rise Fund II is a global $2.2-billion private
equity fund offering exposure to high potential, mission
driven companies across sectors, including education,
financial inclusion, food and agriculture, healthcare, impact
services, and climate and conservation. The fund invests ingrowth-stage companies with strong financial return potential
while also driving measurable social and environmental
impact. As of 30 September 2021, the fund had made 16
investments.

The Rise Funds assess impact in partnership with Y
Analytics, using independent research and evidence toquantify the social and environmental value of business
output. In partnership with Y Analytics and BridgespanSocial Impact, The Rise Funds created a methodology andresulting metric to assess potential impact before money iscommitted: the Impact Multiple of Money (IMM). Calculating
the IMM allows direct comparisons between investment
opportunities to evaluate their potential impact.

Structure

On metrics, as a diversified fund, The Rise Fund II measures
many sector-based metrics. For example, for climate thecore metric is estimated tonnes of CO2 emissions averted.
Social metrics include, depending on the sector, students
educated, life-saving healthcare supplies delivered,smallholder farms served or low-income individuals withaccess to financial services.

Standard closed-end GP/LP structure, 10+2-year private
equity fund.

Manager
Headquartered in San Francisco and leveraging a global
team, the first Rise Fund was launched in 2016 by TPG in
partnership with Bono and Jeff Skoll to invest in businesses
whose products and services help achieve the SDGs.
As part of TPG, The Rise Funds benefit from investment
resources, business-building capabilities and a global
network to help their portfolio companies accelerate growthand impact. Since inception, The Rise Funds have fundedover 50 companies with a footprint of over 45 countries, andincreased AUM to $12 billion across TPG’s impact investing
platform, which also includes Evercare and TPG Rise Climate(as of September 2021). There are 500+ investment andbusiness building professionals across TPG, and TPG’s Rise
platform has a dedicated team of over 35 individuals.

Select areas of potential Just Transition
enhancement• Is there an opportunity for the fund to include clear climate
and social targets, including prioritisation of deals that
integrate both environmental and social objectives?
• Could the fund introduce Community Voice as part of its
impact framework?

Investors
The fund is backed by multiple investors, 70% of which are
institutional in nature, with the other 30% being high-networth individuals (HNWIs).

Source: The Rise Fund website; manager information

3.4.2.2 Fund of funds
Funds of funds (FoF), where an investment vehicle
is created to invest in multiple other vehicles, havefallen out of favour with many investors in recent
years primarily due to investor concerns about
double layers of fees. It is time for FoF approaches
to be revisited for several reasons:•F ees resolution: An increasing number of FoF
managers are seeking to address the double fee
issue by minimising their fees, aiming to reduce
the fee differential with direct private equity funds•F ragmentation solution: As most emerging
markets are highly fragmented and direct funds
are predominantly of limited size, an efficient
aggregation structure provides institutional
investors with size and scale of investment
opportunity112•D iversification benefit: An FoF structure
provides broad diversification. Depending on
the strategy, diversification can be delivered
across regions or jurisdictions, sectors and/or
the number of underlying investee companies
and company types, thereby addressing
some institutional investor risk concerns about
investments in developing countries andsmaller scale businesses. De-risking throughdiversification, an FoF can provide investors
with an entry point that builds on the trackrecord and capabilities of a range of managers,
allowing the investor to gain exposure and build
expertise. This is particularly relevant for wealthmanagement clients, including HNWIs and single
and multi-family offices, which may not havethe institutional scale to develop capabilities
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200

Agri Investor (2021):"Credit Suisse climate fundsurpasses $250m target toclose on $318m"; https://www.agriinvestor.com/
credit-suisse-climate-fundsurpasses-250m-target-toclose-on-318m•M anager access: An FoF approach allows
institutional investors access to more specialised
managers and/or local managers and theirexpertise and networks, which might be outof reach if they were to try to invest in suchmanagers directly. From a local market building
perspective, FoFs may, at times, allow earlierstage local fund managers to access institutional
capital. There are some aggregation platforms
that have the ability to deploy institutional
money into the building of local manager
infrastructure, responding to the recognised needto build a healthy and sustainable local market
infrastructure across emerging markets• M arket influence: A Just Transition-focused FoF
approach may significantly influence managers
around the world, fostering the implementation of

Just Transition strategies, providing a cascading
effect to the overall intermediary market andstimulating greater choice of opportunity forinvestors
One example of a notable FoF with an African
focus is Allianz Global Investors’ AfricaGrow
Fund. The fund has strong social relevance as it
intends to invest in diversified funds with the aim ofdeveloping the local financial ecosystem, financing
SMEs and furthering job creation.
The fund benefits from a 50% subordinatedfirst-loss equity tranche provided by the German
Federal Ministry of Economic Cooperation andDevelopment (BMZ), enabling the fund to invest
in local emerging fund managers, driving theimportant domestic finance ecosystem.

EXAMPLE

Allianz Global Investors: AfricaGrow Fund
Fund overview
AllianzGI’s AfricaGrow Fund is a €200-million
fund offering exposure to venture capital andgrowth equity funds that are domiciled and active
in Africa and have a strong track record. The
fund is sector-diversified, including education,
healthcare, mobility, e-commerce, finance, clean
energy, and technology funds across Africa.

Structure
Closed-end 15-year private equity fund of funds.
The fund has a blended structure, offering twoclasses of securities, including a €100-million
junior tranche and a €100-million senior tranche.
The subordinated capital layer enables the fundto mobilise institutional investors. It also has atechnical assistance facility in place.

Manager
Allianz Global Investors (AllianzGI) has over
€630 billion in AUM across asset classes,
investor types and markets. It has nearly 3,000
employees, including about 700 investment
professionals across 24 offices worldwide.

Investors
The fund is a partnership between public andprivate entities, with €100 million invested by
the German Federal Ministry of Economic
Cooperation and Development (BMZ), €30 million
by KfW, the German state-owned developmentbank, and €70 million by Allianz Insurance
Companies.

relevant local funds by 2030, the fund promotes
sustainable economic and social development
across the continent. The fund is aiming to create
25,000 jobs by 2030.
The fund uses a proprietary development
assessment tool which rates the contributionof AfricaGrow’s portfolio to development
along five dimensions: 1. decent jobs; 2. local
income; 3. market and sector development; 4.
environmental stewardship; and 5. community
benefits, producing a cumulative score. This tool
is based on a theory of change methodology
mapping causal linkages from initial activitiesof AfricaGrow’s clients through their outputs
towards one or multiple targeted outcomes
and finally impacts.

Select areas of potential Just
Transition enhancement• Is there an opportunity to add a clear climaterelevant ambition, targets and strategy to thefund, including measurement of related KPIs?
• Could the fund include, beyond its general
job focus, a prioritisation of funds that havedistinct targets for underserved or marginalisedcommunities?
• Could the fund include community engagement
as an origination criterium, prioritising local
funds that can demonstrate how they engage
with their target communities, by including
Community Voice, for example, into the fund’s
design, governance or operations?

Outcomes
The fund is designed to generate measurable
positive impact on the environmental and social
conditions required to increase investment flows
to Africa. Aiming to finance up to 200 innovative
SMEs and start-ups through its investments in

Source: AfricaGrow website; manager information

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Mobilising institutional capital towards the SDGs and a Just Transition

SPOTLIGHT

Emerging Market Climate Action strategy (EMCA)

The European Investment Bank (EIB) and Allianz Global Investors (AllianzGI)
launched the Emerging Market Climate Action strategy (EMCA) at
COP26. ECMA is a public-private partnership, with the Governments ofGermany and Luxembourg, the Nordic Development Fund (NDF), AllianzGI,
Folksam and EIB being anchor investors. EMCA will invest in climate-focusedinvestment funds and projects active in emerging markets. Its focus will be on
climate mitigation, climate adaptation and access to electricity. The fund has atarget size of €500 million and is designed with a layered capital structure.
AllianzGI will act as alternative investment fund manager (AIFM) of the fund,while EIB will be the investment advisor, responsible for market analysis andthe identification and appraisal of investments. EMCA complies with the EU
taxonomy.
Source: Allianz GI (2021): "EIB and AllianzGI support climate action projects in emerging
and developing countries"

Credit Suisse’s Climate Innovation Fundis a further example of an FoF, this time with aclear climate strategy across North America,
Europe and Asia. The fund invests in climate
technology through venture capital funds,
driving innovative climate mitigation strategies
across its target regions.
The fund structure is straightforward andwas designed to cater to Credit Suisse
wealth management clients that specificallywant to use their capital to address climatechange. Launched in mid-2021, the fundwas significantly oversubscribed, raising$318 million versus an original target of $215
million,200 revealing strong investor demandfor climate-relevant products and an FoF
approach.

EXAMPLE

Credit Suisse: Climate Innovation Fund
Fund overview*
Credit Suisse raised $318 million for their Climate
Innovation Fund – a fund of funds (FoF) seeking to invest
at the intersection of venture capital and technology with the
key objective of enabling positive climate impact.
The fund targets three sectors within its overarching climate
theme: Sustainable Food and Agriculture, Sustainable
Production and Consumption, plus Sustainable Mobility and
Urbanisation. These sectors align closely with the majorityof the SDGs. Further, the fund can invest in smaller andemerging managers, recognising the importance of growing
the market of investable fund managers in a nascent sector.

Structure
Closed-end 10-year private equity FoF: the fund is structured
for simplicity, a fund term close to standard private equity
funds and limited fund costs on FoF level, while providing
diversification across regions, sectors, fund sizes andmanager track records.

Manager
Credit Suisse is a leading global wealth manager withstrong investment banking capabilities. Founded in 1856,
Credit Suisse has CHF1.5 trillion of AUM and almost 50,000
employees globally.

Investors
The fund raised capital exclusively from Credit Suisse’s
wealth management clients, including eligible individual
investors and institutional family offices. The fund wasoversubscribed and completed fundraising in four months.
Credit Suisse funded the first few deals using its balance
sheet capital to prove the concept before beginning thefundraising process.

114

growth-stage funds (primaries, secondaries) and follow-on
co-investments that are leading and enabling climate change
mitigation.
In support of its climate-centric mission, the fund’sinvestment process aims to address ‘double delta’, reporting
both on the positive impact/change a company generates
through its products and services and on the positive
impact/change an investor generates through financing or
active ownership to enhance the quality or quantity of the
impact a company is generating. In addition, the fund willreport the degree of alignment with the SDGs, providing astrong reference point for its reporting framework. Climate is
the key element of the fund and as such CO2 emissions are
the core metric.
On the social side, the Climate Innovation Fund is planning
to report on select metrics in alignment with the SDGs,
including, for example, gender aspects. The metrics arestill under consideration based on implementability andcoverage. To be clear, however, social impact is not driving
investment decisions.

Select areas of potential Just Transition
enhancement• Could the fund expressly include a Just Transitionassessment of its investee funds, going beyond climate
and including a socio-economic impact review (in addition
to the planned inclusion of social metrics)?
• Could the fund include community engagement as an
origination criterion, prioritising funds that can demonstrate
how they engage with their target communities, by
including Community Voice, for example, into the fund’s
design, governance or operations?

Outcomes

Source: Credit Suisse (2021): "Credit Suisse Climate Innovation Fund closes at
USD 318m"; manager information

The fund offers participants an opportunity to invest in adiversified portfolio of mission-driven seed, early-stage and*Please note that this is not an offer to sell the product, the fund is closed for subscription, and that the fund cannot be (and was never) offered to investors in the US.

How do we mobilise capital at scale towards the SDGs now?

3.4.3 Private debt vehiclesof this fund is its fundraising trajectory: the fundstarted as a DFI-seeded fund and managed, overtime, to attract institutional investors alongside,
showing how fundraising can develop and gain
traction by tapping different investor types atdifferent times. The earlier DFI-led investor group
allowed the fund to build track record and scale,developing an investment proposition that was thenaccessible to global institutional investors.

3.4.3.1 Private debt vehicle:
Application of the blueprint toa case study and supporting
examplesPrivate debt is a growing allocation category forinstitutional investors, as described below. There
are numerous noteworthy and sizable private debt
funds targeting emerging markets that integrate
ESG and/or impact targets. As with private equity
vehicles, there are currently no emerging markets
private debt funds positioned as Just Transition
vehicles although there are several examples offunds satisfying one or more of the Just Transition
Elements.

Ninety One has a strong ESG focus. The African
Credit Opportunities Fund 2 focuses on the social
impact of market development, particularly aroundstrengthening African capital markets, specificallythe African bond market, with the aim to increase
access, inclusion and affordability over time.
The fund also has a focus on funding essential
infrastructure, which further supports its social
impact focus.

One relevant fund that focuses on Africa and is
led by a manager with a proven track record and
ESG credentials is Ninety One’s African Credit
Opportunities Fund 2. A noteworthy aspect
Figure 3.2

Private debt: Market and trends

Emerging market private debt also grew strongly, withfundraising growing by a factor of 6.5x between 2008 and2018. But it still only accounts for a fraction of the global
market, with emerging markets private credit funds raising$9.4 billion in 2018, according to the Emerging Markets
Private Equity Association (EMPEA). However, it is receiving
increasing attention from global capital allocators. The shareof global institutional investors surveyed by the EMPEA
that plan to begin investing, or expand their investments,
in private credit in emerging markets increased from
24% in 2014 to 47% in 2018. Within emerging markets,
the predominant growth region is Asia, which is seeing
increased demand from investors as banks in its largest
economies, China and India, are constrained in meeting
additional credit growth, spurred by the Covid-19 pandemic.

The African private debt market is still nascent,especially in comparison to private equity. Private debt
accounts for only 7% of the private funds raised for
Africa in the last 10 years.

Emerging markets private credit fundraising
10

8

USD billions

The global private debt market has grown substantiallyin the last 20 years, from AUM of $42 billion in 2000 to$883 billion in 2020, according to McKinsey. Private debt
strategies have found their way into most major institutional
investors’ asset allocations due to the low-yield environment
in public markets, low default rates and the increasing
disintermediation of banking as the financial crisis provided
an opening for private debt strategies by asset managers
with the introduction of stricter regulatory obligations forfinancial institutions. As a consequence, asset managers
increased their volume of private debt assets undermanagement by about 2.5x between 2008 and 2017, as per
IFC. Preqin predicts private debt will continue to rise andexpects the market to grow to close to $1.5 trillion of AUM
by 2025.

6

4

2

0

2014

2015

2016

2017

2018

Middle East

Multi-region

CEE & CIS

AfricaLatin America

India

China

Emerging Asia (excl. China and India)

Source: McKinsey (2021): “McKinsey Global Private Markets Review
2021”; IFC (2021): “EM Compass – Private Credit in Emerging Markets”;
Preqin (2020): “Future of Alternatives: Private Debt’s Spectacular Rise Will
Continue”; https://www.preqin.com/insights/research/blogs/future-of-alternatives-2025-private-debts-spectacular-rise-will-continue; EMPEA(2019): “Private Credit Report 2019”
Figure source: EMPEA (2019): Private Credit Report 2019115

Mobilising institutional capital towards the SDGs and a Just Transition

CASE
STUDY

Ninety One: Africa Credit Opportunities Fund 2

Overview
Ambition(including linkage to Just Transition)

Statement: “Seeks to generate real USD returns

Managerwith low volatility; develop African debt capital
markets; invest in sustainable businesses withstrong ESG focus; create an alternative asset classfor African and international pension funds; support
African infrastructure development; support
financial inclusion and deepening of the financial
markets”

Founded in 1991 as Investec AM, Ninety One is based in
London and Cape Town and dual-listed on the London Stock
Exchange and the Johannesburg Stock Exchange, with$180.6 billion global AUM.

• Climate and Environmental Action: Not core focus
area of the fund; coal on exclusion list, removing upstream
oil from the investment universe• S ocio-economic Distribution and Equity: Focus onsocial impact via financial inclusion, infrastructure andtelecoms• Community Voice: N/A

Ninety One is a leading investor in African private credit since2008, with 18 previous African private credit funds.
21 offices across 14 countries (including emerging markets),with over 1,150 employees.

Investors
Investors
Allianz, South African pension funds, US endowment.
Key attraction points for institutional investors• ScaleDescription of Fund
Ninety One Africa Credit Opportunities Fund 2 (ACO 2) isa senior private credit fund investing in market dominantcompanies in African financial inclusion, infrastructure andtelecoms sectors.
Targeting development of the African Debt Capital Markets(DCM) by creating an alternative asset class, crowding in
African pension funds.

• Low correlation strategy (against US/Europe) and attractive
returns versus other credit strategies• Experienced team with deep track record• Sound ESG management system
Key challenges for institutional investors
African focused strategy; return expectations for Africa;
capacity to do due diligence in Covid-19 period.

Sound ESG management system, supporting companies
contributing to the SDGs.

Key Terms
Fund LEVELINVESTEE LEVEL (investment strategy)• Vehicle/fund type: Closed-end debt fund• I nstrument(s): Private credit and public credit, includingloans, bonds, convertibles and asset finance• Fund size: Actual $165 million, target $300 million.
Final close December 2021
• B lending and/or TA: No• S ponsor/anchor: Allianz, Towers Watson SA, Riscura• Term/investment period: 6.5 years / 4.5 years• Target return: Target gross returns at 3 month USD
Libor + 6%
• M anagement fee: 1.35% (discounts for size of ticket)• V intage (first close): 2019
• Co-investment rights: Case-by-case basis

116• Target investee type(s) and client segment: Market
dominant African companies and other well-structured
transactions• Target sector(s): Consumer, financials, industrials,
infrastructure, real estate, services, telecoms• Target geography(ies): Africa with 15 core geographies• I nvestment tenor: 3-6 years• Average ticket size: $10-25 million• I nvestment currency: USD

How do we mobilise capital at scale towards the SDGs now?

Pipeline and portfolio
The Problem: African private credit is still nascent; demandfor Africa private credit exceeds supply.

Africa has not attracted major capital flows, leading tofavourable supply/demand fundamentals; opportunity todevelop African debt capital markets.

The Opportunity: Private credit as an asset class hasgrown materially since 2003 with a compound annual
growth rate (CAGR) of 15%, approaching $1 trillion, yetPipeline: The African credit markets have grown anddiversified; $650–$750 million credit investments per annum
made across the various strategies.

Allocation - Geography

Allocation - Sector

Market Opportunity

2%
18%

4%

22%

3%

8%

4%

29%

8%

5%
15%

6%
8%
9%

12%

14%

20%

14%

Just Transition in the Investment Process• The fund proactively sources with an ESG lens as well as
the traditional investment sourcing and vetting/strategy
using their large credit team• Strong partnership and relationship model: minimum size,
rating, sector/geographic priority, market dominance andtrack record

Structure and risks
LEGAL STRUCTURE

KEY RISKS

Investors

Key Risks

Mitigant(s)Geographic

20% country limit

Currency

Currency and duration hedged

Execution

Established process using internaland external legal counsel – over 200
investee companies over last 12 years

Concentration

Diversification requirements:
Sector limit 20%, counterparty limit 5%,
country limit 20%

LPs

ACO 2

Management

Ninety One

Companies

Jurisdiction: Luxembourg
 egal form: Special limited partnership (SCSp)
L
Capital structure: All LP commitment with limited
working capital facility

Outcomes framework
Climate and social metrics• Climate and Environmental Action: CO2 emissions forcertain investee companies• S ocio-economic Distribution and Equity: Total
employment, female employees, taxes paid
• Community Voice: N/A

Framework and reporting• U nderlying reporting standards: ESG per IFC
performance standards; UN SDGs for investee companies
and IMP classifications of investee companies and portfoliolevel• Transparency: Quarterly investor reporting and annual
ESG report• Third-party verification: N/A
Four main focus areas covering 75% of the portfolio:

24%

Decent Work andEconomic Growth14%

Sustainable Cities
and Communities

24%

Industry, Innovation andInfrastructure

11%

No Poverty

Continued on next page117

Mobilising institutional capital towards the SDGs and a Just Transition

CASE
STUDY

Ninety One: Africa Credit Opportunities Fund 2

Select areas of Just Transition enhancement• Is there an opportunity to further the current climate
and environmental linkage of the fund, from both within
the energy investments and across sectors, and build
other climate and environmental action aspects into thefund strategy that could be included in the metrics?
• Is there an opportunity to enhance the socioeconomic measurement to include quality jobs (e.g.,benefits, health and safety) as well as delineating
who is covered by these products, beyond gender(underserved, rural, etc.) and could this lead to afuture target?
• Could the fund enhance its Community Voicecommitment, including engagement into its selection
process?

Investee in the spotlight
Investing in Ghana Cocoa Board
term loan

Background
Ghana Cocoa Board (GCB) is the government owned entity
responsible for marketing and export of cocoa beans from
Ghana. The crop generates about $2 billion in foreignexchange annually and employs circa 800,000 farming
families. The underlying trade facility has an excellent 23year track record.
Ghana is the second largest producer of cocoa in the world
with 22% market share.

Investment
African Development Bank (AfDB) African Development
Bank (AfDB) is acting for an up to $600 million
multi-tranche term loan facility to GCB, which ACO2
invested into. The facility is a self-liquidating 3 year tenor
structure, secured by proceeds from OECD countries’
cocoa sales contract receivables.

Impact
The investment covers various climate and socio-economic
aspects. The use of proceeds helps improve the livesof the 800,000 farming families. The aim is to build
efficiency, sustainability and improve yield, leading to higher
subsequent income levels and thus resilience, alongside job
creation. Proceeds are used as follows:• $40m – Farm irrigation (improving yield, resource efficiency
and reliance leading to furthering the sustainable farming)• $68m – Hand pollination (creating employment
opportunities and increasing farmer yields)• $200m – Environmental rehabilitation (leading to better
resilience and sustainability of the land)• $50m – Warehouse capacity (Agri infrastructure)• $10m – Farmer database (for building efficiency andmanagement for micro farmers)• $200m – Promotion of domestic processing (for greater
value chain integration)

Investing in Globeleq
energy project financeBackground

Investment

Globeleq is powering Africa’s growth through thedevelopment and operation of utility scale power plants
across the continent.

To increase the scale in Africa, ACO 1 provided project
finance for their expansion into Cameroon by purchasing
two grid stability plants.

Founded in 2002, Globeleq has become a power industry
leader by operating or acquiring interest in multiple power
facilities across the world with its focus on the African
continent. In 2014 and 2015, Globeleq started changing
strategy to focus more on Africa and formed Globeleq
Africa.
Under the ownership of shareholders CDC (70%) and
Norfund (30%), the cornerstone of their strategy is to be thetrusted, reliable and committed partner of choice within the
African IPP industry.
With a portfolio of 13 power plants located in Tanzania,
South Africa, Côte d’Ivoire, Cameroon and Kenya, Globeleq
currently generates more than 1,400 MW, with another
2,000 MW in development.

118

ImpactGlobeleq is a leading green African infrastructure sponsor,
aiming to build a Just Transition in the African power sector.
By providing clean power, Globeleq helps facilitate the growthand social development of African countries in a climatealigned way.
Globeleq’s power capacity:• 866MW gas• 219MW solar• 165MW wind
• 88MW heavy fuel oil

How do we mobilise capital at scale towards the SDGs now?

Another significant example that is well alignedwith the Just Transition Elements and underlying
Principles is responsAbility's Access to Clean
Power Fund (ACPF). This fund pursues an off-gridclean energy strategy, providing debt financing
to enterprises that give access to renewableenergy, in particular in rural areas that are currently
underserved across emerging markets. The
strategy is highly aligned with the proposed Just
Transition Elements, combining a strong Climate
and Environmental Action and Socio-economic
Distribution and Equity lens. Community Voice isconsidered indirectly through interaction with market
intermediaries, in particular the global association of
the off-grid solar energy industry (GOGLA).
As the fund’s strategy is investing in challenging
jurisdictions and into SMEs, which are often still
relatively earlier stage, the fund benefits froma blended structure including four layers ofcapital – a senior tranche and three subordinatedcapital tranches. The fund is further supported

CASE
STUDY

by a technical assistance facility, allowing forthe provision of capacity support to investee
SMEs. The layered capital structure has enabled
responsAbility to attract an array of investor types,
catering for different risk appetites. Investors
include public investors and MDBs/DFIs, suchas the European Investment Bank (EIB); theDutch development bank, FMO; the governmentof Luxembourg; the World Bank Group’s IFC;
the Norwegian Investment Fund, Norfund; thedevelopment bank of Austria, OeEB; SECO in
Switzerland, and the UK government’s Foreign,
Commonwealth and Development Office (FCDO).
Investors also include foundations, including theShell Foundation, Good Energies Foundation,and institutional investors such as AHL VenturePartners, Ashden Trust, Bank of America,
Calvert Impact Capital, Clean Technology Fund,
Facebook and Snowball. The most junior tranche
was subscribed by the EIB on behalf of the
Luxembourg Government, Shell Foundation, EDFI,
responsAbility and the Ashden Trust.

responsAbility: Access to Clean Power Fund

Overview
Ambition(including linkage to Just Transition)

Statement: The fund targets companies providing
solutions to households without access to electricity
and businesses looking for cleaner, cheaper andmore reliable energy. Beyond financing the off-gridsector, it actively addresses the solar potential for thecommercial and industrial (C&I) sector.

Manager•C limate and Environmental Action: Reduce CO2
emissions by 6m tonnes, 2,800 GWh of clean energy
generated, 2,000 MW renewable energy capacity*

Dedicated impact manager, investing for a sustainable
world, with a focus on climate finance, financial inclusionand sustainable food.

• S ocio-economic Distribution and Equity: Access toenergy for 170 million people, 5,200 SMEs with improved
access to electricity, 5,750 new full-time jobs, 37 million
products sold by portfolio companies, all by the end offund life•C ommunity Voice: Data from initiatives such as GOGLA,
of which responsAbility is an active member, contributes tounderstanding and monitoring the impact of the fund in thelocal communities across the full range of positive social
benefits of improved energy access and reliable electricity
supplyDescription of Fund
responsAbility’s Access to Clean Power Fund provides seniorand mezzanine debt to companies that provide access toenergy solutions to households and SMEs, including C&I.
Strong focus on Sub-Saharan Africa and South andSoutheast Asia.

Founded in 2003, responsAbility has $3.5 billion in AUM
across 90 emerging economies, with over $11 billion
invested since inception; 85% of AUM in debt financing.
Headquartered in Zurich, the manager has seven further
offices and 148 investment professionals.

Investors
Investors
DFIs: EIB, FMO, the government of Luxembourg, IFC,
Norfund, OeEB, SECO, USAID.
Foundations: Shell Foundation, Swift Foundation,
Lundin Foundation.
Institutionals: AHL Venture Partners, Ashden Trust,Bank of America, Calvert Impact Capital, Clean
Technology Fund, Snowball.
Key attraction points for institutional investors
Attractive investment topic with large unmet demand andcontinuous high growth; de-risking mechanism throughblended structure.
Key challenges for institutional investors
Long-term closed-ended fund (10 years).

