Pension funds will only be able to invest in renewable energy in developing countries if they have the financial support of the state to mitigate the risks, PensionDanmark’s chief executive Torben Möger Pedersen has said.
Speaking on the eve of the UN Climate Summit in New York, Möger Pedersen said: “Expanding these types of investments into developing countries is challenging, due to higher risks, especially when it concerns direct unlisted investments.”
He said this was particularly difficult for pension funds that had a fiduciary responsibility to their policyholders to seek the best possible risk-adjusted returns.
“Therefore, there is a need for catalysing new public/private partnerships that can bridge that gap, leverage public funds and put in place de-risking instruments that can make the investments feasible for pension funds,” he said.
PensionDanmark provides labour-market pensions, and currently manages assets of around DKK152bn (€20.4bn).
Möger Pedersen and PensionDanmark are attending the summit in New York as part of the Finance Track to the UN Secretary-General’s Climate Summit – an advisory group focused on financing.
A spokeswoman for the pension fund said Pedersen would be addressing the importance of Danish pension funds – and Denmark – considering climate change in what they do.
Möger Pedersen noted the Climate Change Act, recently passed by the Danish Parliament, included the aim of moving Denmark to 100% renewable energy sources by 2050.
He said Danish pension funds and others in the financial sector had been increasingly active in both direct and indirect investments in renewable energy and grid infrastructure domestically, as well as in other developed countries.
“These are investments that fit well with the long-term nature of pension funds, and the market for these types of investments has been maturing rapidly in recent years, with a sharp rise in deals and deal flows and has, thus, been attracting an increasing number of more mainstream investors,” he said.
He said development finance institutions (DFIs), regional development banks, multinational development banks, governments and institutional investors had already been working to find “competitive risk/return profiles” that attracted private sector capital to invest in renewable energy and energy infrastructure in developing countries.
A recent example, he said, was the Danish Climate Investment Fund set up earlier this year, under which the Danish government, Denmark’s Investment Fund for Developing Countries (IFU) and several institutional investors, including PensionDanmark, had worked together.
The fund is to invest in renewable energy, energy efficiency, transportation and other projects, with a geographical scope covering nearly all countries in Africa and Latin America, most in Asia and a few in Europe.
At the moment, the fund has commitments of DKK1.3bn, but Möger Pedersen explained that, since it only contributes part of the financing for individual projects – with further money coming from other public and private investors such as Danish partners, local banks and funds – the total investment could be six times as much.
“The model used for the Danish Climate Investment Fund is both replicable and scalable,” he said.
Möger Pedersen’s intervention came less than a week after more than 340 institutional investors worth $24trn (€18.5trn), including PensionDanmark and more than 30 other European pension investors, called on governments to create a more secure regulatory framework to allow increased levels of investment in the low carbon and renewable energy economy.