The UN-convened Net-Zero Asset Owner Alliance (NZAOA) has issued a call for asset managers to design blended finance vehicles that would help them dramatically ramp up investments in climate mitigation projects and business models, as is their wish.
It said that while engagement was crucial to the process of moving away from a carbon-intensive economy, so too was financing the transition of the real economy, one of the Alliance’s work streams.
In an overview of its request for proposal (RFP), the NZAOA said it had concluded that blended finance was one of the most efficient instruments to de-risk investments in climate solutions and market segments that for now did not have the appropriate risk-return profile for institutional investors to be able to invest.
It made clear this was not just a problem for OECD markets.
The plan is for members of the Alliance to work with asset managers on select blended finance vehicles that meet certain core criteria, and support them in refining the strategy to fit institutional investors’ criteria.
The NZAOA is looking for blended finance vehicles at least in the range of $300m-500m and open to both Alliance and non-Alliance investors.
It has specified that capital flows to required climate projects and respective investment vehicles must be aligned with the net-zero transition and asset owners’ fiduciary duty with regard to attractive risk-return profiles.
All vehicles must also: focus on climate solution investments; invest in financially viable and sustainable underlying business models; have strong risk (downside) mitigation mechanism for private investors; be suitable for large institutional investors in their set up; be managed and executed by experienced and established fund managers; and not hamper other Sustainable Development Goals and/or follow high environmental, social and governance standards.
“We need to ensure asset managers are supporting us in achieving our climate-related target,” said Guenther Thallinger, chair of the Alliance and member of the Board of Management Allianz SE.
“Asset management must change and fully incorporate these climate-related targets. Our interactions from the RFP, to mandate definition and then to performance dialogues will cover climate impact.”
Fiona Reynolds, CEO of the Principles for Responsible Investment, said: “Asset owners are looking for investment solutions and wanting to work with innovate fund managers to design the investment vehicles of the future. Without the investment community, the transition to a zero-carbon future, will not happen with scale or the urgency that is required.”
Last year asset managers came together in their own net-zero emissions initiative, as part of which they commit to working with asset owner clients on decarbonisation goals.
At a blended finance conference earlier this month, BlackRock CEO Larry Fink called for more action from governments to drive the transition to a net-zero carbon global economy, saying “it can’t just be done by capitalism”.
Members of the NZAOA commit to transitioning their investment portfolios to net-zero GHG emissions by 2050 consistent with a maximum temperature rise of 1.5°C above pre-industrial levels. Some have begun to disclose their first five-year intermediate targets, in accordance with the protocol for 2025 target-setting that was published last month.