* By end of fund life.

Continued on next page119

Mobilising institutional capital towards the SDGs and a Just Transition

CASE
STUDY

responsAbility: Access to Clean Power Fund

Key Terms
Fund LEVELINVESTEE LEVEL (investment strategy)• Vehicle/fund type: Closed-end private debt fund• I nstrument(s): Senior and mezzanine debt

• Fund size: Actual $158 million (final closing December
2020)• Target investee type(s): Growth/mature off-gridenterprises (SHS, C&I)

• B lending and/or TA: Yes; four layers of capital plus TA
facility• Target sector(s): Energy access companies (SHS), C&I,
and opportunistically energy value chain enterprises• S ponsor/anchor: IFC, FMO, Lundin Foundation, Shell
Foundation, responsAbility• Target geography(ies): Focus on SSA, SA and SEA• Target return: Confidential• I nvestment tenor: 2-3 years for inventory/receivables
backed loans, 5-10 years for Independent Power
Producers (IPPs), maximum 10 years•M anagement fee/incentive fee: Confidential• Average ticket size: $3-10 million• V intage (first close): 2019• I nvestment currency: Primarily USD; local currencies
selectively• Term/investment period: 10 years / 3 years•C o-investment rights: Yes

Pipeline and portfolio
Market Opportunity
The Problem: Access to energy is a key driver of economic
growth, yet many emerging market countries still facesignificant challenges in power generation and distribution,
resulting in over one billion people without access to electricity.
Sub-Saharan Africa lags the most, accounting for threequarters (570 million) of people globally without electricity
access. Although access in urban areas of Sub-Saharan Africa
reached 78% by 2019, access in rural areas was only 25%.
The Opportunity: According to the International Energy
Agency (IEA), providing electricity for all by 2030 would

require an annual investment of $52 billion per year, morethan double the current level being mobilised. The fundleverages on responsAbility’s capabilities and track recordin energy debt where it has a portfolio of over $800 million
since 2014. Specifically, aiming to focus on the Energy
Access and Distributed Generation space, where it has
disbursed over $150 million in the past five years with morethan 10 investees in Africa and Asia.
Pipeline: C&I in Nigeria, Maldives, India, South Africa
and Vietnam; energy access in Kenya, Rwanda, DRC
and Togo.

ALLOCATION

Allocation - Geography

Allocation - Sector

1%
SSA

Energy Access

Asia Pacific

C&I

Other

34%

38%
61%
65%

Just Transition in the Investment Process• Due to local market presence, the fund has an up-todate view on needs and opportunities, using on-site due
diligence visits and interviews, engaging internal andexternal experts thus allowing the team to identify needs120• The fund screens for a commitment to environmentally andsocially sound business practices; owner and management
integrity; contribution to the SDGs; fair client treatment andexpected climate outcomesHow do we mobilise capital at scale towards the SDGs now?

Structure and risks
LEGAL STRUCTURE
Public andPrivatesectorSeniorPublic andPrivatesectorPublicsector

Sub-Senior

ACPF

Businesses

KEY RISKS
Public andPrivatesectorMezzanine

Portfolio
Management

JuniorresponsAbility

IPPs

Key Risks

Mitigant(s)Geographic

Highly diversified portfolio;
geographical allocation limits: Africa: <70%,
Asia: <70%, Latin America: <20%; single
country: <20% (<30% for India and Kenya)

Currency

100% of principal of loans is hedged;
current allocation: 68% USD, 31% INR
hedged, 1% EUR hedged

Concentration

Jurisdiction: Luxembourg
 egal form: SICAV-SIF
L
Capital structure: four layers

Sectors limits (direct): Energy access:<60%, C&I: <70%, value chain players:<25%, financial intermediaries: 0%(excluding existing EAF investments)
Product limits: Senior secured debt: >70%,
senior unsecured debt: <30%, mezzanine
debt: <20%, equity: 0% (excluding
investments into hedging counterparties)

Outcomes framework
Climate and social metrics
Examples:• Climate and Environmental Action: CO2 lifetime savings,
capacity of renewable energy installed, black carbon avoided• S ocio-economic Distribution and Equity: Number ofpeople with access to clean energy, number of products
sold, number of jobs created by gender, number ofmanagement jobs and board seats by gender, increased

economic activity, cost reduction for small businesses,
increased opportunities for women• Community Voice: GOGLA feedback reports

Framework and reporting• U nderlying reporting standards: IRIS+, GOGLA, 2X• Transparency: Annual E&S and Impact report forinvestors, quarterly report for investors• Third-party verification: No

Select areas of Just Transition enhancement• Could investees be vetted on their community engagement, andcould investments that show strong engagement be prioritised?

• Could the fund encourage investees to integrate customer
feedback loops to ensure a community-centric approach?

Investee in the spotlight
Investing in d.light

BackgroundEstablished in 2007, d.light is a global leader and pioneer indelivering affordable solar-powered solutions designed forthe two billion people in the developing world without accessto reliable energy. d.light provides distributed solar energy
solutions for households and small businesses that aretransforming the way people live all over the world. It sells
its products on credit using a Pay As You Go (PAYGo) businessmodel.
Through four hubs in Africa, China, South Asia and the UnitedStates, the company has sold over 20 million solar light andpower products in 70 countries, improving the lives of over
100 million people. d.light is dedicated to providing the mostreliable, affordable and accessible solar lighting and powersystems for the developing world.

Geographical area: With a focus on East Africa
and India, d.light covers Kenya, Uganda, Tanzania,
Nigeria, Zambia, DRC and India.

Investment$8.5 million senior secured loan.

ImpactClimate and Environmental Action: 2.2t CO2 lifetime savings.*
Socio-economic Distribution and Equity: 23 million
additional people with access to clean power, 850 quality jobs
created in 2019, 30% of which are held by women.
Community Voice: d.light uses sales data, customer
feedback and ongoing product evaluation in the field. This
provides a comprehensive picture of how access to energy
transforms customers' lives.***Excluding black carbon emissions.
**d.light website: "Our Impact"; https://www.dlight.com/social-impact

121

Mobilising institutional capital towards the SDGs and a Just Transition

In addition, there are other interesting examples
of private debt funds that pursue relevant credit
strategies in emerging markets. Some further
examples are showcased below, each selected fora particular reason.
FMO and FMO Investment Management (FMO
IM) and NN Investment Partners (NNIP)'s
Emerging Markets Loan Fund (EMLF) isnoteworthy for many reasons. Foremost is its
management partnership between FMO Investment
Management and NN IP, leveraging a DFI’s
investment sourcing and market network and an
institutional fund manager’s distribution capabilities
and professional fund management skills.
The $750-million fund, structured as a 15-year

closed-end vehicle with one class of notes, is alsointeresting as it effectively manages a syndication
strategy whereby the fund sub-participates in adiversified portfolio of FMO-sourced and -managedloans that meet the fund’s pre-agreed investment
criteria and restrictions.
On the outcomes side, the fund benefits from
FMO’s stringent impact credentials and impact
management framework, building climate and social
targets into its investment process and reporting.
The fund focuses on job creation as well as climate
mitigation through its renewable energy investments.
A further noteworthy aspect of the fund is theagreement announced in August 2021 by Goldman
Sachs with NN Group to acquire NN IP.

EXAMPLEFMO IM/NN IP: Emerging Markets Loan Fund
Fund overview

Outcomes

FMO IM and NN IP’s Emerging Markets Loan Fund
(EMLF) combines FMO’s in-depth emerging markets
investment and deal sourcing experience, local networks
and impact expertise with NN IP’s institutional knowledge
and fund management capabilities. Launched in 2017, EMLF
is an emerging markets private debt fund targeting $750
million. The fund seeks to address the shortage of emerging
markets-focused patient debt funding for renewable energy,
financial institutions and agriculture businesses (including
food and water) to support the SDGs.

FMO has a strong ESG and impact record, integrated into
the institution’s credit underwriting. Their framework is built
to align to the UN SDGs and the Partnership for Carbon
Accounting Financials (PCAF).

EMLF deploys senior hard currency loans across emerging
markets, effectively taking pari passu sub-participations
in loans sourced by FMO, benefitting from FMO’s asset
selection and risk management capabilities, from historicallystable returns with lower volatility than bonds, fromdiversification and from the ‘de facto preferred creditor
status’ of FMO. At the same time, the pari passu coparticipation creates alignment between the fund and FMO.

Structure
Closed-end 15-year private fund with one class of notes.

Manager
The fund is managed as a partnership with FMO Investment
Management (FMO IM) leading on investment sourcing andportfolio management, and NN Investment Partners (NNIP) leading on distribution, risk and liquidity management,
reporting and administration. FMO IM is a 100% subsidiary of
FMO, the Dutch Development Bank, which has AUM of €12billion. NN IP is a Dutch asset manager with approximately$355 billion of assets under supervision and an additional$70 billion of assets under advice, with about 75% of assets
being ESG integrated.

122

The fund aims to make socially and environmentally
responsible investments in emerging markets. Importantly it
invests not only in more advanced developing countries but
also more difficult frontier markets. Climate mitigation is oneof the two main impact goals and renewable energy is oneof the target sectors of EMLF (as of end of 2018, 38% of theportfolio had a climate link). With respect to Socio-economic
Distribution and Equity, job creation is the other main impact
goal. The fund further seeks to support SMEs, generating
growth in the investment countries by investments in local
financial institutions.
In terms of key performance indicators, the fund tracks anumber of impact metrics, including CO2 emissions avoided
and number of jobs supported (both full-time equivalent andindirect jobs). Impact performance is measured and audited
and regular detailed public reporting offers transparency.

Select areas of potential Just Transition
enhancement• Is there an opportunity to strengthen the current climate
linkage, from both within the energy investments andacross further sectors, and build other climate action
aspects within the fund strategy that could be included in
the metrics?
• Could the fund enhance the socio-economic measurement
to include quality jobs (e.g., benefits, health and safety)
as well as delineating who is covered by these products(underserved, gender, rural, etc.), including relevant targets?

Investors• Could the fund deepen its Community Voice commitment,
including engagement criteria in its selection process?

The fund has $550 million in investor commitments,
anchored by Alecta and NN Life and, additionally, an array offamily offices, pension funds and sovereign wealth funds.

Source: NN IP (2021): "NN FMO Emerging Markets Loans Strategy Brief
Quarter ending 30 June 2021"; manager information

How do we mobilise capital at scale towards the SDGs now?

An interesting and relevant Just Transition
strategy has been adopted by BlueOrchard’s
InsuResilience Fund, which pursues a uniqueclimate strategy, investing in financial institutions tofurther climate adaptation insurance products. This
climate focus is combined with important social
objectives through its focus on micro, small andmedium enterprises (MSMEs), ultimately targeting
low-income households in emerging markets.
The fund is managed by an experienced impact
manager and the debt sub-fund has successfully
attracted institutional investors through the use of ablended structure, with a 23% first loss capital layer
providing important risk mitigation to senior investors.

EXAMPLEBlueOrchard: InsuResilience Investment Fund
Fund overview
BlueOrchard’s InsuResilience Investment Fund’s
private debt sub-fund (IIF Debt), the debt sub-fund of its
InsuResilience umbrella vehicle, is a blended fund focusedon climate adaptation through loans to financial institutions
that provide or intend to provide climate adaptation relevant
insurance products, targeting MSMEs and the lowestearning households. The fund seeks to extend its reach torural communities by working with microfinance institutions
and cooperatives.

Structure
The IIF debt sub-fund is a closed-end 12-year fund with $150
million of total commitments, of which $32 million is frompublic funds, and provides 23% first-loss protection to senior
ranking noteholders.

Manager
BlueOrchard was founded in 2001, and to date has invested
over $8 billion across over 90 countries. Headquartered in
Zurich with six further offices, BlueOrchard has more than
120 staff members. BlueOrchard is a dedicated impact
investment manager with the largest microfinance fundworldwide. The manager was acquired by Schroders in 2019.

Investors
The fund benefits from a first-loss investment from theGerman Federal Ministry of Economic Cooperation andDevelopment (BMZ) via KfW, the German state-owned
development bank. Noteholders include two DFIs plus anarray of institutional investor types, including an insurancecompany, three pension funds, a bank and a family office.

Outcomes
The fund pursues a unique climate adaptation strategy
targeting the poor and vulnerable in emerging markets,
thereby pursuing strong combined climate and social
outcomes. The objective of the fund is to reduce thevulnerability of MSMEs and low-income households toextreme weather events by providing affordable products.
Where needed, products are structured with a ‘premium
support facility’, which provides temporary subsidies toreduce insurance premiums.

The fund also has a Technical Assistance Facility anda Premium Support Facility, both funded by BMZ.
Respectively, these provide, when needed: capacity building
to investees to support them in creating or improving theinsurance offering linked to their debt products, and support
to lower the premium price of insurances in certain markets.
The IIF seeks to amplify its impact by working with a rangeof partners. For example, the fund has an educational
partnership with the International Labour Organisation (ILO),
whose Impact Insurance Academy offers insurance bestpractice workshops to the IIF Debt investees. It has business
partnerships with reinsurers (Swiss Re, Munich Re, HannoverRe) to help to increase investee’s reinsurance underwriting
capacity, improve its technical assistance to scale up
insurance products, and to increase the network of industry
contacts, thus further building the local insurance markets.
Through its activities, IIF expects to reach between 67 and145 million beneficiaries by 2025 (at the umbrella fund level),and to contribute to eight SDGs (1,13,17 being core and2,5,8,10,11 indirectly). The fund outcomes measures include
the number of beneficiaries by geographic breakdown (rural
versus urban), by gender, and by group versus individual
lending. The fund also measures the types of loans provided
and loan volume to intermediaries.
In 2020, the fund produced an interim "Outreach" impact
report available on its website.

Select areas of potential Just Transition
enhancement• Could the inclusion of access and affordability of theinsurance products be expressly added to the fund’sinvestee assessment and reporting, potentially leading topipeline prioritisation?
• Could the fund include in their assessment and potentiallyprioritise investees based on their community engagement,
for example, the verification of the relevance of products
based on community need and feedback mechanisms?

Source: InsuResilience website; manager information

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Mobilising institutional capital towards the SDGs and a Just Transition

A further example from the important microfinancemarket201 is Triodos Investment Management’s
Microfinance Fund. The fund’s aim is to enhancefinancial inclusion across emerging markets,
allocating more than 10% to Africa.
While not pursuing explicit climate targets, thefund is showcased because microfinance is a key
component of the impact investment ecosystem,
given its history and scale, and one that is familiar
to many institutional investors. With the inclusionof specific climate targets, for example, supporting
climate relevant products and services, suchas water, sanitation and hygiene (WASH) loan
products, agricultural loans with climate resilienceelements, products financing off-grid energy
solutions or products targeting climate-positive
housing solutions, a microfinance fund can readilyalign with the Just Transition Elements and deliverintegrated social and climate solutions to local
communities in emerging markets.

201

There are a number of other microfinance managers in themarket that operate at scale. Related case studies, including
by ACTIAM, Developing World Markets and Trilinc, can befound in Impact Investing Institute (2021): "Impact investing inemerging markets: Opportunities for institutional investors";
https://www.impactinvest.org.uk/our-case-studies/emerging-markets

EXAMPLE

Triodos Investment Management: Microfinance Fund
Fund overview
Triodos IM’s Microfinance Fund, which currently has a
net asset value of over €440 million, provides finance to over
90 finance institutions in 42 developing countries in Asia,
Africa, Eastern Europe and Latin America. The fund provides
predominantly debt (53% senior and 11% subordinated debt)
but also equity (28%) to financial institutions that demonstratea sustainable approach towards the provision of financial
services to the unbanked, including SMEs, supporting local
economies by stimulating entrepreneurship and job creation.
Almost 60% of the total portfolio comprises local currency
loans. The fund currently reaches 18.2 million underlying
borrowers, of whom 77% are women. The investee financeinstitutions have also provided 243 thousand students withstudent loans.

Structure
Semi open-end sub-fund of Triodos’ Triodos SICAV II
umbrella fund, offering one class of equity participation.

Manager
Triodos Investment Management (Triodos IM) was foundedover 25 years ago and has AUM of over $6.1 billion, allinvested in impact strategies. It has made over 750 direct
investments across the world. The fund benefits from ateam of over 40 dedicated emerging markets investment
professionals across 17 different nationalities.

as well as a Swiss bank/insurance company as its largest
investors.

Outcomes
The fund pursues a financial inclusion mandate to deliver
strong social outcomes. Through the provision of funding
to financial institutions, the fund aims to promote access tobasic needs, such as affordable housing, quality educationand clean energy. The coverage of rural and gender aspects
further aligns with the social aspects of a Just Transition.
The fund also considers certain environmental aspects within
the provision of green loans, which have been provided to
847 thousand people.

Select areas of potential Just Transition
enhancement• Is there an opportunity to add a clear climate ambition
and related targets and KPIs, including an allocation
expectation to institutions that offer climate-relevant
products?
• Could investees be vetted and investments prioritisedon the strength of their community engagement?

Investors
The fund’s investors include a Dutch fund of funds,
Luxemburg private bank, a Danish and a Dutch retail bank124

Source: Triodos Microfinance Fund website; manager information

How do we mobilise capital at scale towards the SDGs now?

3.4.4 Infrastructure vehicles
3.4.4.1 Infrastructure vehicle: Application of the blueprint toa case study and supporting example

Infrastructure: Market and trends
The global infrastructure market currently
has a $3.6 trillion annual funding need,according to Forbes. The private infrastructure
market is significantly smaller. But capital raising
is estimated to have exceeded $100 billion in
2020, marking a record year – the majority
earmarked for North America and Europe.
KPMG expects the core trends in infrastructure in
the coming decade to be “growth, sustainability
and resilience”. Within that, the consultancy sees
10 specific trends, some particularly relevant for a
Just Transition. One is the sector’s move towards“a greener, fairer rebuild”, as the Covid-19
pandemic has made existing inequalities more
obvious and brought the importance of cleaner
air and less congestion to people’s attention.
Net Zero has also dominated infrastructure
discussions in the last year and investors arelooking for sustainable assets. On the social side,
an increasing number of businesses are focusing
on employment conditions, including along the
supply chain. Another relevant trend anticipated
by KPMG is the increase of new financing ininfrastructure, partly driven by the rise of green
financing.
In emerging markets, McKinsey estimates thetotal annual infrastructure investment neededover the next 15 years just to keep up with GDP
growth to amount to more than $2 trillion.
KPMG expects the trend for increased fundingflows towards infrastructure to include notjust developed but also emerging markets.
KPMG also highlights the role of MDBs in
emerging markets as a driver for change andtransformation of the sector.
A UN PRI article stresses the importance of
ESG considerations in infrastructure investments

Infrastructure is often a key asset class for
institutional investors, usually sitting within real
assets.

202

Preqin: "Preqin Academy –Infrastructure"

Infrastructure investments can differ significantly
depending on the stage of the project. Within
infrastructure financing, distinctions are madebetween (i). the financing of greenfield projects,

in developing countries in order to ensure theresilience of projects and community buy-in.
Africa’s infrastructure investment needs
have increased over time. In 2018 the AfDB
estimated the funding needs to amount to$130–$170 billion annually, with a financing
gap of $68–$108 billion. Chinese enterprises
have historically dominated the financing anddevelopment of infrastructure projects on
the continent. For example, in 2018, China
funded around 25% of all capital commitments.
A McKinsey report discusses the African“infrastructure paradox”: while infrastructure
funding has been increasing and international
investors are willing to fund projects, projects
struggle to move to financial closing. According
to the report 80% of infrastructure projects
on the continent fail at feasibility and planningstages, an additional 10% prior to financial close.
McKinsey does, however, believe that the region
has momentum, based on the increase in value
and number of deals. The consultancy’s analysis
indicates that the continent’s pipeline includes$2.5 trillion worth of projects estimated to becompleted by 2025. However, they also point out
that there is a lack of clarity on how much of thispipeline will eventually succeed, with more thanhalf the projects included still at a feasibility stage.

Source: Forbes (2020): “The Mighty Effort To Save The $3.6
Trillion Global Infrastructure Market”; McKinsey (2019): “Unlocking
private-sector financing in emerging-markets infrastructure”;
KPMG (2021): “Emerging trends in infrastructure”; UN PRI(2020): “Driving emerging markets growth through infrastructure
investment”; AfDB (2018): “Africa’s infrastructure great potential
but little impact on economic growth”; McKinsey (2020): “Solving
Africa’s infrastructure paradox”; https://www.mckinsey.com/
business-functions/operations/our-insights/solving-africas-infrastructure-paradox

which represent new projects and, as such,carry development risk; (ii). the financing ofbrownfield projects, which are already built andoperating, generating revenues and requiring
further development or expansion; and (iii).
secondary financing, where existing financing isrefinanced. 202

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Mobilising institutional capital towards the SDGs and a Just Transition

Figure 3.3

Pathways to accelerate coal transition transactions
Using well-designed mechanisms, such as the one
discussed above in Section 1.3.1.4 and below, can ensurethat decommissioning is achieved in an affordable way,balancing the interests of all core constituents. That said,
every phasing out is complex and for a decommissioning

Ratepayer-backed bond securitization

plan to be successful, local context, realities anddisparities need to be carefully considered and all relevant
stakeholders need to be engaged and included in thesolution.

Reverse Auction

Multiple rounds of public -dollar funded reverse
auctions with a price ceiling and an overall budget
allocation to take advantage of the country’s
competitive hard coal energy market to facilitateenergy transition.
Location: Germany

using bonds backed by surcharges on ratepayers’
energy bills.
Location: U.S.

Blended Finance Buy and Close

Seeking to leverage a blended fund facility
purchase and operate coal assets until anaccelerated decommission date while also funding
investment in renewable technologies.
Location: Southeast Asia

Private Finance Buy andClose

Climate-Linked Loans or Bonds

Pooling concessionary and private capital from

Carbon FinanceThe concessionary loan package conditioned on
the closure of coal power assets to support theinvestment in clean technologies that factors
pricing of carbon emissions reduction to support
the investment in clean technologies.
Location: Chile

with a just transition package. There are a coupleof proposals, one of which would allow
disbursements of funds at the entity-level while
the other would grant milestone-linked debt forgivenesson the country-level.
Location: Undisclosed

Activities included (directly supported by the package)
Coal power asset
closure andrepurposing

Support ofcommunities

Renewable energy
replacement

Institutional investor-backed
equity fund to acquire coal mines
and retire them by 2040, with aportion of resources left in the
ground, and some returns
earmarked to support the justtransition of workers.
Location: TBD, likely Australia,
U.S. and Indonesia

Blended Finance Spectrum
Coal mine closureand repurposing

Public Capital Driven

Private Capital Driven

Source: RMI (2021): "Financing the Coal Transition: Pragmatic Solutions to Accelerate an Equitable, Clean Energy Future"; https://rmi.org

There is a growing number of infrastructure funds
in the market targeting emerging markets with ESG
and/or impact targets attached.
A Just Transition aligned example that integrates
many of the Just Transition Principles across thefund’s dimensions is Actis’ Energy Fund 4.
This fund offers a robust climate focus, targeting
renewable energy electricity generation, electricity
distribution and gas power generation businesses.
While the investment strategy is focused on

126

climate-relevant businesses, the fund also
intentionally targets social outcomes, including the
support of SMEs, job creation, training and healthand safety, and further includes local communities
within its investment process.
Actis has a proven track record, enabling it toattract a broad institutional investor base into its$2.75 billion fund. The fund is structured as amainstream closed-end 10-year limited
partnership.

How do we mobilise capital at scale towards the SDGs now?

CASE
STUDY

Actis: ENERGY 4

Overview
Ambition(including linkage to Just Transition)

Statement: The fund aims to increase access toenergy through investments in electricity generationin emerging markets

Manager• Climate and Environmental Action: Climate mitigationis one of the main impact goals; renewable energy is theprimary target sector

The manager has raised $19 billion since inception, executing
over 200 transaction across over 40 countries, includingtransactions worth $2 billion in the energy sector through fourenergy-focused funds.

•S ocio-economic Distribution and Equity: Accessto energy and job creation are some other main impact
goals; further, the fund seeks to support the growth of
SMEs and tracks further impact KPIs
• Community Voice: Community liaison officers areappointed at every project; they play a key role in ensuringa regular two-way exchange of information between thelocal community and the projectActis was founded in 2004 (spun-out of CDC) and
has $10 billion AUM.

Actis has 90 investment professionals across 12 offices.

Investors
Investors
Leading US state and local pension funds, sovereign wealthfunds, insurance companies and endowments.
Key attraction points for institutional investors

Description of Fund
Energy 4 is Actis’ fourth energy-focused private equity
fund investing in electricity generation (buy and build) anddistribution businesses (buy and improve) in select countries
across Latin America, Africa and Asia.
The fund invests across renewables (wind, solar and hydro)
and gas technologies.

• Proven strategy with attractive returns, backed by a large
market opportunity• Actis’ investment track record and local offices andnetwork• Strong on ESG, providing measurable and reportable
impact~ Sizeable re-ups from previous investors into Energy 4

Key Terms
Fund LEVELINVESTEE LEVEL (investment strategy)• Vehicle/fund type: Closed-end private equity fund• I nstrument(s): Equity•F und size: Actual $2.75 billion (versus initial target of $2
billion)• Target investee type(s): Private infrastructuredevelopment projects• B lending and/or TA: N/A• Target sector(s): Renewable electricity generation
businesses (wind, solar, hydro); electricity distribution
businesses; gas power generation• S ponsor/anchor: Actis GP LLP• Term/investment period: 10 years / 5 years• Target return: Confidential• M anagement fee: Confidential• V intage (first close): 2016

• Target geography(ies): Latin America, Africa and Asia
• I nvestment tenor: 5-year holding• I nvestment currency: Hard currency (USD)• Co-investment rights: Yes• O ther: N/A

Continued on next page127

Mobilising institutional capital towards the SDGs and a Just Transition

CASE
STUDY

Actis: ENERGY 4

Pipeline and portfolio
Market Opportunity
The Problem: 1.3 billion people in emerging countries lackaccess to electricity.
The Opportunity: Demand for electricity and quality
infrastructure is high and rising with energy being crucial toa country’s development. At time of launch, Actis estimatedthe investment opportunity in non-OECD markets to amount
to $10 trillion up to 2035 with electricity demand to grow 3x
faster than in OECD countries.
 ipeline: Energy 4’s capital has been deployed and the focus
P
is now on value creation and exits.

Just Transition in the Investment Process• Due diligence includes assessment of ESG information,
examination of impact of ESG issues on business and how
ESG risks will be addressed or how opportunities for value
creation will be seized• Community development plans developed and implemented
at every project in order to maximise local benefits andemployment opportunities.

Structure and risks
LEGAL STRUCTURE

KEY RISKS

Investors

Key Risks

Mitigant(s)Geographic

Political risk insurance where possible;
local presence

Currency

USD denominated contracts, where
possible; focus on capital gains

ExecutionOn-the-ground research and local
presence; local networks

LPs

Energy 4

Management

Actis

Businesses

Jurisdiction: UK
Legal form: Limited partnership
Capital structure: Limited partnership interests

Outcomes framework
Climate and social metrics

Framework and reporting

Examples include:

Actis has developed a proprietary impact measurement
framework: Actis Impact Score (AIS). The AIS, launchedin 2019, allows for impact target setting and measurement
across all investments.

• Climate and Environmental Action: Including CO2
emissions avoided (tCO2e), water usage (l) (environment);clean electricity generation (GW – infrastructure)• S ocio-economic Distribution and Equity: Examples
of indicators include employment (jobs created), training,
health and safety (people reached), taxes ($ – finance),
access to energy (people connected – infrastructure)• Community Voice: CSR with local communities ($ spentand people reached – social and community)128• Reporting standard: AIS is based on the IMP's fivedimensions of impact• Transparency: Details about the AIS are available via theActis website• Third-party verification: Yes. Actis is a signatory to the
IFC’s Operating Principles for Impact Management and Actis’
disclosure statement was independently verified by PwCHow do we mobilise capital at scale towards the SDGs now?

Select areas of Just Transition enhancement• Could the fund expand its ambition statement toinclude targets for all three Elements of the Just
Transition?
• Could the climate and environmental strategy include

a clear assessment of the sustainability of projects(such as climate smart approaches like efficient building
materials, waste and water efficiency), including also anassessment of the supply chain?

Investee in the spotlight
Investing in Taiba project, part of Lekela – wind farm in Senegal(Fund: Actis Energy 3)

BackgroundParc Eolien Taiba N'Diaye (PETN) is the first utility scale wind
power project in Senegal. At 159 MW installed capacity, it is
the largest wind farm in the West Africa region. The project
has been developed since 2016 by Actis’ majority-owned
renewable power platform, Lekela Power.
At the commencement of the project, only 65% of the
population of Senegal had access to electricity, 88% of thecountry’s generation capacity was provided by burning oil
and diesel, and Senegal had one of the highest generation
costs in the world due to its reliance on imported fuel.
Once fully constructed, the project will provide clean, reliable
power to Senegal’s electricity grid, increasing the electricity
generation capacity for the country by 15%.
Actis has won the climate change impact project/investmentof the year at the inaugural 2020 Environmental Finance
IMPACT Awards.

Investment
PETN required a total investment of approximately$330 million, which was achieved through equity investment
by Lekela Power – a joint venture between Actis (60%) and
Mainstream Renewable Power (40%) – and debt.

ImpactClimate and Environmental Action: The aim is to offset~6 million tonnes of carbon emissions over the project life.
In 2020, the level stood at 1,511,619 tonnes of CO2 avoided.

Socio-economic Distribution and Equity: The investment
aims to provide clean power for over two million people forat least 20 years and create 830 employment opportunities
for local people during the peak of its construction phase.
The 2020 performance stood at over 1,067 workers employedat the peak of construction, of which over 95% workers
were project country nationals and over 33% from local
communities.
The project aims to reduce (by ~65%) the cost of electricity
in a country that experiences some of the world’s highest
prices. The project has also funded technical traineeships
for 12 young engineers. As part of the objective to generatesignificant positive shared benefits for the local communities,
a programme of socio-economic investments was also
started, this includes investing in education, enterprise and theenvironment. By 2020, 127 community investment initiatives
across six communities had occurred. This will continue
throughout the lifetime of the wind farm and up to $20 million
will be invested by Lekela in the Taiba N’Diaye region. The
project opened a new marketplace in Taiba N’Diaye with over
60 covered stalls that allowed women to relocate from the
makeshift roadside shelters to sell their agricultural products.
Community Voice: Lekela’s engagement with stakeholders
extends beyond validating the ESG issues that matterto them. They recognise the operations impact local
communities and that local active stakeholder engagement,
in a participatory manner, is necessary. They have strong
community engagement and consultation, community
investment to support jobs and develop skills and ensure
responsible land use and development.

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Mobilising institutional capital towards the SDGs and a Just Transition

Another example of a relevant private infrastructure
fund is Ninety One’s Emerging Africa
Infrastructure Fund (EAIF), a $1-billion fundinvesting across infrastructure sub-sectors.
The fund structure is blended, benefiting from close
to $400 million of first-loss capital provided by DFIs
and governments. This allowed the fund to attract

an additional $500 million of institutional money
into the fund to be deployed across the African
continent. The fund’s core focus is on essential
infrastructure necessary for regional development,
including renewable energy as a core sub-sector.
With respect to social outcomes, the fund targets
job creation.

EXAMPLE

Ninety One: Emerging Africa Infrastructure Fund (EAIF)
Fund overview
The Emerging Africa Infrastructure Fund (EAIF),
managed by Ninety One, was established in 2002
and provides a variety of commercial debt products toinfrastructure projects promoted mainly by private sectorbusinesses in Africa and parts of the Levant in the eastern
Mediterranean region of western Asia. The fund helps create
the infrastructure framework that is essential to sustained
economic stability, business confidence, job creation andpoverty reduction. EAIF is part of the Private Infrastructure
Development Group (PIDG).
Currently, EAIF has an active loan portfolio of $1.1 billion,
which is invested in private companies and public-private
partnerships, setting up infrastructure projects across
Africa. By strengthening the foundation of local economies,
EAIF seeks to contribute to the conditions enabling moresustainable economic development.
EAIF provides debt for infrastructure development acrosspower/energy production and transportation; infrastructure
in agribusiness and mining; digital communications
infrastructure; water, sanitation and hygiene; gasstorage, transportation and distribution; manufacturingof infrastructure components and equipment; affordable
housing; and bulk storage and logistics facilities. The fundhas, to date, supported over 80 completed infrastructure
projects across nine sectors in over 20 African countries andhas committed loans to projects representing over 850MW ofrenewable energy power generation capacity. It is committed
to displacing carbon intensive power generation methods
and stimulating the roll-out of renewable energy technologies.
Currently 63% of its power generation loan portfolio is inrenewables such as solar PV, hydro power, and biomass.

Structure
Open-end blended vehicle, including a single tranche ofequity provided by DFIs and governments, and a single
tranche of senior notes.

Manager
Ninety One was founded in 1991 and has total AUM of £130
billion. Ninety One has a 15-year track record financing
over 70 African infrastructure projects and is recognised asa specialist in emerging markets. The company currently
manages nine emerging markets debt funds and four
emerging markets equity funds.

Investors
EAIF was established by the governments of the United
Kingdom, the Netherlands, Switzerland and Sweden,
providing anchor capital of $394 million. In addition, the fundraised debt capital from DFIs and commercial financiers,
including Allianz, Standard Chartered Bank, the African
Development Bank, the German development financeinstitution KfW, and the Dutch development bank FMO.

Outcomes
The overall objective of the fund is to extend/upgrade
essential infrastructure supporting economic growth
and reducing poverty. The fund aims to create jobs
in infrastructure construction and permanent jobs ininfrastructure operations. The fund seeks to ensure highstandards of corporate governance, financial management,
employment and equality practices, health and safety
policies and environmental management in all investees.
A climate focus is also a core aspect of the fund’s mandate,especially evident in its renewable energy investments.
The fund tracks metrics such as private sector mobilisation,
carbon emissions, gender aspects, job creation numbers,
fiscal benefits for the host country and number of people
with new or improved infrastructure access.

Select areas of potential Just Transition
enhancement• Is there an opportunity to include a clear climate target
to the fund, including the addition of a clear assessmentof the sustainability of projects (such as climate smart
approaches, including efficient building materials andwaste and water efficiency)?
• Is there an opportunity to include an express socioeconomic ambition statement and related targets, such as
quality job creation (at construction and long-term)?

Source: EAIF website; manager information

Another example is AFC’s Infrastructure
Climate Resilient Fund (ICRF), launched in 2021.
The fund seeks to invest in infrastructure projects
in Africa that support climate adaptation or reduce
GHG emissions, aiming to "build the continent
130

back better" in a post-Covid 19 environment andenhance the continent’s infrastructure resilience.
The fund targeted a capital raise of $500 million
using a blended structure to ensure institutional
investor participation in a high-impact strategy.

How do we mobilise capital at scale towards the SDGs now?

EXAMPLEAFC Capital Partners: Infrastructure Climate Resilient Fund
Fund overview

Outcomes

The Infrastructure Climate Resilient Fund (ICRF)
managed by AFC Capital Partners is an African infrastructure
fund launched in 2021, targeting a $500 million capital raise.
ICRF looks to support climate adaptation as well as projects
that reduce carbon emissions and enable the continent tobuild back better with more climate-resilient and sustainableinfrastructure. The fund focuses on AFC’s traditional
infrastructure core sectors, making investments that enhance
the quality and longevity of infrastructure across sub-sectors,
including roads, ports, bridges, rail, telecommunications,clean energy and logistics projects in Africa. The fund’s
proposition integrates climate change as its core investment
thesis, seeking to ensure the resilience of infrastructure in
Africa.

The fund seeks to contribute to climate adaptation byincreasing the resilience of infrastructure assets, inparticular for the most vulnerable people and communities.
The key SDG targeted is SDG 9 (Industry, Innovation andInfrastructure).

Structure
Blended closed-end private equity fund, providing
subordination to mobilise senior equity.

Manager
AFC Capital Partners is a fully owned subsidiary of Africa
Finance Corporation (AFC), a multilateral financial institution
focusing on African infrastructure and headquartered in
Lagos, Nigeria. AFC has a balance sheet size of $7.4 billion
as of December 2020, having invested $9.5 billion across
35 African countries as of September 2021. The corporation
was responsible for the creation of 10 thousand direct and
241 thousand indirect jobs across Africa in 2019.

The centrality of investing in resilient infrastructure andinnovation as crucial drivers for economic growth anddevelopment means that implementation of this fundshould have extensive economic, social and environmental
benefits. ICRF seeks to play a key role in strengthening social
sustainability by helping to generate jobs and contributing to
the development of local economies, while aiming to avoid
negative impacts around health, safety or the livelihoodsof workers. ICRF further intends to protect the interests ofdisplaced individuals and communities as well as vulnerable
and underprivileged groups and seeks to be inclusive andaccessible to women and children, the elderly, people withdisabilities and indigenous peoples. Metrics are currently
under consideration.

Select areas of potential Just Transition
enhancement• Could the fund set clear socio-economic targets withrespect to its social inclusion and equity ambition?
• Is there an opportunity for the fund to explicitly include
Community Voice in its ambition and targets, andpotentially prioritise projects that demonstrate community
engagement?

Investors
The fund is currently raising capital from multiple investor
types for their targeted blended structure, including quasigovernment entities such as DFIs and MDBs, as well as
institutional investors.

SPOTLIGHT

Source: AFC website; manager information; https://www.africafc.org

Climate, Energy Access and Resilience (CLEAR)

Coming out of COP26, InfraCo Africa, a part of the Private
Infrastructure Development Group (PIDG), and Helios
Investment Partners announced they would establish a new
pan-African investment vehicle: Climate, Energy Accessand Resilience (CLEAR). CLEAR will fund climatealigned infrastructure and growth businesses as well as theachievement of the SDGs.
The fund aims to meet the growing demand from domestic
and international investors for sustainable investment
opportunities that can help to close the infrastructure andproductivity gap in Africa, which would support communities
that are susceptible to the impacts of climate change. It aims
to leverage both parties’ pipelines across three main themes:
1. clean energy and energy transition; 2. green transportationand mobility; and 3. sustainable growth and consumption.
CLEAR further aims to provide project developers with anexit opportunity.

The fund aims to raise $350 million and make investmentsthat will provide at least 100 thousand new jobs, connect
more than one million people to power for the first time andavoid 100 million tonnes of carbon emissions.
The fund intends to be initially established as a private
vehicle but designed and capitalised to be listed within three
years of final closing. CLEAR has been selected as one offive finalists by the UK’s Mobilising Institutional CapitalThrough Listed Product Structures (MOBILIST),a competition designed to mobilise large-scale investment
flows through listed markets.

Source: Private Equity Wire (2021): "InfraCo Africa and Helios establish new
climate-focused investment vehicle for Africa"

131

Mobilising institutional capital towards the SDGs and a Just Transition

3.4.5 Real estate vehicles
3.4.5.1 Real estate vehicle:
Application of the blueprint toa case study and supporting
examplesin developed markets, it plays a significant rolein institutional investors’ allocations. Therefore,
combining these two aspects makes real estate acritical asset class for delivering a Just Transition.
The Just Transition Elements can be applied
across a broad range of investment strategies,

Real estate is one of the largest contributors to
GHG emissions (see Section 1.3.1.4) and, at least

Real estate: Market and trends
The professionally managed global real estate investment
market amounted to $9.6 trillion in 2019, according to MSCI.
The US was the largest market, followed by Japan and theUK. Private real estate sectors' AUM have grown from $64
billion to over $1 trillion in the last 20 years, as per Preqin.

estate investments are considered risky due to, among
other reasons, often limited enforceable property rights,
lack of professional service providers and relatively low
returns. Despite these challenges, there is some activity, withinvestment opportunities coming to market and attracting
institutional capital. For instance, real estate investment
trusts (REITs) in South Africa are gaining traction, with amarket value of $16 billion, prompting other countries acrossthe continent, including Kenya, Morocco and Rwanda, tointroduce REIT legislation also, as noted by IPE.

Capital consolidation is increasing within the private realestate investment market. According to Preqin, 44% of thetotal capital raised in 2019 was raised by the 10 largest
funds, and two funds raised over $35 billion. Preqin also
reported that there were increasing concerns around highvaluations in the market, pushing fund managers to adopt
higher-risk strategies and to identify new niches. Fundraisingalso suffered during the Covid-19 pandemic, with a market
correction widely predicted. However, ESG is a growing
trend in real estate, becoming a key consideration in
investment decisions, given the role of real estate in global
carbon emissions and the opportunities to generate greater
returns through better operational efficiency in areas likeenergy, waste and water.

Figure 3.5

Closed-end private real estate fundraising in Q1
2021 by primary geographic focus
35
30
25
20

Emerging markets account for only a small portion of the
global real estate market, except for Asia and particularly
China. In the residential sector, the emergence and growth of
a middle class in emerging markets creates an urgent needfor more urban real estate, as highlighted by PwC.

15
10
5
0

Africa has only a nascent real estate market. South Africa
was the only market on the continent that was included in
the top 30 countries of the MSCI index of the professionallymanaged global real estate investment market. African real

EuropeNorth America

Asia

Rest of World

No. of Funds Closed
Aggregate Capital Raised ($bn)

Figure 3.4

Change in global real estate market size 2006-2019
10,000

United States

United Kingdom

Japan

Germany

China

Other countries

8,000

Source: MSCI (2020): “RealEstate Market Size Report
2019/20”; Preqin: “Preqin Academy: Real estate”; https://www.
preqin.com/academy/lesson4-asset-class-101s/real-estate;
Preqin (2020): “2020 Preqin Global Real Estate Report”; Preqin(2021): “Preqin Quarterly Update:
Real Estate, Q1 2021 Tearsheet”

6,000

4,000

PwC (2020): “Real Estate 2020 –Building the future”; MSCI (2021):“Real Estate Market Size Report
2020/21”; IPE (2018): “African
real estate funds: An overlooked
sector”

132

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2,000

How do we mobilise capital at scale towards the SDGs now?

including commercial and residential real estate.
An obvious segment is green affordable housing,but alignment is not limited to that subset ofreal estate investments. Real estate has Just
Transition potential especially when considering
the location (catchment area), the direct
participants (particularly in residential real estate),
the participants in the economic contributions(jobs directly and in the value chain) and, finally,
the materials used and resource efficiency. When
incorporating the Just Transition Elements, it isnecessary to ensure that social outcomes are
positive and benefit local community, addressing
their needs.

CASE
STUDY

Within real estate, International Housing
Solutions’ IHS Fund II SA pursues a relevant Just
Transition strategy: the fund invests in affordable
housing in South Africa, and includes green building
technologies across the majority of its developments.
The fund uses IFC’s ‘Edge’ tool to certify buildings
to be green and achieved certification for around
60% of residential units built. The fund targets
peri-urban communities and seeks to support local
neighbourhoods and hire locally for its projects,
creating jobs in the communities it targets.
The $177 million fund combines equity and debt
layers to attract public investors and also pension
funds and other institutional investors.

International Housing Solutions: IHS Fund II South Africa

Overview
Ambition(including linkage to Just Transition)

Statement: Invest in the acquisition and delivery ofManageraffordable and green affordable housing in South
Africa for rental and sale.

Founded in 2005, based in Johannesburg, South Africa,
the manager has over 40 employees.

• Climate and Environmental Action: Deliver a minimumof 5,760 green units

Total capital raised is currently at $665 million, across six
funds.

• S ocio-economic Distribution and Equity: Throughdelivery of the housing, create employment opportunities
as well as deliver housing to the affordable market where
there is a significant under-supply

Investors• Community Voice: As part of the delivery of social
housing units (where the government provides a subsidy),
develop social integration platforms for the lower end of
the housing market

Description of FundIHS Fund II SA (FII) invests in the acquisition and developmentof affordable residential real estate in South Africa targetedprimarily at lower- and middle-income households with anaverage market value per unit of less than ZAR650,000(adjusted by consumer price index from January 15)Over 5,700 units are IFC EDGE certified, ensuring green
housing.

Investors
Combination of 10 LPs including DFIs, development banks,
impact investors, pension funds and other Institutional
Investors – both local and international.
Key attraction points for institutional investors• Combined social and environmental impact investment• Affordable housing investment in an under-supplied market
Key challenges for institutional investors• Introduction to African market and associated risks• Forex implications for foreign investors since fund is local
currency denominated.

Key Terms
Fund LEVELINVESTEE LEVEL (investment strategy)• Vehicle/fund type: Closed-end private real estate fund•F
 und size: Actual $176.5 million• B lending and/or TA: N/A• S ponsor/anchor: N/A• Term/investment period: 10 years / 4 years• Target return: Target 20-22% gross IRR• M anagement fee/incentive fee: 2% / carried interest• V intage (first close): 2014
• Co-investment rights: Not applicable• I nstrument(s): Debt (max 75%) and equity• Target investee type(s): Real estate development held inspecial purpose vehicles (SPVs)• Target sector(s): Affordable housing real estate• Target geography(ies): South Africa• I nvestment tenor: Exit all investments before mid-2024• Average ticket size: ZAR60 million• I nvestment currency: ZAR
Continued on next page133

Mobilising institutional capital towards the SDGs and a Just Transition

CASE
STUDY

International Housing Solutions: IHS Fund II South Africa

Pipeline and portfolio
Market Opportunity
The Problem: Shortage of housing affordable to the lowerand middle-income households in South Africa (“missing
middle”); approximately 2.1 million houses needed to bebuilt to clear the backlog exacerbated by rapid urbanisationaccording to statistics reported by the government in 2016.

The Opportunity: Supply of affordable housing.
Pipeline: Not applicable, as the fund is fully committed,
31 investments.

ALLOCATION

Allocation - Geography

Allocation - Sector

South Africa

Affordable Housing

100%

100%

Just Transition in the Investment Process• Sourcing affordable housing opportunity located in infillsites close to amenities, transport and job opportunities
where there is a shortage of housing• Q uarterly reporting of employment figures at investee andmanager level as well as monitoring performance of green
units in terms of water and electricity consumption

Structure and risks
LEGAL STRUCTURE

KEY RISKS

Equity Investors

Debt Investors

EquityDebt

IHS Fund II SAManagement

International
Housing
Solutions

Key Risks

Mitigant(s)Geographic

All South Africa

Currency

Denominated and operated in ZAR

Counterparty

Strong in-house legal team overseeing
the rollout of legal agreements andcontracts. Deep experience, average ofover 25 years of experience within theteam

Concentration

While all in Sout Africa, investments are
spread throughout the country with afocus in primary nodes with employment
opportunities. Market studies form partof deal approval process

Credit

Max LTV of 75% at investee-level and
70% at fund-level

SPVs for projects

Jurisdiction: South Africa
Legal form: En commandite limited partnership
Capital structure: Single capital layer (equity) and debt

134How do we mobilise capital at scale towards the SDGs now?

Outcomes framework
Climate and social metrics

Framework and reporting

Examples:• U nderlying reporting standards: IFC EDGE Certification
tool for greening of units at the Investee (project) level•C limate and Environmental Action: Portfolio: green
units delivered. Investee/Asset: performance of green units
savings in terms of water and electricity consumption• S ocio-economic Distribution and Equity: Employment
figures at both portfolio and investee level, including
within IHS, the developer for the construction period andthroughout operations for property management•C ommunity Voice: In certain housing investments,
community meetings for social integration. However, notreported nor required to be reported on as a metric• Reporting: In line with requirements of both the IFC Annual
Data Collection for Development Outcomes and EIB Annual
KPI Data Collection• Transparency: Annual and quarterly investors reporting
including questionnaires and surveys• Third-party verification: Green Building Council of SA forverification of EDGE certified units

Select areas of Just Transition enhancement• Could the fund expand its ambition statement to include
targets for all three Just Transition Elements?
• Could the fund include explicit prioritisation
and reporting on community engagement andneighbourhood voice to ensure units are built andrun to the satisfaction of the targeted population andbuild learnings (potentially from renewals data as wellas through formalised mechanisms for consultationand feedback)?

Investee in the spotlight
Investing in Tirong development

Background

Investment

IHS identified an affordable housing gap within the node inwhich Tirong is being developed. While there was existing
housing supply in the node, there was a shortage ofaffordable housing which prompted IHS Fund II SA to invest
in the delivery of units that were between 3% to 9% cheaper
than the closest comparable housing.

Investment of ZAR33.8 million in equity into thedevelopment of 638 green affordable housing units(free-standing homes).

The project is located in Tirong (formerly known as
Houtkoppen), located within close proximity to the Northgate
Dome and Cosmo City, which was one of the largest
government housing projects in Johannesburg.
The deal was closed into the fund in October 2016 and is
structured as a ‘For Sale’ development deal where 638 units
will be sold to the open bonded market and delivered over
six phases.

ImpactClimate and Environmental Action: Green EDGE
Certified Units verified by GBCSA using the IFC Tool.
Socio-economic Distribution and Equity: Provided 638
families with affordable housing while creating employment
for over 220 people in construction over the development life.
Community Voice: Not applicable, only market research
to meet the statutory requirements.

135

Mobilising institutional capital towards the SDGs and a Just Transition

Another example of a real estate fund isDivercity’s Urban Property Fund. Similar to
the IHS fund, this fund also provides green andaffordable housing in South Africa. However, it
focuses on the country’s inner cities, aiming to
improve housing for lower-income population

segments in urban communities. Like the IHS
fund, the Urban Property Fund integrates a strongsocial mandate with sustainability and green
building practices. Divercity is also interestingfor its structure as an evergreen investmentcompany.

EXAMPLE

Divercity: Urban Property Fund
Fund overview

Outcomes

Divercity’s Urban Property Fund is anaffordable housing platform focused on theregeneration of South African cities. Divercity
expects to fund the development of about 2,500
new residential units over its investment period.
The fund intends to provide quality, affordable
and environmentally sustainable housing for lowand middle-income households in central, yet
underinvested areas in major South African cities
with a focus on Johannesburg.

The fund focuses on environmentally sustainableaffordable housing, effectively combining thesocio-economic and environmental targets.
It further integrates the Community Voice
Element through its neighbourhood focus,
seeking to create liveable urban environments incooperation with local communities.

The fund invests in high density urban precincts,
selected to be well located, rich in amenities,
and weighted towards affordable rental housing.
The fund aims to offer low- and middle-income
households the opportunity to live in sustainableurban environments, close to where they work
and with access to the essential amenities
required to get ahead in life.

Structure
Open-end investment company.

Manager
Divercity is a fully integrated property fundmanager, including fund management, asset
management and development management
under one roof. Its existing portfolio of ZAR3
billion comprises 6,500 residential units and90,000 m2 commercial and retail gross leasablearea. In 2021 Divercity acquired residential
property and asset manager Ithemba Property,
which has a 20-year track record in managing
affordable rental housing.

Investors
Investors in the Urban Property Fund include
CDC Group ($36 million), South African impact
investor Futuregrowth, and existing Divercity
shareholders, including Atterbury, Ithemba
Property, Nedbank Properties and RMH Group.

136

On the social side, the fund aims to address
the growing housing shortage in South African
cities, which particularly affects low-income
populations. As a majority of low-cost housing
is on the outskirts of major cities, most of thelower-income population resides in informal,
congested and poor-quality housing.
On the climate side, the fund targets
environmentally sustainable housing.

Select areas of potential Just
Transition enhancement• Is there an opportunity to include a clear
climate target to the fund, including theaddition of a clear assessment of thesustainability of projects (such as climate
smart approaches, including efficient building
materials and waste and water efficiency)?
• Could the fund explicitly include prioritisation
and reporting on community engagement andneighbourhood voice to ensure units are built
and managed to the satisfaction of the targeted
population and to build learnings (potentiallyfrom renewals data as well as throughformalised mechanisms for consultation andfeedback)?

Source: Divercity website: https://www.divercity.co.za/

How do we mobilise capital at scale towards the SDGs now?

Another example of a real estate fund is
Schroders’ Schroder Capital UK Real Estate
Impact Fund (SCREIF). This UK fund is broader
in its investment strategy than the prior two
funds, covering not only residential housing but

also commercial real estate focused on SMEs.
SCREIF integrates a strong social mandate withsustainability and green building practices. It isalso interesting for its structure as an open-end
fund.

EXAMPLE

Schroders: Schroder Capital UK Real Estate Impact Fund
Fund overview
The Schroder Capital Real Estate Impact Fund
(SCREIF) aims to tackle social inequality and climate change
through place-based impact investing. Real estate offers atangible route to participate in solutions and SCREIF seeks
to provide positive social and environmental outcomesalongside a long-term 7-8% net return per annum throughinvestment in areas of the UK defined as ‘deprived’ by the
UK government’s Index of Multiple Deprivation. Througha scalable, diversified approach, the fund will focus on
regeneration of town centres where mixed-use schemescombine retail, housing, social infrastructure and improved
public spaces; affordable office space for SMEs andentrepreneurs; and affordable and social housing.
The Impact Scorecard is a proprietary geospatial and impact
screening tool, built in collaboration with BlueOrchard,
based on five dimensions: People, Planet, Prosperity, Risk
and Additionality, and aligns with the IMP framework. For
each investment, the Impact Scorecard evaluates the impact
intention, the beneficiaries of the asset’s impact, potential
impact risks and the deliverable additionality in the asset’s
location. Critically, the outcomes of the Impact Scorecard
ascertain whether, through asset management initiatives,
sufficient positive impact will be generated by each asset.
The Impact Committee, an independent group of impact
specialists including Schroders Group’s sustainability team,Schroders Capital and BlueOrchard, provides an additional
layer of governance to assess each asset’s impact intent toensure alignment with the fund’s impact objectives.

Structure
SCREIF is an open-end real estate vehicle domiciled in the
UK with a Luxembourg feeder and a target AUM of £750
million.

ManagerSchroders has 50 years’ experience of investing in realestate. As of June 2021, Schroders Capital Real Estate
managed £16.5 billion on behalf of a range of UK andinternational institutions. Sustainability and impact are
integrated into all of their strategies to deliver sustainablelong-term financial outcomes. Schroders is a founding
signatory of several industry programmes including the Net
Zero Asset Managers’ Initiative.

Investors
The fund is suitable for institutional investors.

Outcomes
SCREIF’s strategic outcome objectives are theimprovement and revitalisation of town centres andcommunities; supporting regional economic development
through provision of affordable workspaces and training
opportunities; and addressing the UK’s housing crisis
through high-quality yet affordable housing for a range
of demographics and needs. Through investment in
non-traditional locations, SCREIF will support the UK
government’s levelling up agenda. Stakeholder engagement
is central to successful positive outcomes. Therefore SCREIF
teams collaborate closely with all parties throughout theinvestment lifecycle.
Each asset has defined impact and sustainability targets
and progress is measured and published annually by an
external impact consultant using metrics such as affordability
benchmarking, annual social return on investment andembodied carbon assessments.

Select areas of potential Just Transition
enhancement• Is there an opportunity to have a clear ambition statement
across Climate and Environmental Action; Socio-Economic
Distribution and Equity; and Community Voice?

Source: Manager information, provided for information purposes only. The
material is not intended as an offer or solicitation for the purchase or sale ofany financial instrument or security or to adopt any investment strategy. The
information provided is not intended to constitute investment advice, an investment recommendation or investment research and does not take into accountspecific circumstances of any recipient. The material is not intended to provide
and should not be relied on for accountant, legal or tax advice. Information
herein is believed to be reliable but Schroders does not represent or warrant
its completeness or accuracy. This relates to a potential investment fund which
has not yet been launched. Aspects may be subject to alteration and change.

137

Mobilising institutional capital towards the SDGs and a Just Transition

3.4.6 Bond vehicles
3.4.6.1 Bond vehicle: Application of
the blueprint to a case study andsupporting examples
As discussed in Section 1.4.1, ESG thematic bonds
are booming, in particular green bonds, providing
significant potential for Just Transition financing.

The green bond market momentum has also
spawned innovation in social bonds, with genderthemes, in particular, gaining traction. Such bonds,
and vehicles which pool them, are part of thesignificant fixed income asset class.

Figure 3.6

Bonds: Market and ESG trends
The bond market is, by far, the largest securities market in theworld, having evolved into a $128 trillion global marketplaceas per ICMA estimates. It comprises $88 trillion sovereign
bonds (including issuers such as governments, quasigovernments or municipals) and $41 trillion corporate bonds.
The market is dominated by the US with $22 trillion and
China with $20 trillion, followed by Japan with $12 trillion. The
corporate bond market is also dominated by the US with $11
trillion and China with $7 trillion. From a sector perspective,
53% (or $22 trillion) of outstanding corporate bonds are issued
by financial institutions.

significantly oversubscribed (see Section 2.3.4.4).
Looking at emerging markets, the market is dominated by
Chinese green bonds, accounting for over $115 billion of theclose to $200 billion market.
Emerging markets green bonds outperformed theirconventional counterparts in 2020 and demonstrated lower
volatility. Amundi and the IFC expect emerging markets green
bonds to exceed $100 billion in annual issuance by 2023.
In Africa, only South Africa (issue volume of $200 million byStandard Bank) and Egypt ($750 million) saw any green bondissuances in 2020; in Sub-Saharan Africa, cumulatively overtime, financial institutions account for 60% of issuances.

Global ESG thematic bond issuance has risen sharply inthe last eight years, reaching close to $450 million in 2020,
according to Amundi and IFC. In particular, green bonds
have boomed, with total global issuance amounting to over$280 billion in 2020. The UK government recently issued fourgreen gilts (including social co-benefits reporting) that were

Sources: ICMA (2020): “Bond market size”; https://www.icmagroup.org/Regulatory-Policy-and-Market-Practice/Secondary-Markets/bond-market-size/;
Amundi and IFC (2021): “Emerging Market Green Bonds Report 2020”

Global ESG thematic bond issuance($ billion)
500
450
400
350
300
250
200
150
100
50
0
2012

2013

2014

2015

2016

2017

2018

2019

2020

Sustainability-linked bonds

DM Social bonds

EM social bonds

EM sustainability bonds

DM sustainability bonds

Supranational green bonds

EM green bonds

DM green bonds

Sources: IFC, Bloomberg, Environmental Finance Climate Bonds Initiative203

Impact Investing Institute(2020): “The Green+ Gilt:
How the UK could issue
sovereign bonds thatdeliver climate action andsocial renewal”; https://www.impactinvest.
org.uk/publications/the-green-gilt-how-theuk-could-issue-sovereignbonds-that-deliver-climateaction-and-social-renewal

138

From autumn 2021, the UK Government has
committed to reporting on social co-benefits
generated from the use of proceeds from its new
green sovereign bond (gilt) issuance (see also
Section 2.3.4.4).203 There is a significant nearterm opportunity to steer the size, standards andmomentum of the green bond market towards a
Just Transition.
As they are listed and issued by corporate orsovereign issuers, bonds’ specific requirements
are quite different from private instruments,

including the need to satisfy listing obligations.
Managers and investors of listed funds
typically have limited ability to influence vehicle
dimensions, although they could assess andprioritise them in accordance with the proposed
integrated Just Transition Elements andunderlying Principles. For example, an investor
could prioritise bonds where the issuer isperforming surveys on the effectiveness of use ofproceeds throughout the life of the bond, not justat issuance.

How do we mobilise capital at scale towards the SDGs now?

ESG thematic bond labels•G reen bonds: Earmarked to finance new orexisting projects with environmental benefits• S ocial bonds: Finance projects that achieve
positive social outcomes, especially for atarget population• S ustainability bonds: Finance both green
and social projects•S ustainability-linked bonds: Performancebased non-earmarked bonds whose financial
or structural characteristics are adjusted
depending on the achievement of predefinedsustainability objectives. Consequently, theinvestor typically assesses the issuer, notspecific projects•C limate transition bonds: Finance thetransition to a low-carbon economy

The social impact of bonds remains crucial toa sustainable post-Covid 19 transformation andrecovery, even though social bonds have often
been seen as differentiated and siloed offerings.
Some innovative bond developments include:• Local currency bond issuances are stillat an early stage but are slowly coming tomarket• The gender bond market is also still very
young, but provides an opportunity to further
gender equality• Transition bonds have the potential to
become their own asset class, incorporating
further ESG implications, and could align very
closely to Just Transition principles

Source: Amundi and IFC (2021): "Emerging Market Green Bonds Report 2020;
Environmental finance (2021); https://www.environmental-finance.com/content/
the-green-bond-hub/the-sustainable-bond-market-beyond-2020-green-bondsstrike-back.html

It is also important to understand the otherstakeholders in listed vehicles and the roles
they perform, as these are often different fromthose in the private market. For instance, on theoutcomes side, sustainability rating agencies(e.g., Sustainalytics and MSCI) cover metrics
for sustainability performance and reporting.
To date, sustainability outcomes have lacked
standardisation in the market, leading to highly
bespoke transactions that make them more timeand cost-intensive.
BlueOrchard’s Schroder International
Selection Fund BlueOrchard Emerging

SPOTLIGHT

Markets Climate Bond Fund (CBF) is anoteworthy example of a Just Transition aligned
bond vehicle, focusing predominantly on green
and sustainability bonds while also assessing andtracking social outcomes, both at issuer and target
investee levels.
As noted earlier, BlueOrchard is an experienced
impact investment manager and was acquired in2019 by Schroders – an example of the increasing
integration of mainstream and impact managers.
The fund attracted over $100 million of institutional
capital using an open-end fund structure, offering
investors daily liquidity.

Enel SpA green bonds

Since 2017, Enel has issued three green bonds
for a total amount of €3.5 billion. The green
bonds target institutional investors and wereguaranteed by Enel SpA. The net issuanceproceeds were used to finance eligible projects
according to the “Green Bond Principles”
categories, published by the International
Capital Market Association (ICMA). In particular,
the proceeds were used to finance:• New projects for the development,
construction and repowering of generation
plants from renewable sources• New projects for the development,
construction, repowering and refinancing ofgeneration plants from renewable sources aswell as projects for transmission, distribution
and smart grids

Source: Enel (2019): "Green Bond Report 2019"139

Mobilising institutional capital towards the SDGs and a Just Transition

CASE
STUDY

BlueOrchard: Schroder International Selection FundBlueOrchard Emerging Markets Climate Bond fundOverview
Ambition(including linkage to Just Transition)

Statement: "Invest for a sustainable, low carbon

Manager

future in a growing, primarily emerging markets
issued climate bond universe”

Founded in 2001, BlueOrchard has $4 billion of AUM and has
invested over $8 billion over 20 years across over 90 countries.

• Climate and Environmental Action: Focus on green
bonds, but also includes sustainability-linked bonds
with climate objectives and general bonds of climate
action issuers with a targeted business model tacklingenvironmental change; stringent impact scoring

Headquartered in Zurich with six further offices and over
120 staff globally.

• S ocio-economic Distribution and Equity: Inclusionof sustainability bonds and sustainability-linked bonds withsocial angle next to environment; all issuers are assessedon social characteristics and each issuance is linked to theSDGs; focus on emerging markets (target 67%)
• Community Voice: Issuer might be challenged on their
ESG and impact characteristics or transparency; ESG
assessment includes responsible treatment of clients
as well as analysis on ESG issues related to community
relations

Description of Fund

Dedicated impact investment manager with largest microfinancefund worldwide and an over $550 million impact bond portfolio.

Investors
Investors
Private and institutional investors.
Key attraction points for institutional investors• Climate bond strategy based on actively managed investment
process and including a stringent proprietary impact
framework• Scalable, undertakings for collective investment in transferable
securities (UCITS) compliant structure offering daily liquidity• Proprietary impact framework applied throughout

BlueOrchard’s Schroder International Selection Fund
Emerging Markets Climate Bond Fund (CBF) launched in
Q2 2021 with seed capital of $75 million.
The UCITS fund purchases mainly green bonds, as well assustainability bonds, sustainability-linked bonds and generalbonds aligned to climate action.
The investment process includes a stringent andindependent ESG and further impact analysis; positions
are only included in the portfolio upon passing both theseas well as the financial assessments.

Key Terms
Fund LEVEL• Vehicle/fund type: Open-end bond fund• Fund size: Actual size over $100 million• Target return: Target of ICE BofA 3 month US Treasury
Bill Index + 2.5% gross of fees over a 3- to 5-year period• M anagement fee: 0.6% (class C) / 1.45% (class A+B)

INVESTEE LEVEL (investment strategy)

140

service offering aligned to environmental change; majority
EM but also including DM; have to pass stringent internal
ESG and impact selection process; current weighted
BBB rating• Target sector(s): FIs, sovereigns, utilities, real estate,materials, renewable energy, mass transit• Target geography(ies): Initially at least 50% emerging
markets; exposure to increase to at least 67% after three
years of fund launch• I nstrument(s): Bonds• D uration: 2-7 years, average 5.4 years• Target investee type(s): Green, sustainability andsustainability-linked listed bonds and selectively generalbonds of issuers with a business model and/or product or• I nvestment currency: Any currency, yet needs to behedged back to USD

How do we mobilise capital at scale towards the SDGs now?

Pipeline and portfolio
Market Opportunity
The Problem: Climate change is one of the key global
threats; $16.8 trillion estimated investments are required for
global climate finance until 2030, both in climate adaptationand climate change mitigation.

The Opportunity: $1 trillion cumulative green bond issuancesince 2010 (57% CAGR); expected to increase to $2 trillion in
2023.

ALLOCATION

Allocation - Geography

Allocation - Sector

6%Emerging markets
Developed markets
Cash

30%

12%

Financials

3%
3%

34%

7%

Utilities
Materials
Supranationals

7%

65%

Sovereigns

Govt Dev Banks

13%

Energy15%

Other

Just Transition in the Investment Process• Due diligence includes a three-step approach which
includes an ESG scoring, an impact scoring and an
SDG mapping (active mapping based on identified KPIs,
beyond issuer claims). Prior to investment, each position
requires approval from both the Portfolio Management andthe Impact Management teams (independent fromthe Portfolio Management team)• Monitoring includes regular review of ESG and impact
assessment (at the latest within 18 months) of each positionin the portfolio; ongoing monitoring on exposure to ESG
issues through a respective RepRisk alert and internal
analysis of cases

Structure and risks
LEGAL STRUCTURE

KEY RISKS

Investors

Key Risks

Mitigant(s)Geographic

Diversified: target at least 67% EM

Currency

HedgedInterest rate

Duration management

CreditIssuer ratings, current weighted rating
BBB

Portfolio
management

Shares

BlueOrchard

CBF
Bond
purchase

Distributor /AIFM

Schroders (SDR)

Bonds

Jurisdiction: Luxembourg
Legal form: UCITS fund with daily liquidity
Capital structure: Open-end mutual fund,all share classes rank pari-passu

Continued on next page141

Mobilising institutional capital towards the SDGs and a Just Transition

CASE
STUDY

BlueOrchard: Schroder International Selection FundBlueOrchard Emerging Markets Climate Bond fundOutcomes framework
Climate and social metrics

Framework and reporting

Examples:(Note: Exact metrics are currently under discussion due
to rather low data availability in emerging markets.)• U nderlying reporting standards: BlueOrchard has its
proprietary B.Impact framework which consists of an ESG
assessment at issuer level as well as an impact assessment
on issuance level. The framework is aligned with the Operating
Principles of Impact Management and the IMP and classifies
as an Article 9 fund according to the Sustainable Finance
Disclosure Regulation (SFDR)• Transparency: The fund reports, on a quarterly basis, its
average ESG and impact scores, alignment to the SDGs aswell as a concrete portfolio position; in addition, a yearly impact
report will be produced (still under development)• Third-party verification: BlueOrchard is currently in the processof getting the whole investment process externally verified asaligned with the Operating Principles for Impact Management•O verall: Average ESG and impact scores of portfolio• Climate and Environmental Action: Number of green/sustainability-linked bonds in portfolio• S ocio-economic Distribution and Equity: Percentage
of investments in EM• Community Voice: N/A•P ortfolio example: Detailed insights into one position in
the portfolio from an ESG and impact perspective; KPIs
depending on investment intent

Select areas of Just Transition enhancement• Could the fund expand its ambition statement to include
targets for all three Elements of the Just Transition?
• Could the fund include in its assessment and potentiallyprioritise bonds based on the issuer’s community engagement (e.g., the verification of the relevance of products
based on community need and feedback mechanisms)?

Investee in the spotlight
Investing in Greenko Group PLC

Background
Greenko is a leading renewable energy company in India.
The company develops, owns and operates energy projects
with a focus on solar, wind and hydro. Net installed renewableenergy capacity as of end of 2020 reached 6.2 GW across 15
states in India.
The company’s business model is focused on decarbonisation of the Indian energy sector through digitalisationand decentralisation. As shown by the International Energy
Agency, in 2020 nearly 70% of the energy demand in India
still related to coal (44%) and oil (25%). Overall, the country is
the third-largest global emitter of CO2 – with the power sector
showing a carbon-intensity well above the global average.
Given the growing energy use in the country, companies
like Greenko play an important role in improving India’s
environmental footprint.

Investment
The fund invested in a March 2021 primary issuance of aGreen Bond of Greenko. Use of proceeds will be allocated to
expenditures related to the development and acquisition ofwind and solar projects.

ImpactBased on the proprietary Impact Assessment process,
BlueOrchard will track specific metrics for their impact
reporting (expected after one year of issuance). KPIs related
to renewable energy capacity installed as well as CO2
emissions reduced. Following the categories of the IMP,BlueOrchard sees this investment as a contribution to finance(climate) solutions and to support a company whose activity

142

is performed in a way that contributes substantially anddirectly to an environmental objective.
Climate and Environmental Action: The proceeds ofthe Green Bond are targeted at wind and solar projects,
therefore supporting building-up of such capacities in the
Indian energy sector.
Socio-economic Distribution and Equity: Assessing
Greenko from an ESG perspective shows high awareness ofthe company for social topics, and high disclosure on several
aspects. For instance, they pay attention to train employees
on a regular basis, not only on health and safety but also
on social performance topics. Or, they maintain a customer
satisfaction index for their utility customers (2019–2020
result: 100%) and report on how many contractors/suppliers
have been retained beyond three years (2019–2020: 80%) as
well as how many are local (2019–2020: 45.1%).
Community Voice: Greenko is setting itself concrete
community development targets and goals in the areaof education (interventions in government-run schools,
among children and community around its operationalpresence), healthcare (provide quality healthcare to people
living in communities around operational presence), ruraldevelopment (improve living standard of people, mainly
by improving basic amenities and rural infrastructure),
livelihoods (providing skill training), environment (plant
trees in and around group’s operational presence), impact
assessment (third-party assessment of CSR interventions).
For the reporting cycle 2019–2020, the company had 486
ongoing community development programmes.

How do we mobilise capital at scale towards the SDGs now?

204

Environmental Finance(2019): "Winners of Environmental Finance Bond
Awards 2019 honoured bymarket"; https://www.environmental-finance.com/
content/analysis/winnersof-environmental-financebond-awards-2019-honoured-by-market.html

Amundi and the IFC’s Amundi Planet
Emerging Green One (EGO) Fund is anotherexample of a bond fund providing capital for green
bond purchases to further environmental projects
and actions in emerging markets. It was named
both Initiative of the Year and Green Bond Fundof the Year by Environmental Finance in 2019.204
The fund aims to buy green bonds issued byemerging market banks to increase the banks'
capacity to provide loans locally, funding climate-friendly investments. Launched by Amundi andthe IFC in 2018, the fund has raised $1.4 billion
using a blended structure, where public investors
provide subordinated capital, allowing a number of
institutional investors to participate.
The fund provides another example of thecollaboration of a public MDB with a private sector
manager, seeking to use the best capabilities ofboth worlds.

EXAMPLE

Amundi/IFC: Emerging Green One Fund
Fund overview

Outcomes

Amundi and the IFC’s Amundi Planet Emerging Green
One (EGO) Fund, launched in 2018, is the world’s largest
targeted green bond fund focused on emerging markets. The
fund combines Amundi’s asset management experience with
the IFC’s expertise in private sector development in emerging
markets. The fund, which closed at $1.42 billion, is expected
to deploy $2 billion into emerging markets green bonds over
its lifetime, as proceeds are reinvested during the fund’s
seven-year term. The fund aims to increase the capacity ofemerging market banks to fund climate-smart investments. It
is expected to increase the scale and pace of climate financein emerging markets by attracting large-scale capital frominvestors and creating new markets.

Using Amundi’s own unique ESG framework (which isaligned with IFC’s), Emerging Green One aims to invest
into green bonds where measurable green impacts can bereported. The fund has a blended structure, including a junior
and a mezzanine tranche. This aims to offset some of theperceived risk inherent to investing in emerging markets debt
and thereby attract more private investment.

Structure

The fund has a technical assistance programme, which
provides training to emerging market banks in green,sustainability and social bond issuance, including improving
quality of reporting and knowledge sharing.

The fund structure includes a junior tranche, mezzanine andsenior tranches.

Manager
The EGO fund is managed by Amundi with IFC seeding thefund and providing technical assistance on key aspects suchas ESG and impact reporting. The IFC is the private-sector
arm of the World Bank Group, working to advance economic
development through for-profit and commercial projects.
As of December 2020, IFC had issued 178 green bonds forover $10.6 billion. Amundi is Europe's largest asset manager
with €1.43 trillion in AUM. Amundi also has other green bondfunds under management, such as the Amundi Impact Green
Bond fund and the Amundi Responsible Investing – Impact
Green Bonds.

Investors
IFC was the cornerstone investor providing $256 million,
and also provided technical assistance grant funding for theunderlying issuers. The IFC and other development banks,
including Proparco, the EIB and the EBRD, invested inmezzanine and junior tranches of the fund. More than 60%of the final $1.4-billion capital raise came from institutional
investors. These included several European pension funds
and insurance companies, such as the Swedish pension
funds Alecta, AP3 and AP4, the French public additional
pension scheme ERAFP, and Crédit Agricole Assurances.

The fund invests in green bonds, yet applies an integrated
ESG lens to investments. The underlying green bond use ofproceeds cover renewable energy, green transport, energy
efficiency, green building, water management and waste
management. The fund’s core metric is tonnes of GHG
emissions avoided.

Select areas of potential Just Transition
enhancement• Is there an opportunity for the fund to include express
climate targets?
• Could there be socio-economic parameters beyond
climate that lead to prioritisation of certain bonds basedon their planned and stated use of proceeds, and could
sustainability bonds and sustainability-linked bonds be
included in the focus?
• Could the fund include a more stringent issuer assessment(beyond project) with respect to climate and social
aspects? And prioritise bonds where the issuers conduct
community surveys on the effectiveness of the use ofproceeds?

Sources: Amundi (2021): "Amundi Planet Emerging Green One"; Environmental Finance (2020): "Green bond fund of the year – Amundi"; Amundi (2021):"Amundi Planet Emerging Green One Factsheet"143

Mobilising institutional capital towards the SDGs and a Just Transition

While not an investment vehicle, IFC’s Masalabond programme 205 is interesting given its uniqueand effective structure, where the IFC issues AAArated local currency bonds. The programme has
effectively tackled an important market challenge,
namely, local currency financing, allowing
institutional investors to invest in Indian rupeedenominated bonds, creating an efficient market
that provides investors with the necessary credit

ratings and liquidity. An additional consideration
for potential replication, the IFC issued the firstgreen Masala bond under its programme on the
London Stock Exchange in 2015, backing a green
bond issuance by YES Bank. The IFC Masala bondprogramme demonstrates the power of using asset
class instruments to catalyse a domestic market,
thereby creating significant opportunity for more
capital to flow.

EXAMPLE

IFC: Masala bond programme
Fund overview

Issuer

IFC’s Masala bond programme is a $3 billion programme,
where the IFC issues rupee-denominated bonds oninternational stock exchanges, benefiting from the IFC’s
AAA issuer rating. The proceeds are invested in local bondissuances by select issuers to advance private sector
development in India and provide issuers with local currency
access.

The IFC is the private-sector arm of the World Bank Group,working to advance economic development through forprofit and commercial projects. The Masala Bond market,
catalysed by IFC’s pioneering issuances, is now cumulatively
estimated to have been tapped by over 15 issuers across
50 or more issuances, raising close to $10 billion (rupeeequivalent) of financing from a wide range of international
investors.

Within its programme, the IFC issued its first green Masalabond in 2015, using proceeds to finance YES Bank’s local
green bond, proceeds of which, in turn, were earmarked forrenewable energy projects in India.

Investors
A wide range of international institutional investors.

Over the past few years, IFC’s Masala bond programme
has played an important role in deepening India’s capital
markets, prompting the Reserve Bank of India to authorise
Indian companies and banks to issue similar bonds inoffshore markets, demonstrating the catalytic effect of the
programme on broadening local currency issuance. The
programme is also supporting Indian companies seeking
to issue Masala bonds by providing advice and sharing
experience as a pioneer issuer in this market. Over the years
many Indian issuers, public and private sector, corporates
and financial institutions as well as a state government(i.e., sub-national) have issued Masala bonds for their own
financing needs.

Outcomes

With the latest Masala bond issuance, IFC has created an
offshore rupee-market yield curve that stretches from three
to 15 years, deepening the market and making it more
resilient. This sends a clear signal that investor demand forhigh-quality assets in India remains strong, despite global
financial uncertainties.

• Could the programme track and report outcomes on
Climate and Environmental Action; Socio-economic
Distribution and Equity; and Community Voice as a way tofurther inform and shape the market?

The programme targets an important market gap in termsof broadening access to local currency financing. The green
bonds issuances under the programme align well with theJust Transition Elements, combining a climate focus for useof proceeds with the furtherance of local capital markets andthe tackling of local currency funding gaps.

Select areas of potential Just Transition
enhancement• Could the programme include an explicit ambition
statement addressing its relevance to each of the three
Just Transition Elements, including related targets?

Structure
IFC issues rupee-denominated bonds on international stock
exchanges and invests the proceeds in local bond issuancesby select issuers.

205

Masala bonds are bonds
issued outside India but
denominated in Indianrupees.

144

Source: IFC (2016): "IFC Issues Historic 15-year Masala Bond in London";manager information

The opportunity set for ESG thematic bonds is
deep and wide for institutional investors – andmay provide an on-ramp for those who do not yet
have the mandate to invest in emerging markets.
For example, there are developed markets
issuers who use the proceeds of their issuances
to advance their emerging markets activities.
Many of these activities are aligned with the Just

Transition Elements. For example, Enel’s recent
issuance is a good example of achieving a lower
interest rate through explicit climate objectives(see Spotlight panel above). Schneider Electric
has also issued an array of sustainability bonds,
some for specific uses (such as R&D) and others
for more general purposes (see Spotlight panel
below).

How do we mobilise capital at scale towards the SDGs now?

SPOTLIGHT

Schneider Electric

In November 2020, Schneider Electric announced its
first sustainability-linked bond for a nominal amount ofapproximately €650 million. The bond was a sustainabilitylinked senior unsecured bond, convertible into new shares
and/or exchangeable for existing shares of the company.
At launch, the bonds were expected to be rated A-

by Standard and Poor’s. The net proceeds of the offering
will be used by the company for general corporate purposes.
Schneider Electric selected three indicators, shown below,
and committed to achieve a minimum average score of 9/10
on its three KPIs by 31 December 2025.

Schneider Electric's Strategic Pillars#

Schneider Electric's 2025 objectives for each KPI (corresponding to a score of 10/10)

CLIMATE

1

Deliver 800 megatons of saved and avoided CO2 emissions to our customers

EQUAL

2

Increase gender diversity, from hiring to front-line managers and leadership teams (50/40/30)

GENERATIONS

3

Train one million underprivileged people in energy management

Source: Schneider Electric: "Schneider Electric launches its first sustainability-linked bonds convertible into new shares and/or exchangeable for existing shares (OCEANEs) due 2026 for a nominal amount of €650 million"; https://www.se.com/ww/en/
assets/564/document/174193/release-sustainability-linked-bonds.pdf

3.5 Just Transition outcomes
The purpose of this Section is not to introduce
a new outcomes framework 206 nor to provide an
overview of outcomes approaches, methodologies
and trends. Rather, the aim is to provide a Just
Transition lens on how the three integrated Just
Transition Elements can be applied to existing ESG
and impact frameworks.

206

An example for a framework template often usedis the Impact Management
Project (IMP)SPOTLIGHT

The credibility of SDG investing generally and Just
Transition investing specifically derives in large partfrom the demonstration of results. These resultsmust take the shape of outcomes delivered, notmarketing campaigns announced. As a result, aninvestment vehicle’s ability to demonstrate results
is a high-priority undertaking.
The starting assumption is that investors have an
existing ESG and/or impact outcomes frameworkin place, in line with the recommendations of the

Outcomes-focused technology –Proof of Impact

Proof of Impact is a data intelligence platform that transforms data
into impact and financial outcomes. Powered by the proprietary
Impact Catalyst, Proof of Impact takes a bottom-up, data-driven
approach to extract raw data from their clients and the world, andtranslates it into meaningful impact, ESG and financial insights.
By focusing on data about what outcomes are being achieved in
the real world, its Digital ESG and Digital Impact platforms aim toaccelerate the transition for investments and capital markets to helporganisations minimise risk, maximise returns and maximise impact.
Source: Proof of Impact website

Impact Taskforce’s Workstream A report. If no suchframework is in place, the presented approach canbe used as a starting point.
The Just Transition approach covers:• Threshold questions that should be answered
when applying a Just Transition lens to the design
and implementation of an investment vehicle• Guidance on what should be considered andaddressed when applying a Just Transition lensto an investment vehicle's design and operations

3.5.1 Just Transition
outcomes: Thresholdquestions
The following are the key threshold questions a
Just Transition vehicle design should answer interms of outcomes:

1 WHAT
What does the vehicle set out to achieve based on,
and including, each of the three Elements:• Define a clear ambition statement• Define objectives and the targeted outcomes• Define clear and measurable targets across key
indicators

2 WHOWho is benefiting from the vehicle, directly andindirectly; ensuring that the vehicle includes aplace-based lens:145

Mobilising institutional capital towards the SDGs and a Just Transition

SPOTLIGHT

AfDB ambition – Bond portfolios (Sustainability and Green)
Shown below are AfDB’s high-level targets that underpin their ambition across the bank’s bond portfolios.
The bank’s targets are presented for illustrative purposes and not meant to cover the Just Transition
Elements comprehensively. They are also specific to the objectives and sector strategy of the bank.

Green Bonds

43 MtCO2e
GHG
emissions
43 MtCO2e
reducedor avoided
GHG emissions
annually
reduced or avoided

462 MW
Renewableenergy462 MWcapacity
constructed
Renewableenergyorrehabilitatedcapacity constructed1,394,682 MWh
Energyproduced
1,394,682
MWhannually
Energyproduced

795,182 MWh
Energy795,182savings
MWhannually
Energysavings

515 million m3
Water
515saved/treatedmillion m3

106 million m3
Watersavings
106
millionannuallym3

90 million m3
Wastewater
90 milliontreated,m3
reused or avoided
Wastewater
treated,annually
reusedor avoided

70,621 hectares
Irrigated
land
70,621hectaresannually

Water saved/treated

46,662 hectares
Degraded
forest46,662hectaresrehabilitated
Degraded
forestrehabilitated69.1 million

Water savings annually

12,972Trees
planted12,972
Trees planted

annually

11.5 million
11.5 million

annually

Irrigated land

2.6 million
Jobs
created2.6 million
Jobs createdSustainability Bonds

69.1 million

9%
Decreasein poverty
9%
Decrease in poverty

290,100
Peopletrained290,100
People trained

Peoplewith better
3.7 million
accesswater
andPeopletowith
bettersanitation
access to water and

18% Increase inaccesswater supply
18%toIncreaseinaccess to water supply

17% Decreasein waterborne
diseases
17% Decrease

16/1,000
Decreasein infant
16/1,000
mortalityinrate
Decrease
infant17/1,000
Decreasein maternal
17/1,000
mortality
rate
Decreasein maternal

32,600 hectares
Arablelandhectares
irrigated or
32,600developed
farming
Arableland forirrigatedor

1.1 million People
with
1.1 better
millionaccess
Peopleto
electricity
with better
access toelectricity

7%
Increase 7%
in access toelectricity
Increase in access to

6.1%
Increasein food
6.1%
security
Increasein food

16% Increase ininternet
service16%
Increaseinpenetrationinternet
servicein waterborne diseases

2.1 million tons
Increasein annual
2.1 million
tonscrop
production
Increasein annual crop
production

26,300 MSMEs
supported
access26,300 with
MSMEs
supported with access

3.7 million

sanitationmortality rate

$3.2 billion
Increase
agricultural$3.2inbillion
and/orcommodity
Increase inagricultural
and/orexports
commodity
exports$1,400 Increase inannual
$1,400 income
Increaseperinannual income per* Based on the UN Statistics Division and the AfDB Statistics Department,
the average African household size was 4.69 in 2019.
** Only in specific social projects that have income generation as an impact metric.

146

annuallyor rehabilitated578,100
Jobs
created578,100
Jobs createdmortality ratesecurity

5% Decrease in
unemployment
5% Decrease rateinunemployment rate

25% Increase inaccessto sanitation
25% Increasein
services
accessto sanitation
services

developed for farming

electricity

penetration

Source: AfDB (2021): "Green and Social Bond Newsletter September
2021"; https://www.afdb.org/en/documents/green-and-social-bondnewsletter-issue-ndeg7-september-2021

How do we mobilise capital at scale towards the SDGs now?

• Define the geographic scope (regional, country,
local), including, if relevant, target segments (suchas urban, peri-urban, rural)

3.5.2 Just Transition
outcomes: Guidance• Define the environmental scope, including climate
as well as other environmental benefits, whereapplicable

The following guidance is for market participants
when utilising a Just Transition approach:• Define the scope of targeted socio-economic
demographic groups, such as targeted
population segments or specific focus on
disadvantaged and/or excluded communities• Define analysis of positive and negative
externalities of the strategy and targeted
investees in the respective regions of investment
and operation

1 E nvironmental and socio-economic target
outcomes are defined from the outset:• The vehicle needs to expressly set its ambition
and targets across all three Just Transition
Elements at the outset• The vehicle can have different priorities, i.e., climate
or social, while ensuring that all three Just Transition
Elements meet the minimum threshold at least:

3 HOW
How does the vehicle ensure the delivery of its
ambition and outcomes; describing pathways
that are embedded in the investment strategy andthroughout the investment lifecycle:• Define a clear investment strategy, articulating
HOW the WHAT and WHO are being addressed

SPOTLIGHT~ Climate and Environmental Action
threshold: Every Just Transition investment
transaction will, as a minimum, include atleast one clear component of Climate andEnvironmental Action and there must be
a net positive contribution to climate andthe environment.
~ S ocio-economic Distribution and Equity
threshold: Every Just Transition investment
transaction will, as a minimum, make a net

Impact Management Project (IMP)The Impact Management Project (IMP) was aforum for building global consensus on how
to measure, assess and report impacts on
people and the environment. The IMP reachedconsensus that impact can be measured acrossfive dimensions (see below) and has developed
15 categories that provide information on thedimensions.

related to impact measurement, assessment
and reporting. The launch of the International
Sustainability Standards Board (ISSB) represents
the next step in standard setting efforts. The Impact
Management Platform represents the next stage of
the IMP evolution, aiming to provide the clarity thatpractitioners have been calling for. The Platform has
created a regularly updated web tool that explains
the core actions of impact management and links
In addition, the IMP facilitated standard-setting
to the resources that support organisations andorganisations that are coordinating efforts toprovide comprehensive standards and guidance investors to implement them.

The IMP reached global consensus that impact can be measured acrossfive dimensions: What, Who, How Much, Contribution and Risk
Impact dimension

Impact questions each dimension seeks to answer• What outcome is occuring in the period?

What• Is the outcome positive or negative?
• How important is the outcome to the people (or planet) experiencing them?

Who• Who experiences the outcome?
• How underserved are the affected stakeholders in relation to the outcome?

How much• How much of the outcome is occurring – across scale, depth and duration?

Contribution• Would this change likely have happened anyway?

Risk• What is the risk to people and planet that impact does not occur as

expected?

Source: IMP website

147

Mobilising institutional capital towards the SDGs and a Just Transition

SPOTLIGHT

Outcomes-focused technology – 60 Decibels

60 Decibels provides mobile, voice-based
customer data collection to understand social
impact from the ground up. Over 960 researchers
conduct local-language voice surveys in across
74 countries. Tested social impact survey tools,aligned to industry standards, are provided
through an integrated technology platform linked
to its impact database.

positive contribution to Socio-economic
Distribution and Equity~ Community Voice threshold: Every Just
Transition investment transaction will, as aminimum, include meaningful engagementwith local stakeholders to and demonstrate how
Community Voice is reflected2 The application of the Just Transition
Elements spans the entire vehicle lifecycle
and is delivered throughout the entire
lifecycle of each underlying investment
3 A mbition and targets may vary dependingon the vehicle; as with the investments,
they are able to be contextual to both thevehicle, its size and aims but also to wherethese investments are being made:

SPOTLIGHT

60 Decibels services can be used to help
tweak or build an impact framework, using themost relevant metrics, build the capabilities
within an organisation and build and provide
initial and continual data collection methods.

Source: 60 Decibels website; https://60decibels.com/   • They are commensurate with the vehicle’s size
and the depth of impact sought   • They are grounded in the local context andbased on needs identified through community
engagement
4 S election of clear, objective metrics:   • The vehicle selects measurable and clear
metrics for each of the three Elements   • Portfolio-level metrics may be supplemented
with additional and sector- or strategy-specificindicators at asset level   • The selection of indicators may depend
on where the vehicle is positioned on the
spectrum between ESG and impact investing.

Rockefeller Foundation’s Global Energy Alliancefor People and Planet metrics – renewable energy

The Global Energy Alliance for People and Planet (GEAPP)
intends to track the metrics shown below. These metrics
are shown for illustrative purposes and are not necessarily
Goal
PEOPLE

comprehensively covering the Just Transition Elements.
What metrics are relevant to an investment vehicle will
depend on the vehicle’s objectives and strategy.

MetricACCESS• # people reached with new electricity connections• # with increased reliability of energy supply (households and businesses)• Increases in clean energy consumption per capita (kwh)JOBS ANDLIVELIHOODS• # green jobs created/enabled• % change in real household incomes in supported areas• Changes in multi-dimensional poverty in supported areas

HEALTHAND HUMAN
DEVELOPMENT• # reduced deaths and illnesses due to air pollution related respiratory ailments• # coal pollution-related premature deaths avoided• % women productive use customers• % women owners, leaders and employees in companies• Impacts of increased energy access on education outcomes (metric TBD)PLANET• Millions of tons of CO2e reduced or abated from energy projects• MW of decommissioned fossil-fuel generation• MW of avoided coal capacity• MW of new renewable energy generation installed
Source: Manager information

148

4

Recommendations

The priority objectives guiding therecommendations below are to:recommendations, which are formulated asconcrete steps for specific audiences.

1 Mobilise institutional capital from the fullrange of private and quasi-public institutional
actors, in pursuit of positive impact andadvancing the Sustainable Development
Goals (SDGs) by increasing the use of proveninstruments and tools that can address
real barriers for private capital participation
significantly, and encouraging more private
sector capital to flow to emerging markets

These steps are instrumental to moving capitalat scale in support of achieving the SDGs
generally, and to advancing a Just Transition in
emerging markets specifically.

2 B reak down silos between climatefirst and social-first strategies andtransactions and strengthen theparticipation of local Community Voiceto advance a Just Transition

These steps can and should be taken by all
actors in parallel.
The audiences called upon to take up theserecommendations are G7 policy makers, national
policy makers and regulators, institutional asset
owners, multilateral development banks (MDBs)
and bilateral development institutions (DFIs),
asset managers, impact investors, advisors andecosystem builders.
We call on all parties to seek ways of working
together to meet the urgent needs of people
and the planet and maximise positive impact.

These objectives provide the basis for our

Urgent andCoordinatedMovement

Environmental andSocial Integration fora Just Transition

Ecosystem
builders

Advisors

Impactinvestors

Assetmanagers

Institutional
asset owners

MDBs/DFIs

G7 policy
makersRecommendations

National policy
makers andregulators

Audience

Move together at once
Build momentum
Recognise the imperativeof a Just Transition,
integrating environmental
and social objectives
Engage with and apply the
Just Transition Elements
Accelerate private capital
mobilisation towards the
SDGs

Mobilisation

Demonstrate commitment
to the SDGs
Strengthen the enabling
environment for SDG
investments

Transparency

Demonstrate best-inclass Just Transition
investments

149

Mobilising institutional capital towards the SDGs and a Just Transition

Recommendations per audience
AUDIENCE

ACTIONRECOMMENDATIONREFERENCEALL• Move together and at once

• 1a

• Recognise the imperative of a Just Transition, integrating
environmental and social objectives• 2a• Engage with and apply the Just Transition Elements• 2b• Demonstrate best in class Just Transition investments• 4a• Build momentum• 1b• Accelerate private capital mobilisation towards the SDGs
~ By making mobilisation a key objective of development institutions• 3a~ 3a.i~ By significantly expanding the use of guarantees particularly forinvestments in emerging markets~ 3a.iii• Accelerate private capital mobilisation towards the SDGs
~ By making mobilisation a key objective of development institutions• 3a~ 3a.ii• Strengthen the enabling environment for SDG investments~ By ensuring that fiduciary duty considerations are not a barrier toJust Transition considerations~ By unlocking domestic capital• 3c~ 3c.i~ By improving local regulatory environments for environmental andsocial priorities~ 3c.iii• Accelerate private capital mobilisation towards the SDGs
~ By providing more investment risk support in their target emerging
markets• 3a~ 3a.ii• Demonstrate commitment to the SDGs
~ By sharing and engaging around performance data across SDG
themes, asset classes and markets~ By building a strong manager ecosystem• 3b~ 3b.iii• Accelerate private capital mobilisation towards the SDGs
~ By committing to invest in the SDGs and a Just Transition and toincrease emerging markets exposure• 3a~ 3a.vii• Demonstrate commitment to the SDGs
~ By adjusting mandates• 3b~ 3b.i

G7 POLICY MAKERS

NATIONAL POLICY
MAKERS &REGULATORSMDB/DFIs

INSTITUTIONALASSET OWNERS~ By building capabilities~ 3c.ii~ 3b.iv~ 3b.ii

ASSET MANAGERS• Accelerate private capital mobilisation towards the SDGs
~ By expanding the flow of new investments towards SDG solutions
in emerging markets• 3a~ 3a.v

IMPACT INVESTORS• Accelerate private capital mobilisation towards the SDGs
~ By continuing to play a pioneering role

• 3a
~ 3a.iv

INVESTMENT BANKS• Accelerate private capital mobilisation towards the SDGs
~ By structuring vehicles that encourage institutional investor
participation in emerging markets• 3a~ 3a.vi

CREDIT RATINGAGENCIES• Strengthen the enabling environment for SDG investments~ By considering specific parameters of emerging markets in ratingsand driving SDG recognition in credit ratings• 3c~ 3c.iv

150

Recommendations

Recommendation 1

Urgent and coordinated movement
Call to action
The only chance of achieving the SDGs, confronting the climate crisis and meeting the needs ofpeople is for each and every party to take demonstrable action now. The risks to our future are
too great for delay or hesitation. No matter one’s starting position, each actor can and should domore to participate in the solutions that will build a more sustainable and inclusive world for all.
Commitments and pledges need to be translated into concrete actions. The momentum that canbe generated by decisive actions from each audience, when taken together, can transform thefuture for people and the planet.

Recommendations
1a For all audiences:
Move together and at once

1b For G7 policy makerS:
Build momentum

Acknowledge that simultaneous and coordinatedchange needs to replace old patterns of sequentialchange, waiting for others, and commit to takespecific action now.
(See Section 1.2.2)

Mark progress against the recommendations in thisreport and hold all actors of the global system toaccount.

NEAR-TERM
6–12 months• Continue momentum, collaborating with the global
community of National Advisory Boards for impact
investment, at successive G7 meetings for the
next five years• Build evidence demonstrating the effectiveness offinancing an inclusive and sustainable society for all
NEAR-TERM

medium-TERM

LONG-TERM

6–12 months

1-2 years

3-5 years

Recommendation 2

Environmental and social integration
for a Just Transition
Call to action
Within the overarching ambition to encourage capital at scale to achieve the SDGs, recognise andembrace the imperative of integrating environmental and social objectives across policies andinvestments as a matter of urgency, particularly given current market momentum around climate
solutions. Recognise that the planet and people are inextricably linked. Reducing carbon without an
intentional focus on improving lives and livelihoods in local communities will not build a world thatis sustainable and just for all. Proactively and progressively seek ways to advance a Just Transition.
Utilise the Just Transition Elements within climate and social policies and investments. Strive toinclude Community Voice in policies and investments. (See Sections 1.3.1)

Recommendations
2a For all audiences:
Recognise the imperative ofa Just Transition, integrating
environmental and social
objectives
For all, recognise the Just Transition Elements –Climate and Environmental Action; Socio-economic

Distribution and Equity; and Community Voice –as the standard for ‘what good looks like’ in building
a more inclusive and sustainable society for all(See Section 1.3.4)
NEAR-TERM

medium-TERM

6–12 months

1-2 years

151

Mobilising institutional capital towards the SDGs and a Just Transition

2b For all audiences:
Engage with and apply the Just
Transition Elements• For asset managers, to expand ways in which
Community Voice can be incorporated into Just
Transition vehicles

For all, as part of an integrated approach toconsider environmental and social objectives,
proactively identify opportunities to apply andintegrate the Just Transition Elements in specificpolicies and investments. (See Section 1.3.4)• For conveners, such as the Global SteeringGroup for impact investment and the growing
community of National Advisory Boards,
to engage with the investment community,
nongovernmental organisations, local
government and civil society around a Just
Transition to build momentum around joint Just
Transition approaches and investment activity
across sectors and geographies•F or asset managers and ecosystem players thatstructure investments, collaborating with MDBs,
DFIs and impact investors where relevant,to advance the design of replicable Just
Transition financing vehicle blueprints(See Section 3.4)

NEAR-TERM

medium-TERM

6–12 months

1-2 years

Recommendation 3

Mobilisation

Call to action
Unlocking private institutional capital depends on concerted action across several key parties:
government shareholders of MDBs and DFIs and the development institutions themselves, asset
owners, asset managers and advisors as well as regulators and rating agencies. A step taken byeach party has the power to exponentially increase the flow of capital in pursuit of positive impact.
Accelerating the pace and volume of capital, and directing it to solutions that meet the needs ofpeople and places, is both a need and an opportunity.

Recommendations
3a Accelerate private capital
mobilisation towards the SDG s
3a.i For G7 and other policy makers:
By making mobilisation a key objective ofdevelopment institutions
For G7 and other government shareholders of
MDBs and DFIs, amend the mandates of these
institutions to make mobilisation of private capitalan objective of equal weight with balance sheet
investment. (See Section 3.2.1)•S et targets and structure incentive mechanismsthat promote every mobilised dollar as receiving
at least the same recognition as every dollar
invested on its own account•S trengthen, with funding support, the importantrole MDBs and DFIs play in developing local
market infrastructure and in assisting market
actors to establish new investment vehicles•P rovide additional funding to strengthen
pipeline development and generation of primary
investable opportunities in emerging markets•E xpand the investment tools within these
institutions, including capital to be used by MDBs
and DFIs for risk mitigation tools and instrumentsthat address the risk (perceived and real) ofinstitutional investors•E xpand the ability of these institutions to provide,at times, concessionary capital within their risk
152

mitigation tools and instruments• Encourage these institutions to package and sell
to institutional investors parts of their portfolioof assets directly or through securitisations andrelated instruments to stimulate participation frominstitutional investors and to catalyse secondary
market activity• Support these institutions to adapt their businessmodels to achieve the dual mandate andimplement other specified changes
NEAR-TERM

medium-TERM

LONG-TERM

6–12 months

1-2 years

3-5 years

3a.ii For MDBs and DFIs: By providing
more investment risk support in their target
emerging markets
For MDBs and DFIs, materially increase
commitment of risk-tolerant capital to accelerate
the mobilisation of private institutional investors
into emerging markets and towards the SDGs,
in particular to more challenging investment
propositions and to those that advance a Just
Transition. Specifically, increase each of thefollowing – recognising the exponential power of
combination. (See Section 2.5, 2.6)
• Increase investment of subordinated capital(including mezzanine capital) in blended financetransactions

Recommendations• Increase provision (directly and in partnershipwith others) of guarantees and insurance
coverage in blended finance transactions

3 a.v For asset managers: By expanding theflow of new investments towards SDG solutions
in emerging markets• Increase provision of concessional capital(directly and in partnership with others), where
neededFor asset managers, bring more SDG and Just
Transition products to market with the objective
to attract more private institutional capital. (See
Sections 2.6 and 3.3)

•L aunch a call for proposals in 2022 for asset
managers in which the selected vehicles meeting
the Just Transition Elements receive MDB/DFI
anchor capital with the intention of mobilising
meaningful amounts of institutional capital
NEAR-TERM

medium-TERM

LONG-TERM

6–12 months

1-2 years

3-5 years

3a.iii For G7 policy makers: By significantly
expanding the use of guarantees, particularly
for investments in emerging markets
For G7 policy makers, build on the track recordand operational infrastructure of the Private
Infrastructure Development Group (PIDG) andinvest further in existing and new entities that can
provide guarantees. (See Sections 2.6.2)• Invest to strengthen the balance sheets ofexisting providers of guarantees over the next
one or two years•F und the replication of existing guarantee entities
at scale (using the models of GuarantCo andInfraCredit), to be domiciled in emerging markets
where risk mitigation remains a material barrier
to institutional capital, with a target of two such
entities per year

• As a companion to stated ambitions to reduce
portfolio carbon footprints by 2030, commit tomaterially increasing the amount of capital flowing
to investments that seek solutions aligned with theSDGs:~ Doubling capital flows from 2021 baseline by2025~ Doubling capital flows from 2025 baseline by2030• Proactively explore how current commitments
to design, implement and manage climate
investments can progressively include social andcommunity elements, both as new vehicles andby adapting existing vehicles to integrate all three
Just Transition Elements; and vice versa, howcurrent commitments to design, implement andmanage social investments can progressively
include climate and community elements, both as
new vehicles and by adapting existing vehicles tointegrate all three Just Transition Elements• Proactively pursue partnerships with parties
that can provide the structuring tools needed toencourage private capital participation in products
NEAR-TERM

medium-TERM

6–12 months

1-2 years• Increase guarantee usage on portfolio level andfor investment vehicles•B olster the balance sheets of existing and newentities to have minimum guarantee capacity of$1 billion and a target guarantee ratio of five to
10 times that capacity
NEAR-TERM

medium-TERM

LONG-TERM

6–12 months

1-2 years

3-5 years

3 a.iv For impact investors: By continuing
to play a pioneering role
For impact investors, expand the pioneering role
played in advancing the environmental and social
objectives across sectors and geographies.

3 a.vi For investment banks: By structuring
vehicles that encourage institutional investor
participation in emerging markets
For investment banks and other transaction
intermediaries, structure for institutional investor
participation in emerging markets vehicles. (See
Sections 2.6 and 3.3)
• Incorporate one or more of the instruments
referenced in this report that can mobilise capitalat scale (i.e., guarantees, insurance, subordinatedcapital, syndicated loan portfolios)
NEAR-TERM

medium-TERM

6–12 months

1-2 years•F urther deploy blended capital to mobilise
institutional investors (See Sections 1.2.2,
2.4 and 2.5)•L ead the way in Just Transition financing vehicles
by providing first commitments to launch newvehicles• Increase use of guarantees in vehicles designed
to attract institutional private capital
NEAR-TERM

medium-TERM

6–12 months

1-2 years

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Mobilising institutional capital towards the SDGs and a Just Transition

3 a.vii For investors: By committing to invest
in the SDGs and a Just Transition and toincrease emerging markets exposure
For investors of all types, commit to intentionallyconsider and proactively pursue investments invehicles that demonstrably integrate environmental
and social objectives, including those that integrate
the Just Transition Elements. (See Section 1.3.4)•A s a companion to stated ambitions to reduce
portfolio carbon footprints by 2030, commit tomaterially increase the amount of capital flowing
to investments that seek solutions aligned with
the SDGs:~ Doubling capital flows from 2021 baselineby 2025

3 b.iii For MDBs, DFIs and private impact
investors and asset managers: By sharing andengaging around performance data across
SDG themes, asset classes and markets
For MDBs, DFIs and private impact investors
and asset managers, share historical investment
performance data with the institutional investor
community and rating agencies. (See Sections
2.4.2 and 2.6.6)• Structure data in a commercially sensitive manner• Indicate market and asset class context toenhance utilisation of data
NEAR-TERM

medium-TERM

LONG-TERM

6–12 months

1-2 years

3-5 years~ Doubling capital flows from 2025 baselineby 2030•M aterially increase exposure to emerging markets
across asset classes
NEAR-TERM

medium-TERM

6–12 months

1-2 years

3 b.iv For MDBs, DFIs and private impact
investors: By building a strong manager
ecosystem
For MDBs, DFIs and private impact investors,
build capacity of asset managers pursuing Just
Transition strategies.

3 b Demonstrate commitment to
the SDG s• Provide specific support to local, emerging andfirst-time fund managers that adopt the Just
Transition Elements

3 b.i For institutional investors as asset
owners: By adjusting mandates• Incrementally increase annual allocations to suchmanagers and showcase these managers toother investors

For those institutional asset owners expressing
general alignment with the SDGs, demonstratecommitment by amending and aligning mandates,
allocation strategies, policies and protocols toallow for investments that integrate social andenvironmental considerations and pursue the SDGs
in general, and a Just Transition in particular, withemphasis on emerging markets. (See Section 2.4)
• Incentivise asset managers and investment
consultants, as applicable, to pursue SDG
transactions, ensuring that incentives are clear
and aligned to fulfil this commitment•S hare commitments publicly

MEDIUM-TERM
1–2 years

3c Strengthen the enabling
environment for SDG investments
3c.i For regulators: By ensuring that fiduciary

duty considerations are not a barrier to Just
Transition considerations

Where relevant, national regulators to ensure thatnational definitions of fiduciary duty encourage
investors to consider the impact of investments onsociety and the environment. (See Section 2.4.2)

3 b.ii For institutional investors as asset
owners: By building capabilities
For those asset owners seeking to align theirinvestment activities with the SDGs, demonstratecommitment by strengthening internal capabilities
or building relevant partnerships. With respect toemerging markets, look to obtain support fromothers with relevant market experience. (See
Sections 2.4.2 and 3.2.1)•E ncourage dealflow by eliminating or reducing
the charges typically applied to emerging market
investments with the justification of complexity
or level of effort required to consider suchinvestments

154

NEAR-TERM

medium-TERM

6–12 months

1-2 years

MEDIUM-TERM
1–2 years

3c.ii For regulators: By unlocking

domestic capital

National regulators to examine current barriers
restricting participation of domestic institutional
investors, with a particular focus on pension funds
and insurance companies, in investment vehicles that
advance the SDGs in general and a Just Transition
specifically. Be willing to take steps to reduce themost significant barriers, progressively, to stimulatedomestic capital participation. (See Section 2.4.1.8)
NEAR-TERM

medium-TERM

LONG-TERM

6–12 months

1-2 years

3-5 years

Recommendations

3c.iii For regulators: By improving local

regulatory environments for environmental andsocial priorities• National regulators of businesses and financial
institutions to require inclusion of Just Transition
Elements in transition plans submitted to regulators.
Apply the Just Transition Elements to all transition
plans, whether submitted under voluntary or
mandatory country regimes. (See Section 2.4.1.8)•N ational regulatory bodies to improve
professional tenders of projects intended tomeet national Net Zero and/or decarbonisationcommitments. These would include energy andinfrastructure projects, and public procurement
tenders for social investments (e.g., affordable
housing, healthcare facilities, education, etc.) withclear rules of engagement and tariff structures(See Sections 1.3.4 and 2.4.2.3)
medium-TERM

LONG-TERM

1-2 years

3-5 years

3c.iv For credit rating agencies: By
considering specific parameters of emerging
markets in ratings and driving SDG
recognition in credit ratings• Ensure credit ratings’ processes and models
benefit from relevant emerging markets
performance and correlation data (SeeSpotlight box in section 2.4.2.1)• Stimulate, through credit ratings, positive
incentives for issuers that demonstrate use ofproceeds that deliver explicit environmental andsocial objectives (See Spotlight box in section
2.4.2.1)
NEAR-TERM

medium-TERM

LONG-TERM

6–12 months

1-2 years

3-5 years

Recommendation 4

Transparency
Call to action
Expanding the volume and pace of capital towards the SDGs generally, and a Just Transition
specifically, means we must know where the money is flowing and what is happening as a result of
the capital being invested. Each of us needs to ask questions to determine where and to whom thecapital has flowed. Anything labelled as contributing to the SDGs generally, and a Just Transition
specifically, should be able to provide clear answers. Only through collective and consistenttransparency can we assess progress against commitments.

Recommendations
4 For all audiences:
Demonstrate best-in-class Just
Transition investments• Publish and provide the market with examples ofwhat ‘best-in-class’ Just Transition looks like inpractice

Showcase investments that incorporate all three
Just Transition Elements (See Sections 1.3.4 and3.3)• For asset managers, publish results as a sourceof market differentiation• Highlight application of Just Transition strategies
across sectors and themes• Demonstrate, in particular, how Community Voiceis included in the design and governance of any
Just Transition vehicle• For investors, publish results for credibility against
commitments• For ecosystem builders, publish results for greaterawareness among investors and policy makers
NEAR-TERM

medium-TERM

LONG-TERM

6–12 months

1-2 years

3-5 years

Note on recommendations
These recommendations draw on the analysis
presented in this report, extensive engagementwith the target audiences as well as themomentum built by several initiatives underway. We are grateful for the many high-quality
inputs that the work group has received from
more than 170 expert practitioners acrossthe globe.

Given the short time available to conclude
our work, we have had to focus on coreareas, leaving others for further exploration.
It is our hope that this future investigation
will be catalysed by the growing communityof committed practitioners as well as by thecontinued interest and commitment of G7
policy makers.
155

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Scottish Government: “Just Transition
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— “What is the Impact of the EU Sustainable
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The New Climate Economy (2019): “Unlocking
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Accelerating Climate Action in Urgent Times”;

163

Mobilising institutional capital towards the SDGs and a Just Transition

https://newclimateeconomy.report/2018/wpcontent/uploads/sites/6/2018/09/NCE_2018_FULLREPORT.pdf
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The White House (2021): “Executive Order on
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Main references— https://unfccc.int/topics/climate-finance/the-bigpicture/climate-finance-in-the-negotiations
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ACCS.ZS?locations=IN— “Employment in agriculture (% of total
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World Resources Institute (2021): “What does
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WWF Germany (2019): “Just Transition for Regions
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— (2021): “World Bank Country and Lending
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— “Just Transition for Regions and Generations”;
https://regionsbeyondcoal.eu/just-transition-forregions-and-generations/WWF: “The effects of climate change”; https://www.wwf.org.uk/learn/effects-of/climate-change

165

6

Appendices6.1 Appendix 1
Geographic considerations for emerging
markets investment approaches –the examples of South Africa and India
6.1.1 Starting point andtransition trajectories
As outlined in Section 1.3.1.3, starting points andtrajectories for Just Transition differ widely acrosscountries. In addition, countries have different
priorities, reflecting their specific circumstances.
To satisfy the three Just Transition Elements –Climate and Environmental Action; Socio-economic
Distribution and Equity; and Community Voice – theunderlying country context needs to be analysed.
Examples of summary analyses of the contexts ofSouth Africa and India are provided for illustrative
purposes.

6.1.2 Country-specific energy
transition frameworks
The Fostering Effective Energy Transition initiative,
facilitated by the World Economic Forum,
introduced a country-specific framework on energy
transition. The initiative’s Energy Transition Index(ETI) provides a snapshot of the current energy
situation of a country. Based on a composite
score of over forty indicators, the fact-based
framework quantifies countries’ 1. energy system
performance (capturing the current state of theenergy system relating to the ability to support
economic development and growth, universal
access to a secure and reliable energy supply,and environmental sustainability across the energy
value chain); and 2. transition readiness (capturing

Energy Transition Index
System performance imperatives
Energy access andsecurity

Environmental
sustainability

Transition readinaess enabling dimensions
Energy system
structure

Capital andinvestment

Regulations andpolitical commitment

Energytriangle
Enabling
dimensions

Economic development and growth
Human capital andconsumerparticipation

Infrastructure andinnovation businessenvironment

Source: World Economic Forum (2020): “Fostering Effective Energy Transition – 2020 edition”

166

Institutions andgovernanceAppendices

Energy Transition Index
framing of the diffusion of innovations into thecategories of innovators (such as Chile), early
adopters (such as India), early majority (such as
China), late majority (fossil fuel importers, suchas Vietnam and Morocco, and oil exporters withvisible movement in the energy system, such as
Saudi Arabia) and laggards (coal and gas exporters
resistant to change and fragile states without
international support, such as Nigeria).208“Given the systemic and interdisciplinary nature of
the energy transition challenge, country scores on
different ETI indicators depend on factors such as
natural resource endowments, geography and climate,
population, the level of socio economic development andpath dependencies of legacy energy systems. Moreover,country scores on some ETI indicators are determinedby factors beyond the scope of national decision
making, such as energy market volatilities, the emerging
regulatory landscape in trading partners, global financial
market sentiments and international climate change
frameworks.”

6.1.3 Country-specific socialtransition

Source: World Economic Forum (2020): “Fostering Effective Energy Transition – 2020 edition”

the local enabling environment that will lead to the
speed at which it moves; including factors such as
strong political commitment, a flexible regulatory
structure, a stable business environment,
incentives for investments and innovation,
consumer awareness and the adoption of newtechnologies).207
Another framing of the national starting points andtrajectories has been developed by the Carbon
Tracker Initiative with their use of the ‘Rogers’

To satisfy the three Just Transition Elements, theunderlying country context should also include
social aspects when seeking to apprehend
the starting point and trajectory of a particularcountry. Social indicators are also important when
understanding national development priorities andfocus areas. A country’s progress on the various
SDGs can be considered. Further, there are manysocial indicators that may be relevant, including
among others, Gross National Income (GNI) per
capita, the Gini coefficient, the percentage of
people living below the international poverty line of$1.90 per day as measured by the World Bank,209
unemployment or the countries’ scores per thehuman development index (HDI) developed by theUNDP, which integrates indicators across three
dimensions: health, education and standard ofliving.210

Carbon Tracker Initiative

207

208

 EF (2020): “FosteringW
Effective Energy Transition2020 edition”; http://www3.
weforum.org/docs/WEF_
Fostering_Effective_Energy_Transition_2020_Edition.pdf
Carbon Tracker Initiative(2021): “Reach for the sun– The emerging market
electricity leapfrog”; https://carbontracker.org/reports/
reach-for-the-sun

209As per World Bank
Indicators

210

UNDP: “Human Development Index”; http://
hdr.undp.org/en/content/
human-development-index-hdi

TWh of total electricity demand8000

eg. Chile

India

China

VietnamNigeria

Inovators

Early adopters

Early majority

Late majority

Laggards

7000
6000
5000
4000
3000
2000
1000
0

Source: Carbon Tracker Initiative (2021): “Reach for the sun – The emerging market electricity leapfrog”

167

Mobilising institutional capital towards the SDGs and a Just Transition

6.1.3.1 Summary example:
South Africa

Starting point
211

Climate Investment Funds(2020): “Supporting
just transitions in South
Africa”; https://www.
climateinvestmentfunds.
org/sites/cif_enc/files/
knowledge-documents/
supporting_just_transitions_in_south_africa.pdf

212Stats SA (2021): “Unemployment rate”

213

 ased on the World
B
Bank Atlas method of FX
conversion, smoothing
fluctuations in prices andexchange rates.

214Percentage of people living
below the national poverty
line.

215

World Bank: “South Africa
Overview”; https://www.
worldbank.org/en/country/
southafrica/overview

216

UNDP: “Human Development Reports – South
Africa”; http://hdr.undp.org/
en/countries/profiles/ZAF

217

 orld Population Review
W(2021): “GINI Coefficientby Country 2021”; https://worldpopulationreview.
com/country-rankings/
gini-coefficient-by-country218World Bank: “South Africa
Overview”; https://www.
worldbank.org/en/country/
southafrica/overview;
measuring people living
below the poverty line
for upper-middle-income
countries of $5.5 per day
in 2011 purchasing power
parity (PPP) exchange rates

219

National Business Institute:“About Us”; https://www.
nbi.org.za/about-us

220

Mining Review Africa(2019): “What you needto know: South Africa’s
Integrated Resource
Plan 2019”; https://www.
miningreview.com/energy/
what-you-need-to-knowsouth-africas-integratedresource-plan-2019

221

222

Climate Investment Funds(2020): “Supporting Just
Transitions in South
Africa”; https://www.
climateinvestmentfunds.
org/sites/cif_enc/files/
knowledge-documents/
supporting_just_transitions_in_south_africa.pdf
Reuters (2021): “Africa’s
top emitter seeks $10 bln
for shift from coal”; https://www.reuters.com/business/environment/africastop-emitter-seeks-10-blnshift-coal-2021-06-30/

168

The need for a Just Transition is especially relevant
to South Africa, the second largest economy on the
African continent and one of the highest emittersof CO2 with a significant reliance on coal. It is also
the country with the highest Gini coefficient in theworld, signalling a pronounced inequality of income.
Coal accounts for approximately 90% of South
Africa’s electricity generation and 74% of its total
primary energy supply. Moreover, South Africa
provides around 40% of the electricity for the entire
continent through its coal-based generation.211
Coal has been a critical driver of the local economy
for many years, and an exit from coal is complex
given the country’s economic reliance on theindustry. It is one of the country’s largest exports
by value, with approximately 30% of its output
being exported. Also, coal is a major job provider,including through its value and supply chains. With
the current unemployment rate at 32.6%,212 any
further shocks to the employment situation could
cause widespread responses and protests.
Beyond high unemployment, South Africa faces
wider socio-economic challenges. South Africa’s
GNI per capita in 2020 amounted to $5,410.213 In2014 (the latest year for which data is available),
55.5% of the population was defined as poor.214
Using the international poverty line as defined by
the World Bank, an estimated 19% of the population
was considered poor as of 2014–2015.215 In the
UNDP’s HDI, South Africa ranks 114th in the world
with a score of 0.71.216
South Africa has a history of racial exclusion andis one of the most unequal countries in the world
by both income and wealth. South Africa suffersfrom the highest persistent income inequality rates
in the world, with a Gini coefficient of 0.63 in 2015
(compared to a global average of 0.38 and the
UK at 0.35).217 High income inequality has been
perpetuated in the past by a legacy of exclusion
and the nature of the country’s economic growth,benefiting only a few and not generating sufficientjobs. Inequality in wealth is similarly pronounced
in the country, whereby intergenerational mobility
is low, meaning that inequalities are passed downfrom generation to generation with little change overtime.
Covid-19 has had a significant impact on South
Africa’s economy. The World Bank estimates thatthe economy contracted by 7% in 2020, as the
pandemic weighed heavily on both external demandand domestic activity. This severe contraction isestimated to have increased poverty (measured
on the international poverty line for upper-middleincome countries) by two million people.218

Transition trajectorySouth Africa faces the dual challenge of strong
reliance on coal as an important source of energy,

jobs and income on the one hand, and highunemployment and inequality on the other.
Transition pathways in South Africa mustacknowledge and address not only a transitionout of the dominant coal sector, but importantly
the employment situation and the marginalisationof the black population – or they will further
aggravate inequality and vulnerability and lead tomore internal resistance.
South Africa has shown active engagement withrespect to climate action and Just Transition. It isconsidered an early Just Transition adopter withthe development of relevant labour policies by
the labour movement in 2011 and the prominent
inclusion of Just Transition aspects in the National
Development Plan (NDP) in 2012, which wasrevised in 2019. Nearly a decade ago, in 2013,
the National Business Initiative (NBI), a voluntary
coalition of South African and multinational
companies that is “working towards sustainablegrowth and development in South Africa”,219
published a report identifying the key barriers
to climate finance in the country. They identified
four categories of barriers that business andgovernment should jointly address: 1. policyrelated barriers; 2. structural barriers; 3. skills andcapacity barriers; and 4. fund design barriers.
More recently, in 2019, the Department of Mineral
Resources and Energy issued an Integrated
Resource Plan (IRP) that supports a diverse
energy mix and sets out key policy interventions
to ensure the security of South Africa’s electricity
supply, taking into account security of supply
and the environment through the minimisation ofnegative emissions and water usage.220 Further,in 2020, the country’s presidency formed a‘Presidential Climate Change Coordination
Commission’. And finally, in May 2021, thegovernment launched the country’s new draft
Nationally Determined Contribution (NDC) for
public consultation, emphasising the commitment
to addressing climate challenges and setting
targets for greenhouse gas (GHG) reduction.
According to the Climate Investment Funds,
several studies even suggest that the country’s
energy transition will occur more rapidly than
the government’s 2019 IRP suggests, due to anumber of factors, including, amongst others:221• Increased cost of coal, as well as declines inaccess to capital• Availability of cheap alternatives• Supply challenges of coal stations• Environmental concerns around air quality andclean water
One prominent and recent example of transition
acceleration in the country was the July 2021
announcement by Eskom, the state utility, that
it was putting forward a $10-billion plan tomultilateral development banks (MDBs) and global
lenders that would enable it to close most of its
coal-fired power plants by 2050 and transition
towards renewable energy generation.222

Appendices

Climate Investment Funds:
Key areas of country support in South Africa• N ational planning: Socio-economic and climate modelling,
together with transition planning, can inform and support long-term,organised Just Transitions• S ocial inclusion: Initial social dialogues on Just Transitions,convened by the National Planning Commission (NPC), need to betaken forward and supported• Financing: Concessional finance is critical for de-risking innovative
investments and accelerating a just energy transition• Recovery programmes: Ensuring that post Covid-19 recovery
programmes and stimulus packages are sustainable and inclusive
can be supported by incorporating emerging Just Transition
frameworks and tools• S kills development: Re-skilling existing workers and proactively
developing new skills required to implement new technologies/
processes are both necessary to facilitate Just Transitions• G eographical focus: Research and planning that better articulate
and distribute developmental benefits and losses across local,
national and international geographic scales need to be supported
Source: Climate Investment Funds (2020): “Supporting Just Transitions in South Africa”

However, the Climate Action Tracker (CAT) rates
South Africa’s NDC towards the Paris Agreement
as “highly insufficient”. While the CAT observed adecline in emissions in 2020 due to the Covid-19
pandemic, it is concerned about a draft Mining andEnergy Recovery Plan, which centres around direct
investments in high-carbon sectors. Such highcarbon recovery measures are considered in stark
contrast to the IRP that marked a shift in energy
policy towards renewables.223

Transition opportunity
Given South Africa’s reliance on coal and its
continent-spanning electricity generation role,
there is increased scrutiny by, but also opportunity
for, investors. Climate Change News estimatesthat South Africa needs $8 billion per year fromthe international community by 2030 to finance its
decarbonisation and adaptation efforts to meet223

Climate Action Tracker: “South Africa”; https://climateactiontracker.org/countries/south-africa

224

Climate Change News (2021): “South Africa sets out to tighten
2030 emissions target”; https://www.climatechangenews.
com/2021/04/06/south-africa-sets-tighten-2030-emissionstarget

SYSTEMIQ: Using blended finance to accelerate South Africa’s energy transition
South Africa is a coal-dependent middle-income country, yet
it is working to take its first steps on the transition to a new
economy. It is estimated to cost upwards of ZAR300 billion in
public, private and concessional finance to fully decarboniseSouth Africa’s energy system while ensuring social justice forworkers and communities whose livelihoods and quality of life
are impacted in the process.
The majority of the cost of approximately ZAR200 billion
will be for renewables and new economy industry build-out,
expected to come from private capital sources through direct
project financing or investments into independent power
producers.
The remaining approximately ZAR100 billion are expected
to come from concessional and grant funding sources tohelp accelerate the decommissioning of existing coal power
stations, to invest into low carbon infrastructure (transmission
lines and storage) and to address further Just Transition
aspects, including worker retraining, compensation for social
losses, community support and rehabilitation, and policy
support. Crucially, it will also be needed to help address thestate-owned energy utility’s debt burden.
Concessional capital has the ability to unlock the key shifts
required to strengthen the investor environment. With asizeable upfront concessional deal, the right kinds of policy
shifts can occur (often a condition of donor money), enablinga stronger investment environment for the private sector andfurther donor finance. In June 2021, the cap on embedded
generation was lifted from 1MW to 100MW, sending a strong
signal to the market that the renewables sector is ready forscale. Since then, various commitments have been madefrom public and private financiers to kick-start the renewablesbuild-out. This could lead to a major opportunity for economic
recovery, job creation and avoiding stranded assets.

But concessional capital alone won’t deliver all of South Africa’s
financing requirements; blending with other forms of capitalis required to mobilise additional finance for a system-leveltransition. There is a growing pool of climate finance from G7
countries and climate-aligned corporates that South Africa
could leverage. Concessional capital can mobilise this financeby blending with private and philanthropic wealth to play a morecatalytic role, de-risking investments and crowding in additional
finance for more impactful outcomes.
Philanthropies are key to accelerating the transition in South
Africa and other coal-dependent middle-income countries.
Supporting the social components of South African transition iswhere philanthropic capital can have a huge effect. Philanthropies
with climate allocations have the ability to make high-impact,
low-cost transactions in areas that private or donor capital mightotherwise not go.
Major sources of private capital can be unlocked to finance thescale of renewables roll out to meet energy demands. A stronger
investor environment, enabled by concessional and philanthropic
money, gives private sector more certainty that crowding into theSouth African energy sector is not only profitable, but is secure.
To fully harness the opportunity, blended finance instrumentsfrom public and private sources are needed both at the South
African utility and sovereign level. There are several creative,
blended financial mechanisms that can achieve this, suchas carbon bonds or coal retirement mechanisms. The key
is to secure sufficient scale of finance needed to accelerate
decommissioning, increasing the range of finance actors willingto participate, and ensure the sovereign anchors the transaction –sending the right signal to international stakeholders and ensuringthat the burden of the transition is not borne at the utility level.
Source: SYSTEMIQ

169

Mobilising institutional capital towards the SDGs and a Just Transition

its new targets, more than three times what it
received in recent years.224 Absa Bank identified,in particular, green investments around renewableenergy, sustainable transport solutions and naturebased rehabilitation as value drivers and estimatedthat they could deliver 250% more jobs and 420%
more value added in the economy compared to
traditional fossil fuel investments.225
The Climate Policy Initiative, GreenCape and theBertha Institute published a landscape study thatshowed that only around 10% of the required
climate finance flows necessary to meet thecountry’s NDC are being currently invested,suggesting that both quantity and quality ofinvestment need to change.226
The recent COP26 announcement by France,
Germany, the UK, the US and the EU to provide$8.5 billion to South Africa to support the coaltransition raised the prospects of demonstrating a
successful transition in practice.227 South Africa’stransition has global significance. The pace andsuccess of South Africa’s transition will inform
efforts and commitments focused on otheremerging markets, particularly those with heavy
coal dependence.

6.1.3.2 Summary example: India

Starting point
India accounts for about 18% of the world’s
population and is the third-largest energyconsuming country in the world. Energy use has
doubled since 2000, with 80% of demand still
being met by coal, oil and solid biomass,228 despite
efforts to increase renewable energy production inrecent years.
India is the third-largest emitter of CO2 globally.
Coal is currently responsible for about 45% of

170

India’s total primary energy demand, although
India’s per capita CO2 emissions are well below
global averages. India is also the world’s thirdlargest consumer and fourth-largest refiner of oil,and a net exporter of oil products.229
India has made impressive headway in the last
decade with respect to electrification. According
to the World Bank, almost 98% of India wasestimated to be electrified by 2019.230 However, in
reality, in many rural villages electricity is suppliedat the village level, not to individual households.
The World Bank estimates that 250 million Indians
still have no direct access to electricity and many
more face only unreliable access.231
India is one of the fastest-growing economies in
the world, with an average GDP growth rate ofaround 6% since 1990.232 However, there is stillwidespread poverty. The World Bank estimatedthat more than 100 million Indians lived below theinternational poverty line in 2017.233 The country’s
GNI per capita in 2020 amounted to only $1,900(compared to $42,130 in the UK).234 While India has
seen some remarkable progress in recent years(between 2011 and 2015, more than 90 million
people were lifted out of extreme poverty), theCovid-19 crisis has led to economic slowdown
and has reversed such trends for now. Real GDP
is estimated to contract by 8.5% in 2021.235 With
respect to its HDI, India ranks 131st in the world
with a score of 0.65.236 Indian unemployment rate
has been around 5–6% for a long time but rose to
7% in 2020,237 with a pronounced spike during theCovid-19 lockdown in the first half of 2020. Also,
youth unemployment has increased to over 15%
in the last decade, making it a major issue in the
country.238
Further, India is a highly unequal country witha Gini coefficient of 0.49 in 2016, which has
risen sharply over the last three decades. The

Across the World”; https://www.worldbank.org/en/news/feature/2021/07/09/india-s-solar-learning-curve-inspires-actionacross-the-world225

ABSA Bank (2021): “The Road to COP26: Opportunities,
Challenges and the African Transition to Net-Zero”; https://www.absa.africa/absaafrica/our-stories/our-voices/2021/theroad-to-cop-26

232

226

Climate Policy Initiatives (2020): “South African Climate FinanceLandscape 2020”; https://www.climatepolicyinitiative.org/
wp-content/uploads/2021/01/South-African-Climate-Finance-Landscape-January-2021.pdf

Climate Investment Funds (2021): “Supporting Just Transitions in India”; https://www.climateinvestmentfunds.org/sites/
cif_enc/files/knowledge-documents/supporting_just_transitions_india_summary.pdf

233

227

European Commission (2021): “France, Germany, UK, US andEU launch ground-breaking International Just Energy Transition
Partnership with South Africa”; https://ec.europa.eu/commission/presscorner/detail/en/IP_21_5768

 orld Bank (2021): “Poverty and Equity Brief South Asia –W
India”

234

World Bank: “GNI per capita, Atlas method (current US$) –South Africa, India”; https://data.worldbank.org/indicator/
NY.GNP.PCAP.CD?locations=ZA-IN&view=chart

235

Ibid.

236

UNDP: “Human Development Reports – India”; http://hdr.undp.
org/en/countries/profiles/IND

237

 orld Bank: “Unemployment, total (% of total labor force)W(modelled by ILO estimate) – India”; https://data.worldbank.org/
indicator/SL.UEM.TOTL.ZS?locations=IN238

 orld Bank: “Unemployment, youth total (% of total labor forceWages 15–24) (modeled ILO estimate)”; https://data.worldbank.
org/indicator/SL.UEM.1524.ZS

228

IEA (2021): “India Energy Outlook 2021”

229

IEA (2021): “India 2020 Energy Policy Review”; https://www.iea.
org/reports/india-2020230

 orld Bank: “Access to electricity (% of population) – India”;
W
https://data.worldbank.org/indicator/EG.ELC.ACCS.ZS?locations=IN

231

Rockefeller Foundation (2018): “24×7 Power is About ‘Access’,Not ‘Electrification’”; https://www.rockefellerfoundation.
org/blog/24x7-power-access-not-electrification/; WorldBank (2021): “India’s Solar Learning Curve Inspires Action

Appendices239

Oxfam: “India: extreme
inequality in numbers”;
https://www.oxfam.org/
en/india-extreme-inequality-numbers

240

CDC Group (2021):“Towards a Just Transition
Finance Roadmap for India:
Laying the foundations forpractical action”

241

Hindustan Times (2020):“Extreme weather events in
India on the rise”

242

World Bank: “Employment
in agriculture (% of total
employment) (modelled ILO
estimate) – India (2021)”

243

Climate Investment
Funds (2021): “Supporting Just Transitionsin India”; https://www.
climateinvestmentfunds.
org/sites/cif_enc/files/
knowledge-documents/
supporting_just_transitions_india_summary.pdf

244

 orld Bank (2021): “India’s
W
Solar Learning Curve
Inspires Action Acrossthe World”; https://www.
worldbank.org/en/news/
feature/2021/07/09/indias-solar-learning-curveinspires-action-acrossthe-world245

CDC Group (2021):“Towards a Just Transition
Finance Roadmap for India:
Laying the foundations forpractical action”

246

NRDC (2020) “Climate
Action: All Eyes on India”;
https://www.nrdc.org/experts/anjali-jaiswal/climateaction-all-eyes-india

richest segment of the population accounts fora significant part of the wealth created, with therichest tenth of the Indian population holding 77%
of total national wealth.239
Local context is particularly important given the
country’s size and the diversity of its regions.
This diversity applies to regional differences withrespect to energy generation and reliance, andalso with respect to the particular vulnerability ofcertain regions vis-à-vis climate change. The Indianstates with high solar power generation capacity
are generally in the west of the country, while thecoal-rich states are predominantly in the centre
and east, where social risks from transition activity
are most pronounced. Also, a large proportion of
the Indian population resides in states with low per
capita incomes, where particular focus is neededon training and re-skilling of workers.240
At the same time, a sizable segment of the
population is highly vulnerable to climate change
and changing weather patterns, as seen withthe pronounced rise in extreme weather eventsin recent years, such as floods, cyclones andheatwaves,241 having particularly harsh implications
for rural areas and the agricultural sector, which
supports 42.6% of the Indian workforce.242 There isa need to invest in climate adaptation and resilience
to counter surges in displacement of populations
and related increased poverty.243
The country’s regional divides lead to resistanceto energy transition, emphasising the criticalimportance of a Just Transition process, carefully
managed across local, state and national
levels. When considering transition action, local
employment and related household incomes andsecurity need to be carefully considered to avoid
increasing poverty and inequality. Specific barriers

constraining the country’s transition include,
amongst others:• Limitation of India’s grid infrastructure whichconstrains the penetration and distribution ofrenewable energy• The young age of India’s coal power
infrastructure with only a few power plants
approaching ‘retirement’• The threat of job losses in the coal sector,
including the value chain, both in formal andinformal sectors• India’s railway’s dependence on high coaltransport payments to cross-subsidise passenger
fares

Trajectory
India has led a massive expansion of renewableenergy, in particular of solar power, in the last
decade and continues to pursue an ambitious solar
expansion plan.244
While Net Zero targets have not been legislated yet,the Indian government has developed an ‘intended’
Nationally Determined Contribution (NDC) plan.
The country’s plan is currently under discussion
by policy makers, experts and the international
community. Given that India is among the tenlargest economies in the world, the country’s
contribution to Net Zero by 2050 is essential tomeet the global ambition.245 India created an Apex
Committee for Implementation of Paris Agreement(AIPA), aiming to increase coordination between
key ministries and to engage business and theUnited Nations on the country’s delivery on the
Paris Agreement.246
India faces a number of significant challenges on
its road to a Just Transition, including rising energy

Climate Investment Funds:
Key areas of country support in India•M odelling: Support complex systemmodelling on the barriers and drivers to theenergy transition to better understand andpredict distributional impacts•S ocial inclusion: Recognise and empower
marginalised stakeholders by establishing
local-level platforms that formally engage
and build their capacity to influence transition
outcomes•P artnerships: Establish working relations andcapacity-building processes within and acrossnational and state government departments
for Just Transitions•R egional planning: Priority geographicalareas need to be identified and plansdeveloped based on the relative impact ofbarriers and drivers related to coal transitions•E conomic diversification: Develop detailed
economic transition plans, including priority

activities, timelines and budgets, throughcollaborative, informed and empowered
stakeholder engagement• Finance: Develop budgets for the transition
including funding requirements• S afeguards: Establish the institutionalframeworks, along with the environmental andsocial safeguards, required to support theimplementation, monitoring and learning related
to Just Transitions• S cale: Identify and mobilise state, national andinternational institutions to support and scale
Just Transitions and broader transformationalchangeSource: Climate Investment Funds (2021): “Supporting Just
Transitions in India”

171

Mobilising institutional capital towards the SDGs and a Just Transition

demand, deep regional divides and a high relianceon coal and oil. A transition will impact workers
due to changing employment profiles and skills
requirements, with significant job losses expected
within the coal and thermal power sectors. Having
said that, the International Energy Agency (IEA)
estimates that jobs will increase rapidly with a shift
to clean energy, particularly in sectors like electric
mobility and energy efficiency, as well as power
generation.247

247

IEA (2021): “India Energy
Outlook 2021”

248

Climate Action Tracker:“India”; https://climateactiontracker.org/countries/
india

249

Climate Investment
Funds (2021): “Supporting Just Transitionsin India”; https://www.
climateinvestmentfunds.
org/sites/cif_enc/files/
knowledge-documents/
supporting_just_transitions_india_summary.pdf

The CAT rates India’s intended NDC targets as“2˚C compatible”. While the CAT observed a sharp
decline in emissions in 2020 due to the Covid-19
pandemic, it worries that the government isencouraging more coal mining and increased coalproduction, inconsistent with a green recovery post
Covid-19.248

Transition opportunity
Given India’s size, the investment opportunity
to support the country on its road to reaching a
Just Transition to Net Zero is immense. The IEA
estimates the annual requirement to amount toaround $200 billion across sectors for climate

action alone. Similarly, the Climate Investment
Funds estimates the total cost of enabling India
to meet the Paris Agreement targets of 2030 toamount to $2.5 trillion.249
There has been substantial investor interest
in India’s energy transition. However, ensuringthat these large amounts are actually mobilised
will require coordination between stakeholders,
including policy makers, regulators, companies,
the financial sector, communities and end users.
In doing so, it is critical that investments are just,achieving a fair distribution of costs, benefits andequality across the country.
MDBs and development finance institutions(DFIs) are playing an important role in overcoming
shortcomings in the domestic market. For example,
the International Finance Corporation (IFC) has
supported renewable energy-focused private
equity funds, the Asian Development Bank (ADB)
introduced one of the first partial risk guarantee
facilities in India, and the World Bank Group’s Partial
Risk Sharing Program provided support for energy
efficiency programmes.

6.2 Appendix 2
Select COP26 finance announcements
6.2.1 Private funding
announcements

6.2.2 Public funding
announcements• The Glasgow Financial Alliance for Net Zero
(GFANZ), a global coalition of leading financial
institutions, announced it would commit $130
trillion in financing to help global economies totransition to Net Zero by 2050

Donors• The Bezos Earth Fund committed $2 billion forrestoring nature and transforming food systems,with a view to improving food and water security,
creating jobs and sequestering carbon• The Global Energy Alliance for People
and Planet announced $10 billion of capitalcommitments to accelerate further investment
into green energy, the reduction of climate
emissions and increased support for millions ofjobs in developing and emerging economies• InfraCo Africa, part of the Private Infrastructure
Development Group (PIDG), and Helios
Investment Partners announced the launch of apan-African investment vehicle: Climate, Energy
Access and Resilience (CLEAR). CLEAR is
expected to raise more than $350 million forinvestment into sustainable infrastructure andbusinesses which will provide at least 100,000
new jobs, connect more than one million people
to power for the first time and avoid 100 million
tonnes of carbon emissions. CLEAR will initially beestablished as a private vehicle but designed andcapitalised with a view to listing the vehicle within
three years of final close172• The Adaptation Fund has been further
capitalised with a further $232 million committed
by public and private donors to increase financing
to support developing countries respond to
the impacts of climate change. This includes afurther $20 million provided by the UK, alongside
a number of other donors including the US,
Switzerland, Canada and Germany• As part of the Declaration on the Just Energy
Transition in South Africa, several countries,
including Britain, France, Germany, the UnitedStates and the European Union, committed
to provide $8.5 billion over the next five years
to transition from coal to clean energy, whilst
supporting workers affected by this shift• The Forest, Agriculture and Commodity
Trade (FACT) Roadmap was launched with
the UK committing £500 million to support its
implementation. Twenty-eight countries will
work together to protect forests and promote
development and trade. A further £65 million
will support a ‘Just Rural Transition’ tohelp support developing countries establish
sustainable agriculture and food production• As part of the Global Forest Finance Pledge,
a number of countries committed $12 billion
to support forest-related climate financebetween 2021–2025 to support action in Official

Appendices

Development Assistance-eligible countries where
there is the ambition to end deforestation by
2030. By working closely with the private sector,
the $12 billion of public funds committed willleverage vital private funding necessary to deliverchange at scale• The UK committed £576 million in funding fora package of initiatives to mobilise finance into
emerging markets and developing economies.
The UK provided a further £66 million to expand
the UK’s MOBILIST programme, which helps
to develop new investment products that canbe listed on public markets and attract different
types of investors, including institutional investors• CDC Group, the UK development financeinstitution (DFI), committed to invest over £3billion in emerging markets to help them meettheir Paris Agreement goals and to adapt andbuild resilience to the effects of climate changeover the next five years• As part of the Taskforce on Access to Climate
Finance, the UK has committed £100 million
in capital grants to support the countries mostvulnerable to climate change – access to financeis linked to countries’ emissions reduction andadaptation plans, thus seeking to incentivise
greater climate ambitions. The Taskforce is
co-chaired by the UK and Fiji, and partnerships
are established with five pioneer countries –Bangladesh, Fiji, Jamaica, Rwanda and Uganda– to support their local communities to get thefinance they need for their climate plans• The UK pledged £27.5 million of new funding,through the International Climate Financepledge, to the Urban Climate Action
Programme (UCAP) to support cities across
Africa, Asia and Latin America to implement
climate action plans and prepare low-carbon
infrastructure projects to meet Net Zero by
2050

250

UN Climate Change
Conference UK 2021:“News”; https://ukcop26.
org/news• A number of governments committed to put
gender at the forefront of climate action.
For instance, Canada pledged that 80% of its$5.3-billion climate investments over the next
five years will target gender equality outcomes.
The UK outlined how £165 million of funding willaddress gender inequality and climate change.
The US announced it would invest at least$14 million of the Gender Equity and Equality
Action Fund toward gender-responsive climate
programming, and further invest more than $20
million towards increasing women’s economic
opportunities in the clean energy sector, tackling
gender-based violence and the environment,
addressing barriers to women’s land rights andsupporting farmers in East Africa adapt to climate
impacts• In 2009, a commitment was made that developed
countries would deliver $100 billion of funding
annually to emerging markets by 2020. While thetarget has not yet been met, the timeline was
extended until 2025. At COP26, at the requestof the UK presidency, Canada and Germany,
supported by climate finance contributors,
announced a Delivery Plan. The Delivery Plan
sets out the progress on the $100-billion goal todate, the estimated trajectory of climate financefrom 2021 through to 2025 taking into accountnew climate finance pledges from individual
developed countries and multilateral developmentbanks (MDBs), as well as collective qualitative
actions to deliver on the finance commitment

Multilateral development banks• The Energy Transition Mechanism (ETM)
launched by the Asian Development Bank
seeks to accelerate the transition to clean
energy  – the ETM is expected to raise $2.5 to$3.5 billion through blended finance to retire coalfired power plants in the Philippines and Vietnam• The International Finance Corporation (IFC),
working with Amundi, announced a $2-billion
fund to directly mobilise private investment frominstitutional investors into anchor investments
involving sustainable and green bond issuance inemerging markets• The World Bank Group and the AsianDevelopment Bank aim to raise up to $8.5
billion in new finance to support climate action
and sustainable development by sharing risk with
developing countries• A new World Bank trust fund was launched tomobilise over $200 million over the next 10 years
to support the acceleration of transition to zero
emission vehicles in both emerging and developing
markets including India, Rwanda and Kenya• The Climate Investment Funds (CIF)
announced the CIF Capital Markets
Mechanism (CCMM), which will boost
investment into clean energy and sustainableinfrastructure in developing and emerging
economies, with bonds planned to be issued in
2022. The CCMM aims to mobilise $700 million
annually, with the potential to leverage $70 billion
from the private and public sector

Source: COP26 President Daily Media Statements.250

173

Appendices

Mobilising institutional capital towards the SDGs and a Just Transition

6.3 Appendix 3
Select initiatives helping to progressa Just Transition by country/region
Just Transition initiatives around the globe

CanadaGovernment consultation on a Just
Transition launched, leading to theformation of a Just Transition Advisory
Body (2021)

UK

UK Infrastructure Bank launched totackle climate change and support local
economic growth;
Sovereign green bonds with reporting
meeting record market demand (2021);
Just Transition Commission launchedby the Scottish Government (2020)

EU

European Green Deal launched,with aim to mobilise over €1 trillion
in investments by 2027, includinga €100 billion ‘Just Transition
Mechanism’ targeting a fair andjust green transition (2021)

France‘Investors for a Just Transition’coalition launched by investors
managing 3.6 trillion in
assets (2021)

Germany

Commission on Growth, Structural
Change and Employment appointed toadvise on the structural changes toenergy and climate policy required totransition from coal, including prospects
for existing, new and future-proof jobs
(2019)Italy

ENI and ENEL, two utilities partly ownedby the Italian Government, committed toadopt a Just Transition approach in fossil
fuel phase-out

Japan

US

‘Green Growth Strategy ThroughAchieving Carbon Neutrality in 2050’
published, outlining how carbon
neutrality can be achieved by 2050 whilst
being inclusive for all parts of society(2021)

Executive Order on Climate Change
signed, outlining the job-creating
potential of climate policies andintroducing measures to promote
environmental justice for disadvantaged
communities (2021)

China$14.3billion in support for redundant
workers in coal and steel pledged since2016, as well as policies which promote
the settlement and re-employment ofcoal workers

Colombia

Pledge for Green Jobs and a Just
Transition signed by the Government,
aiming to improve the capacity of thelabour force for a transition to the green
economy (2019)

South Africa

Argentina

Following dialogue between UN
Partnership for Action on Green
Economy (PAGE), National Just
Transition Strategy developed (2021)

174

Discussion Paper on Energy releasedby the National Planning Commission,
calling for coordinated stakeholder action
to facilitate a transparent decision-making process on the future of coal as partof a just energy transition (2018)

Kenya

India

National Adaptation Plan (NAP)
adopted for 2015-2030, emphasising theneed to increase the number ofJust Transition Finance Roadmap(JTFR)
in partnership with Indian legislators,
identifying the priority actions that canconduct extensive consultation for social
protection and consultation in
responding to climate change

support climate action that also delivers
positive results in terms of livelihoods

175

Mobilising institutional capital towards the SDGs and a Just Transition

This Appendix should be read in conjunction with Appendix 2, which summarises funding announcements
made during COP26.
Country/Region

InitiativeEU(G7 Member)• The EU launched the European Green Deal, a plan that intends to mobilise
at least €1 trillion in sustainable investments over the next decade,including the ‘Just Transition Mechanism’ targeting a fair and just green
transition. It is expected to mobilise at least €100 billion in investments overthe period 2021–2027 to support workers and citizens of the regions mostimpacted by the transition251

UK(G7 Member)• In 2020, the UK government announced that it would issue a series ofsovereign green bonds and report on their defined social co-benefits. The
UK government also formed a Stakeholder Discussion Form on green
finance, which supports the government on its green financing programme
for institutional and retail investors, including developing its methodology
and approach on social co-benefits reporting.252 The UK’s inaugural green
gilt sale in September 2021 was met with record demand, with investors
placing more than £100 billion of bids on the initial £10-billion sale
• In 2019, a Just Transition investor roadmap was released by the London
School of Economics (LSE), with recommendations for investment strategy,
shareholder engagement, capital allocation and policy dialogue253• In 2020, the UK’s first Financing a Just Transition Alliance (FJTA) wasestablished with over 40 banks, investors and financial institutions joining
forces with universities and trade unions254• The devolved Scottish government has set up a Just Transition
Commission, aiming to “provide practical, realistic, affordable
recommendations for action”255• The UK Infrastructure Bank was launched in 2021, aiming to help tackle
climate change and support regional and local economic growth. The bankis operationally independent and works with the UK Treasury256• In 2018, the UK government backed the creation of a Work andOpportunities for Women programme. In 2021, it published a briefing on
how governments can ensure a Gender Just Transition to Net Zero, withreference to garment, agriculture and energy supply chains257

US(G7 Member)

251

252

176

• In January 2021, President Joe Biden signed an Executive Order on
Climate Change, which stressed the job-creating potential of solutions
to the climate crisis. The order outlined a range of measures to promote
environmental justice for disadvantaged communities258

European Commission (2020): “The European Green Deal
Investment Plan and Just Transition Mechanism explained”;
https://ec.europa.eu/commission/presscorner/detail/en/qanda_20_24
UK Government (2021): “Green Financing Framework”; https://
assets.publishing.service.gov.uk/government/uploads/system/
uploads/attachment_data/file/1002578/20210630_UK_Government_Green_Financing_Framework.pdf

253LSE (2019): “Financing inclusive climate action in the UK: An
investor roadmap for the just transition”; https://www.lse.ac.uk/
granthaminstitute/publication/financing-inclusive-climate-action-in-the-uk-an-investor-roadmap-for-the-just-transition

254

Responsible Finance (2020): “Dozens of banks, investors andinstitutions commit to financing a just transition for the UK”;
https://responsiblefinance.org.uk/2020/11/dozens-of-banks-

investors-and-institutions-commit-to-financing-a-just-transition-for-the-uk
255

Scottish Government: “Just Transition Commission”; https://www.gov.scot/groups/just-transition-commission256

UK Government (2021): “UK Infrastructure Bank”; https://www.
gov.uk/government/publications/uk-infrastructure-bank257

UK Government (2021): “Women and the Net Zero economy:
A briefing on changes in garment, agriculture and energy
supply chains”; https://www.gov.uk/guidance/work-and-opportunities-for-women#resources

258

The White House (2021): “Executive Order on Tackling the
Climate Crisis at Home and Abroad”; https://www.whitehouse.
gov/briefing-room/presidential-actions/2021/01/27/executiveorder-on-tackling-the-climate-crisis-at-home-and-abroadAppendicesCountry/Region

InitiativeUS(G7 Member)• In 2019, Los Angeles published a Sustainability City Plan.259 The planannounced that the city would launch a Jobs Cabinet to serve as bothan advisory body and a task force on job creation, training and a Just
Transition. Los Angeles has committed to creating 100 thousand green
jobs and to collaborate with stakeholders on a Just Transition for workers
into the green jobs of the future• In 2020, the San Francisco Public Utilities Commission listed a green bondwith reported social co-benefits on the London Stock Exchange260• In January 2021, President Joe Biden signed an Executive Order on
Climate Change, which stressed the job-creating potential of solutions
to the climate crisis. The order outlined a range of measures to promote
environmental justice for disadvantaged communities258• A number of states are also developing strategies:~ Colorado has released a Just Transition Action Plan261~ California has released a Climate Investment Framework 262~ Kentucky has expanded on a long-existing severance tax for coal,
whereby a law introduced in 2018 provided for 100% of surplus coal
severance tax revenues to go towards a Local Government Economic
Assistance Fund263

France(G7 Member)• In 2021, Finance for Tomorrow (F4T), a government-backed initiative,
launched ‘Investors for a Just Transition’ as a global investor engagement
coalition on a Just Transition. The initiative brings together asset
managers and asset owners representing €3.6 trillion in capital, alongwith corporates, to promote a socially acceptable transition to low-carbon
economies264

Germany(G7 Member)• In 2018, the German government convened a Commission on Growth,
Structural Change and Employment to develop a broad social consensus
around structural changes to energy and climate policy for the country. It
concluded that structural changes require reliable framework conditions
and long-term monitoring. It also suggested that both new and existing
financial instruments are needed to bring together strategic investments inthe lignite mining regions and secure their funding in the long term265• The Ruhr region of Germany has steadily transitioned from coal producing
to a more diverse and modern economy over the last several decades.
This was done with no redundancies and promoted dialogue between thecoal company, trade unions and the state266• The European Commission allocated €877 million of its Just Transition
Fund to support structural change in German coal-mining regions. The
Commission identified 18 areas within Germany that would be highly
affected by structural change in a transition from coal267

259

LA Mayor (2019): “LA’s Green New Deal: Sustainable CitypLAn”; https://plan.lamayor.org/sites/default/files/pLAn_2019_
final.pdf

260

London Stock Exchange (2020): “London Stock Exchange
welcomes The San Francisco Public Utilities Commission’s Green Bond to the Sustainable Bond Market”;
https://www.londonstockexchange.com/london-stock-exchange-welcomes-san-francisco-public-utilities-commissions-green-bond-sustainable-bond-market

261

262

Colorado Department of Labour and Employment (2020):“Colorado Just Transition Action Plan”; https://cdle.colorado.
gov/sites/cdle/files/documents/Colorado%20Just%20Transition%20Action%20Plan.pf
Office of Governor Gavin Newsom (2020): “Governor Newsom
Releases California Climate Investment Framework”; https://www.gov.ca.gov/2020/09/24/governor-newsom-releases-california-climate-investment-framework263

Kentucky Department for Local Government: https://kydlgweb.
ky.gov/StateGrants/16_Coal.cfm

264

Finance for Tomorrow (2020): “Making a Just Transition: theRoadmap of the Paris Financial Center”; https://financefortomorrow.com/app/uploads/2020/10/Position-Paper_Just-Transition_F4Tpdf.pdf

265Commission on Growth, Structural Change and Employment (2019): “Final Report”; https://www.bmwi.de/Redaktion/EN/Publikationen/commission-on-growth-structural-change-and-employment.pdf?__blob=publicationFile&v=3266

 WF Germany (2019): “Just Transition for Regions and GenW
erations”; https://regionsbeyondcoal.eu/just-transition-for-regions-and-generations

177

Mobilising institutional capital towards the SDGs and a Just Transition

Country/Region

InitiativeJapan(G7 Member)• In June 2021, the Japanese Ministry of Economy, Trade and Industry
published its Green Growth Strategy Through Achieving Carbon Neutrality
in 2050. The report articulated a need to ensure carbon neutrality in a waythat is inclusive for all parts of society268

Canada
(G7 Member)• The Canadian government appointed a task force to develop
recommendations on how to manage a Just Transition away from coal.269
The task force delivered its report in 2019
• In 2021, the Minister of Natural Resources announced the government was
launching a consultation on a Just Transition, which would inform legislationand the formation of an external Just Transition Advisory Body.270 Industry,labour organisations and community stakeholders, as well provincial, territorial
and indigenous stakeholders, were all invited to respond to the consultation• The accompanying discussion paper outlines progress to date (forexample, retrofitting homes to make them more energy efficient andlaunching a Strategic Innovation Fund Net-Zero Accelerator to expedite
decarbonisation projects) and what a potential path forward for Just
Transition legislation could look like271

Italy(G7 Member)• Eni, a multinational oil and gas company in which the government of
Italy owes a golden share (enabling it to outvote other shares in certain
circumstances), has committed to play a decisive role in the Just Transition
to a low-carbon future in a way that contributes to the achievement of
the SDGs, both in Italy and its other global sites, including in emerging
markets. In 2020, it launched its Just Transition plan272• Enel, a manufacturer and distributor of electricity and gas partly ownedby the Italian government, pledged, in 2015, to achieve carbon neutrality
by 2050, aligning with international best practice.273 In 2020, the company
explicitly embraced a commitment to a Just Transition274• Enel launched a country-wide effort to repurpose 23 power plants anda mine, including redeploying all affected workers and undertaking aparticipatory process to select new uses for the sites275• The project involves 23 power plants and a mining area in Italy and fourcoal-fired production facilities in Spain. According to Enel, all affected
workers have so far been re-employed or retired. Following on from thesuccess of the initiative, the approach will be extended to cover more than
40 sites globally, including in emerging markets276

South Africa(G7 guest country)

267

European Commission (2020): “Communication from the Commission to the European Parliament, the European Council,
The Council, the European Central Bank and the Eurogroup”;
https://ec.europa.eu/info/sites/default/files/2020-european_semester_country-report-germany_en.pdf

268

Government of Japan (2021): “Green Growth Strategy throughAchieving Carbon Neutrality in 2050”; https://www.meti.go.jp/
english/press/2021/0618_002.html

269

Government of Canada (2019): “Task Force: Just Transition
for Canadian Coal Power Workers and Communities”; https://www.canada.ca/en/environment-climate-change/services/climate-change/task-force-just-transition.html

270

Government of Canada (2021): “Canada Launches Just Transition Engagement”; https://www.rncanengagenrcan.ca/en/
collections/just-transition271

Government of Canada (2021): “People-Centred Just-Transition
Discussion Paper”; https://www.rncanengagenrcan.ca/sites/
default/files/pictures/home/just_transition_discussion_paper_-_en_-_july_15.pdf

272

178

• In South Africa, there is broad acknowledgement of the importance of a Just
Transition, which is prominently featured across the country’s trade union
policies on climate change, National Development Plan (NDP), National
Climate Change Policies, and Nationally Determined Contributions (NDC)277

Eni (2019): “For a Just Transition”; https://www.eni.com/assets/

documents/eng/just-transition/2019/Eni-for-2019-eng.pdf
273

Enel (2015): “Seeding Energies Sustainability Report”; https://www.enel.com/content/dam/enel-com/documenti/investitori/
sostenibilita/2015/sustainability-report_2015.pdf

274

Enel (2020): “A Just Transition, so that nobody is left behind”;
https://www.enelgreenpower.com/stories/articles/2020/09/
just-transition275

Enel (2015): “Seeding Energies Sustainability Report”; https://www.enel.com/content/dam/enel-com/documenti/investitori/
sostenibilita/2015/sustainability-report_2015.pdf

276

Robins, Nick, Sabrina Muller and Katarzyna Szwarc (2021):“From the grand to the granular: translating just transition
ambitions into investor action”; https://www.lse.ac.uk/granthaminstitute/wp-content/uploads/2021/07/From-the-Grand-tothe-Granular_translating-just-transition-ambitions-into-investor-action.pdf

277

Climate Investment Funds (2020): “Supporting Just Transition
in South Africa”; https://www.climateinvestmentfunds.org/
sites/cif_enc/files/knowledge-documents/supporting_just_transitions_in_south_africa.pdf

AppendicesCountry/Region

Initiative

South Africa(G7 guest country)• In February 2018, the National Planning Commission issued a paper onenergy, laying out the challenges facing a system dominated by coalfollowing the Paris Agreement and the rapid global development of clean
energy technologies. The paper highlighted that the risk of stranded
infrastructure investment in the South African coal industry is “significant”
and pointed to “an urgent need for co-ordinated stakeholder action driven
by government to facilitate a transparent decision-making process on the
future of coal in South Africa as part of a just energy transition”278

India(G7 guest country)• CDC, the UK DFI, has collaborated with Indian legislators, the Indian
National Institute of Public Research, the Harvard Kennedy School, theLondon School of Economics and the International Monetary Fund to
produce an India Just Transition Finance Roadmap (JTFR) project279• The project identified the priorities for financial institutions that can support
climate change to deliver positive results for communities’ livelihoods andsustainable development278

Ibid.

279

CDC Group (2021),
Towards a Just Transition
Finance Roadmap for
India 2021; https://www.
cdcgroup.com/en/news-insight/insight/articles/
towards-a-just-transition-finance-roadmap-for-india

280

UN Partnership for Action
on Green Economy (2021):“New Studies Finalised on
Just Transition in Argentina”; https://www.un-page.
org/Just-Transition-in-Argentina

281

Ibid.

282

Government of Argentina:
Second Argentina NDCs
(2020): https://www4.
unfccc.int/sites/ndcstaging/PublishedDocuments/
Argentina%20Second/
Actualizacio%CC%81n%20
meta%20de%20emisiones%202030.pdf

283

284

285

Argentina• A rgentina has embedded the protection of workers’ rights in its Just
Transition commitments, specifically in its recent Nationally Determined
Contributions282
Columbia• In 2019, the government signed a Pledge for Green Jobs and a Just
Transition that will improve the capacity of the labour force for a transition
to the green economy283

Kenya• Kenya’s National Adaptation Plan (NAP) aligns Kenya’s need to increase
the number of beneficial, fair-paying jobs available with the need for
effective responses to climate risks that are organised and led by Kenyan
stakeholders• Reducing the vulnerability of Kenyans through economic growth,
increasing employment opportunities and improving wages is seen to be
an integral part of climate-compatible development. The plan envisages
that training young Kenyans in relevant careers and imparting new skills
to both employed and unemployed will build national resilience to climatechange while aiding the country’s economic development284

Government of Columbia(2019): “Pacto por losEmpleos Verdes y Transicion Justa en Colombia,
firmaron OIT y MinTrabajo”;
https://www.mintrabajo.
gov.co/prensa/comunicados/2019/noviembre/
pacto-por-los-empleos-verdes-y-transicion-justa-en-colombia-firmaron-oit-y-mintrabajoRepublic of Kenya, Ministryof Environment and Natural
Resources (2016): “Kenya
National Adaptation Plan
2015–2030”; https://www.
greengrowthknowledge.
org/sites/default/files/
downloads/policy-database/KENYA%29%20
Kenya%20National%20
Adaptation%20Plan%20
2015-2030.pdf
He, Gang et al. (2020):“Enabling a Rapid and Just
Transition away from Coalin China.” One Earth
Vol 3, Issue 2; https://www.sciencedirect.
com/science/article/pii/
S2590332220303560• In March 2021, the UN Partnership for Action on a Green Economy (PAGE)
hosted a national dialogue on a Just Transition in Argentina. This dialogue
brought together the Ministry of Labour, Employment and Social Security,
the Ministry of Productive Development, the Argentine Industrial Union(UIA) and the General Labour Confederation (CGT) to discuss an inclusive
green economy, a Just Transition and green jobs in Argentina.280 The
government is reportedly developing a National Just Transition strategy281• The NAP mentions Gender, Vulnerable Groups and Youth as priority
groups for adaptation action and that this should be done by strengthening
the adaptive capacity of the most vulnerable groups and communities
through social safety nets and insurance schemes. In addressing climatechange issues, public entities are required to undertake public awarenesscampaigns and consultations, and ensure gender mainstreaming, in line with
the Constitution and the Climate Change Bill (2014). For a Just Transition,
the NAP mentions that Kenya has extensive consultation processes forsocial protection, which serve to ensure all stakeholder interests are
considered in all climate action. The NDC also mentions human rights,
food security, an all-of-society approach and gender equality (Kenya hasvarious laws to promote gender equality and provide for protection against
discrimination on the basis of gender, with equal opportunities in education
and work, and in cultural and professional development)
China• In 2016, the Chinese central government pledged to provide 100 billion
Yuan (~$14.3 billion) in total for redundant workers in coal and steel
industries 285• In recent years, relevant government departments have introduced
policies to promote the settlement and re-employment of coal workers.
For example, the central government formulates specific employmentsupport policies for unemployed coal workers, providing them with free
employment guidance, job placements, consultation and other services
179

Mobilising institutional capital towards the SDGs and a Just Transition

6.4 Appendix 4
Available resources on reflecting community voicein fund design
General• "Strategic Community Investment – A Good
Practice Handbook for Companies doing 		Business in Emerging Markets” by the IFC(2010)
This handbook by the International FinanceCorporation (IFC), specifically chapter 4, outlines
how the use of participatory methods throughout
the lifecycle of investments can cultivate
stakeholder involvement and ownership, with
examples of case studies and practical tools.
(Available at: https://www.ifc.org/wps/
wcm/connect/95c6b4b5-2097-4f47-95187a21b8516c1a/12014complete-web.pdf?MOD=AJP
ERES&CACHEID=ROOTWORKSPACE-95c6b4b52097-4f47-9518-7a21b8516c1a-jkD15-5)• “How Do You Engage Communities?”by Bang the Table (2021)
This series of articles by Bang the Table, a
specialist consultancy, provides a brief introduction
on how to incorporate community voice into thedesign of projects (including in energy) throughparticipatory models, with international casestudies demonstrating how community voice canbe reflected.
(Available at: https://www.bangthetable.com/howdo-you-engage-communities)

Social investment• “Nothing About Us, Without Us” by The 		Young Foundation (2020)
This guide shows how the voices of those affected
can be brought into different stages of the social
investment process. It illustrates how including thevoices of those affected has the power to positively
impact stated social investment outcomes – andthe lives of the people those funds are intending toserve. (Available at: https://youngfoundation.org/
wp-content/uploads/2020/02/Nothing-About-UsWithout-Us-Report-2020.pdf)• “Meeting of Minds” by The National Lottery
Trust (2019)
This series of case studies outlines the positive roleof the community voice or ‘co-production’in the design, development and maintenanceof projects, from the perspective of project
funders but with applicability for commercial

180

actors as well. (Available at: https://www.
tnlcommunityfund.org.uk/media/A-Meetingof-Minds_How-co-production-benefitspeople-professionals-and-organisations.
pdf?mtime=20190919092658&focal=none)• O utcome Star (2017)
This social enterprise provides a guide to using a
set of evidenced-based tools which emphasise aperson-centred approach is necessary whereby
the community affected is an active agent in the
production stage. The tools also measure anddemonstrate impact when working with people.
(Available at: https://www.outcomesstar.org.uk/
about-the-star/what-is-the-outcomes-star)

Agriculture• “Knowledge into Action Note Series
Community Engagement Strategies”
by World Bank (2018)
This note provides guidance on the overall
approach to consulting, engaging, and partneringwith local communities, bridging gaps in
information and expectation between communities
and investors, creating the social license tooperate. It focuses on agricultural investment but
its principles have broader relevance. (Available at:https://openknowledge.worldbank.org/bitstream/
handle/10986/29473/124290-BRI-PUBLIC-KN15.
pdf?sequence=1&isAllowed=y)

Energy• “Best Practice in Community Engagement
Projects” by Centre for Sustainable Energy
This guide provides a comprehensive checklist
for best practice in community engagement bydescribing what should be done and how thisshould be achieved. (Available at: https://www.cse.
org.uk/local-energy/download/best-practice-incommunity-engagement-projects-378)

Housing• “Neighbourhood Charters” by PeabodyThis source outlines how neighbourhood charters
developed in partnership with local communities
can be beneficial in addressing local concerns.
(Available at: https://www.peabody.org.uk/
neighbourhoods/neighbourhood-charters)

Appendices6.5 Appendix 5
Individual acknowledgements
We are grateful to the following individuals for their input during the work ofWorkstream B of the Impact Taskforce:
Name

Affiliation

Geography

Abhishek Mittal

Aavishkaar Capital

India

Agustín Vitórica

GAWA Capital

Spain

Alessandra Puglisi

Credit Suisse

Switzerland

Alex Read

Foreign, Commonwealth & Development Office, UK Government

United Kingdom

Allegra Day

CinvenUnited Kingdom

Amanda Young

abrdn

United Kingdom

Amma Lartey

Impact Investing Ghana

Ghana

Andrea Gattini

Enel

Italy

Andrew Carruthers

Novastar Ventures

Kenya

Andrew Kuper

LeapFrog Investments

Australia

Anne-Marie Verstraeten

BNP Paribas

FranceAnnika Brouwer

SYSTEMIQ

United Kingdom

Anokhi Parikh

Yellowwoods

South Africa

Antoine Prédour

responsAbility

Switzerland

Asha Lad

Conduit Capital

United Kingdom

Ashvin Dayal

Rockefeller Foundation

United States

Austin Mwape

Absa Bank Zambia Plc

ZambiaAyaan Adam

Africa Finance Corporation

Multilateral

Baroness Diana Barran

Department for Digital, Culture, Media and Sport, now Department for
Education, UK Government

United Kingdom

Bernard Giraud

Livelihoods Venture

FranceBob Annibale

University of London, SOAS

United Kingdom

Chizi Wigwe

Africa Finance Corporation

Multilateral

Chris Larson

Multilateral

Netherlands

Christopher Nicholson

International Housing Solutions

South Africa

Cyrille Langendorff

Crédit Coopératif

FranceDaniel Klier

ArabesqueUnited Kingdom

Daniel Mminele

Absa GroupSouth Africa

Daniel Stacey

LeapFrog Investments

Australia

David Woods

New Zealand National Advisory Board for Impact Investing

New Zealand

Dolika Banda

Harith General Partners

ZambiaDominique LesaffreInternational Solidarity for Development and Investment

FranceEdith Quintrell

Liberty Specialty Markets

United Kingdom

Elias Masilela

DNA Economics

South Africa

Emily Simso

New Forests

Australia

Erik Korsgren

Swedish International Development Cooperation Agency

SwedenFabio Natalucci

International Monetary Fund

Multilateral

Filippo Montesi

Social Impact Agenda per l’Italia

Italy

Fran Seegull

U.S. Impact Investing Alliance

United States

Francesco Starace

Enel

Italy

Franziska Ehm

Global Investors for Sustainable Development Alliance

Multilateral

181

Mobilising institutional capital towards the SDGs and a Just Transition

Name

Affiliation

Geography

Geert Peetersmans

IncofinBelgium

Hamdiya Ismaila

Ghana Venture Capital Trust Fund

Ghana

Heather Jackson

Impact Investing South Africa

South Africa

Herman Bril

ArabesqueUnited Kingdom

Hila Katz

The Israeli Forum for Impact Economy

IsraelHuw Owen

Liberty Specialty Markets

United Kingdom

Ibukun Awosika

The Chair Centre Group

Nigeria

James Burton

LeapFrog Investments

Australia

Jeffrey Hodgson

Canada Pension Plan Investment Board

CanadaJessie Duncan

Tipping Point Fund

United States

Jinesh Shah

Omnivore VC

India

Jingdong HuaWorld Bank

Multilateral

Joan Trant

TriLinc Global

United States

Joanne Yoo

Development Partners International

United Kingdom

Joe Hsueh

Taiwan Impact Investment Association

TaiwanJohannes Weber

Bundesinitiative Impact Investing

Germany

Jonathan FirstGFA Climate & InfrastructureSouth Africa

José Luis Ruz de Munain

SpainNAB

Spain

Kalle Hellman

Swedish International Development Cooperation Agency

SwedenKate Cooper

Foreign, Commonwealth and Development Office, UK Government

United Kingdom

Katherine Stodulka

SYSTEMIQ

United Kingdom

Krishnan Sharma

Global Investors for Sustainable Development Alliance

Multilateral

Lamberto Dai Pra

Enel

Italy

Lara Vogt

BlueOrchard

Switzerland

Laure Wessemius-Chibrac

Stichting NAB

Netherlands

Lydia Merry

Schroders Capital

United Kingdom

Magnus Billing

Global Investors for Sustainable Development Alliance

Multilateral

Marco Serena

Private Infrastructure Development GroupMultilateral

Maria KozloskiRockefeller Foundation

United States

Martin Ewald

Allianz Global Investors

Germany

Martin Habel

International Finance Corporation

Multilateral

Maryanne Hancock

Y Analytics

United States

Maxime Mathon

Finance for Tomorrow

FranceMaya Chorengal

TPG Rise

United States

Megumi Muto

Japan International Cooperation Agency

Japan

Michael Adamson

British Red Cross

United Kingdom

Michael Traill

For Purpose Investment Partners

Australia

Michela Pesevento

Social Impact Agenda per l’Italia

Italy

Michele Giddens

Bridges Fund Management

United Kingdom

Misha Joshi

Impact Investing South Africa

South Africa

Monique Leroux

Fiera Capital Corporation

CanadaMonique Mathys-Graaff

Willis Towers Watson

United Kingdom

Monish Mahurkar

International Finance Corporation

Multilateral

182

AppendicesName

Affiliation

Geography

Neil Gregory

International Finance Corporation

Multilateral

Nic Wessemius

FMO Investment Management

Netherlands

Nick O’Donohoe

CDC Group

United Kingdom

Nicola Jenns

Foreign, Commonwealth & Development Office, UK Government

United Kingdom

Pauline Becquey

Finance for Tomorrow

FrancePhillipe Clerc

Finance for Tomorrow

FrancePhillipe Valahu

Private Infrastructure Development GroupMultilateral

Pierre-Alix Binet

Finance for Tomorrow

FrancePrerna Wadikar

CDC Group

United Kingdom

Radana Crhova

Foreign, Commonwealth and Development Office, UK Government

United Kingdom

Ramraj Pai

Impact Investors Council

India

Rekha Unnithan

NuveenUnited States

Romee van Wachem

ACTIAM

Netherlands

Romina Boarini

Organisation for Economic Co-operation and Development

Multilateral

Rosemary Addis

Impact Strategist

Australia

Runa Alam

Development Partners International

United Kingdom

Sabine Fellman

responsAbility

Switzerland

Sabrina Muller

LSE Grantham Research Institute

United Kingdom

Saida Eggerstedt

Schroders

United Kingdom

Sandy Lowitt

Trade & Industrial Policy Strategies

South Africa

Sarah Norris

abrdn

United Kingdom

Simon Bessant

The Texel Group

United Kingdom

Simon Bond

Columbia Threadneedle Investments

United Kingdom

Simon Calvert

Foreign, Commonwealth and Development Office, UK Government

United Kingdom

Simon Meldrum

British Red Cross

United Kingdom

Simone Baur

Allianz Global Investors

Germany

Sir Ronald Cohen

Portland Trust

United Kingdom

Stefanie FairholmeRockefeller Foundation

United Kingdom

Steven Loubser

Ninety One

South Africa

Sunir Goven

International Housing Solutions

South Africa

Tim Crijns

Tridos Investment Management

Netherlands

Tim Hilger

Global Investors for Sustainable Development Alliance

Multilateral

Tim WainwrightCity of London Corporation

United Kingdom

Torben Huss

Investment Fund for Developing Countries

Denmark

Tracey Austin

Impact Investing South Africa

South Africa

Uday Varadarajan

Rocky Mountain Institute

United States

Usha Rao Monari

United Nations Development ProgrammeMultilateral

Vanessa Kacherginsky

The Israeli Forum for Impact Economy

IsraelVeronique Blanc

Schneider ElectricFranceVincent Shen

Taiwan Impact Investment Association

TaiwanYvonne Bakkum

FMO Investment Management

Netherlands

183

Mobilising institutional capital towards the SDGs and a Just Transition

6.6 Appendix 6
List of abbreviations and acronyms
2X 	Referring to the 2X Challenge

CCC 	Climate Change Committee (UK)ACCF 	Africa Climate Change Fund

CDC 	CDC Group (UK)*ACO2 	Africa Credit Opportunities Fund 2(Ninety One)

CDP 	Cassa Depositi e Prestiti (Italy)

ACPF 	Access to Clean Power Fund(responsAbility)
ADB 	Asian Development BankADP III 	African Development Partners III Fund(DPI)

CDSB 	Climate Disclosures Standards Board
CFAI 	CFA Institute
CGT 	General Labour Confederation (Argentina)
CHF 	Swiss Francs
CIF 	Climate Investment Funds

AFC 	Africa Finance Corporation

CLO 	Collateralized Loan Obligation

AFD 	French Development Agency

CNBC 	Consumer News and Business Channel(United States)

AfDB 	African Development Bank

CO2 	Carbon dioxide

AFI 	Acacia Forest Industries (Malaysia)

COP21

AFOLU 	Agriculture, Forestry and Other Land
Uses

21st Conference of the Parties (Paris,
France)COP24

24th Conference of the Parties (Katowice,
Poland)AIG 	American International Group

COP26

AIPA 	Apex Committee for Implementation of
Paris Agreement (India)

26th Conference of the Parties (Glasgow,
UK)

CPI 	Climate Policy Initiative

AIS 	Actis Impact Score

CPPIB	Canada Pension Plan Investment Board

AllianzGI 	Allianz Global Investors

CSR 	Corporate Social Responsibility

APPG 	All-Party Parliamentary Group

DAC 	OECD Development AssistanceCommittee

AIFM 	Alternative Investment Fund Manager

AR5 	Assessment Report 5(Intergovernmental Panel on Climate
Change)DD 	Due diligence

ATI 	African Trade Insurance Agency

DEG 	German Investment Corporation

AUM 	Assets under management

DFC 	US International Development FinanceCorporation

Bank for International Settlements

BMZ 	German Federal Ministry of Economic
Cooperation and Development

as British International
Investment effective April
2022. See UK Government(2021): “Truss revamps
British development financeinstitution to deliver jobs
and clean growth”; https://www.gov.uk/government/
news/truss-revamps-british-development-finance-institution-to-deliver-jobs-and-clean-growth184

DCM 	African Debt Capital Markets

ASEAN 	Association of South East Asian Nations

BIS* CDC Group will rebrand

DCA 	Development Credit Authority

DFI 	Development Finance Institution

BNEF

Bloomberg New Energy Finance

DFID 	Department for International Development(UK, now FCDO)

BoD

Board of Directors

DGGF 	Dutch Good Growth Fund

BRICS

countries: Brazil, Russia, India, China
and South Africa

DM 	Developed markets

BTPS

BT Pension Scheme

C&I 	Commercial and Industrial
CA100+ 	Climate Action 100+DPI 	Development Partners International
DRC 	Democratic Republic of Congo
E&Y 	Ernst & Young

CAGR 	Compound Annual Growth Rate

EAIF 	Emerging Africa Infrastructure Fund
(Ninety One)

CalSTRS 	California State Teachers’ Retirement
System

EBRD 	European Bank for Reconstruction andDevelopment

CAT 	Climate Action Tracker

EDFI 	European Development FinanceInstitutions

Appendices

EDGE 	Global assessment methodology andbusiness certification standard forgender and intersectional equity
EFSD 	European Fund for Sustainable
Development

GABV 	The Global Alliance for Banking on
Values
GBCSA 	Green Building Council of South Africa
GBP

British pound sterling

GCB 	Ghana Cocoa Board

EGO 	Amundi Planet Emerging Green One
Fund (Amundi and IFC)GCB 	Global Consumer BankEIB 	European Investment Bank

GCF 	Green Climate FundEIOPA 	European Insurance and Occupational
Pensions Authority

GDP 	Gross domestic product

EM 	Emerging markets
EMCA 	Emerging Market Climate Action
strategy (AllianzGI and EIB)EMLF 	Emerging Markets Loan Fund (NNInvestment Partners and FMO)EMPEA 	Emerging Markets Private Equity
Association

GEAPP 	Global Energy Alliance for People andPlanetGEEREF 	Global Energy Efficiency and Renewable
Energy Fund (European Investment
Bank)
GEF 	Global Environment Facility
GEMs 	Global Emerging Markets (database)

ESG 	Environmental, social, and governance

GEMS 	Grant Evaluation and Management
Solution

ETFs 	Exchange Traded Funds (US)GHG 	Greenhouse gas

ETI 	Energy Transition Index

GIIN 	Global Impact Investing Network

EU 	European Union

GISD 	Global Investors for Sustainable
Development Alliance

EV 	Electric Vehicle
E&S 	Environmental and social
F4T 	Finance for Tomorrow (France)

GNI 	Gross national income
GOGLA 	Global Off-Grid Lighting Association
GP 	General partners

FCDO 	Foreign, Commonwealth & Development
Office (UK)GP 	Gross profit

FCPF 	Forest Carbon Partnership Facility

GPCA 	Global Private Capital Association

FIG	Financial Institutions Group (IFC)

Greco 	Green Credit Continuum

FIIRM 	Financial performance, Impact,
Innovation, Risk Management
measurement framework(LeapFrog Investments)

GSG 	Global Steering Group for impact
investment

FinDev 	Canadian DFIFJTA 	Financing a Just Transition Alliance (UK)FMO IM 	FMO Investment Management(Subsidiary of FMO)
FMO 	Dutch Development Bank
FoF 	Fund-of-funds
FTSE 100 	Financial Times Stock Exchange 100
Share Index
G20 	Group of 20 (Argentina, Australia, Brazil,
Canada, China, France, Germany,
India, Indonesia, Italy, Japan, México,
Russia, Saudi Arabia, South Africa,
Korea, Turkey, the UK, the US and theEuropean Union)
G7 	Group of Seven (Canada, France,
Germany, Italy, Japan, the UK and theUS), with Australia, India, South Africa
and South Korea joining as guest
countries in 2021

HDI 	Human Development Index
HKI 	Hutan Ketapang Industri (Indonesia)
ICE 	Intercontinental Exchange
ICMA 	International Capital Market Association
ICRF 	Infrastructure Climate Resilient Fund
(AFC Capital Partners)
IEA 	International Energy Agency
IFC AMC 	IFC Asset Management Company(division of IFC)
IFC 	International Finance Corporation
IFRS 	International Financial ReportingStandards Foundation
IHS 	International Housing Solutions
IIF 	InsuResilience Investment Fund(BlueOrchard)
IIF Debt 	InsuResilience Investment Fund’s
private debt sub-fund (BlueOrchard)
IIGCC 	Institutional Investors Group on Climate
Change185

Mobilising institutional capital towards the SDGs and a Just Transition

ILO 	International Labour Organization
IMF 	International Monetary FundIMM 	Impact Multiple of Money (Rise Fundand Bridgespan Group)

MLAs 	Mandated Lead Arrangers (AfDB)MSCI 	Morgan Stanley Capital International

IMP 	Impact Management Project

MSMEs

INR 	Indian rupee

MTP 	Mekong Timber Plantations (Laos)

IPCC 	Intergovernmental Panel on Climate
ChangeMW 	Megawatt

micro, small and medium enterprises

IPP 	Independent power producer

NAB 	National Advisory Board for impact
investing

IPO 	Initial Public Offering

NAP 	National Adaptation Plan

IRIS+ 	System for measuring, managing, andoptimising impact (GIIN)

NASA 	National Aeronautics and Space
Administration (US)Iriss 	Institute for Research and Innovation in
Social Services (Scotland, UK)

NBI 	National Business Initiative (South
Africa)IRP 	Integrated Resource Plan (South Africa)

NBIM 	Norges Bank Investment Management

IRR 	Internal Rate of Return

ND-GAIN 	Notre Dame Global Adaptation Initiative

ISSB	International Sustainability Standards
Board

NDCs 	Nationally Determined Contributions

ITUC 	International Trade Union Confederation

NDF 	Nordic Development Fund
NDP 	National Development PlanJBIC

Japan Bank for International
Cooperation

NGO 	Non-governmental organisation

JICA

Japan International Cooperation Agency

NNIP 	NN Investment Partners

JTF

Just Transition Fund (European Union)

NRDC 	Natural Resources Defense Council

JTFR 	India Just Transition Finance Roadmap(IMF)

NSIA 	Nigerian Sovereign Investment Authority

JTM

ODI 	Overseas Development Institute

Just Transition Mechanism (European
Union)KBC 	Asset Management Kredietbank ABBInsurance CERA Bank (Belgium)
KfW 	Credit Institute for Reconstruction(German state-owned investment anddevelopment bank)
KPI 	Key Performance Indicator

N/A 	Not available or not applicableOECD 	Organisation for Economic Cooperation and Development
OeEB 	Oesterreichische Entwicklungsbank AG(Austrian development bank)
OPIC 	Overseas Private Investment
Corporation (US DFI, now DFC)KPMG 	KPMG International Limited

PAGE 	UN Partnership for Action on a Green
EconomyLatAm 	Latin America

PAYGo 	Pay as You Go

LCEP 	Low Carbon Energy Programme(ASEAN)LCF 	Local Currency Facility
LGBTQIA+ Lesbian, Gay, Bisexual, Transgender,
Queer or Questioning, Intersex, Asexualor Ally
LP 	Limited partner or limited partnership
LSE 	London School of Economics andPolitical Science
LTV 	Loan-to-value

186

MIGA 	Multilateral Investment Guarantee
AgencyPCAF 	Partnership for Carbon Accounting
Financials
PETN 	Parc Eolien Taiba N’Diaye (Taiba
N’Diaye Wind Power Station)
PIDG 	Private Infrastructure Development
Group
PPP 	Purchasing power parity
PPP 	Public-private partnerships
PRI 	Principles for Responsible Investment
PSW 	Private Sector Window

MCPP 	Managed Co-Lending Portfolio Platform(IFC)

PwC 	PricewaterhouseCoopers, LLP

MDB 	Multilateral development bank

R&D 	Research and development

Appendices

REDD+ 	Reducing Emissions from Deforestation
and Forest Degradation
REIT 	Real estate investment trust
RMBS 	Residential mortgage-backed securities
S&P 	S&P Global Ratings
SA 	South Africa or South Asia
SCREIF 	Schroder Capital UK Real Estate Impact
Fund (Schroders)
SCSp 	Special limited partnership(Luxembourg)

SPV 	Special purpose vehicle
SSA 	Sub-Saharan Africa
SWF 	Sovereign wealth fund
TAFF 	Tropical Asia Forest Fund (New Forests)
TCFD 	Task Force on Climate-related Financial
Disclosures
tCO2 	Total carbon dioxide
TCX 	The Currency Exchange Fund
TPG 	Texas Pacific Group
Triodos IM 	Triodos Investment Management

SDGs 	United Nations’ Sustainable
Development Goals

UBS 	Union Bank of Switzerland

SDIP 	Sustainable Development Investment
Partnership

UCITS 	Undertakings for the Collective
Investment in Transferable Securities

SEA 	Southeast Asia

UIA 	Argentine Industrial Union

SECO 	Swiss State Secretariat for Economic
Affairs

UK 	United Kingdom

SET 	Solar Energy Transformation Fund(SunFunder)
SFDR 	Sustainable Finance Disclosure
Regulation (EU)UN 	United Nations
UNCTAD 	United Nations Conference on Tradeand Development
UNDP 	United Nations Development
Programme

SFWG 	Sustainable Finance Working Group(G20)

UNEP 	UN Environment Programme

SHS 	Solar home systems

UNFCCC 	United Nations Framework Convention
on Climate Change

SICAV 	Société d’investissement à capitalvariable (open-end investment fundstructure used in Luxembourg)
Sida 	Swedish International Development
Cooperation Agency
SIFMA 	Securities Industry and Financial
Markets Association (US)US 	United States
USAID 	United States Agency for International
Development
USD 	United States Dollar
VC 	Venture capital
WASH

Water, sanitation and hygiene

WBA

World Benchmarking Alliance

WEF

World Economic Forum

WFE

World Federation of Exchanges

SMEs 	Small and Medium Enterprises

WWF

World Wildlife FundSPEED 	Special Situations Partnership toExpedite Energy Decarbonization

ZAR 	South African Rand

SIF 	Specialised investment fund(Luxembourg)
SMART 	Specific, Measurable, Assignable,
Realistic and Time-Related187

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