17 February 2023

Net-Zero Asset Owner Alliance Chair highlights importance of a just energy transition at Munich Security Conference

The question remains: how do we unlock private capital to finance the transition to renewable energy? The Alliance has worked on this and we see the importance and urgency of collaborative action by all stakeholders to bring about systemic change.

Opening remarks to the Net-Zero Asset Owner Alliance-hosted roundtable discussion at the Munich Security Conference by Günther Thallinger, Chair of the NZAOA and board member, Allianz SE

Power Move: Accelerating the Just Energy Transition

“The imperative to significantly reduce emissions of harmful greenhouse gases to ensure our planet is habitable has now been given additional impetus by geopolitical developments.

Any much-needed change must be guided by the principles of a just transition: a strategic approach that requires all actions to serve the needs of and includes, the most vulnerable groups in society.

The question remains: how do we unlock private capital to finance the transition to renewable energy?

The Alliance has worked on this and we see the importance and urgency of collaborative action by all stakeholders to bring about systemic change.

Blended finance structures that leverage public and philanthropic capital to mobilize private-sector funding play a critical role in scaling investments into Emerging and Developing Economies (EMDEs) – but not only there.  It is also the wealthy nations that must accelerate innovation and the transition to renewable energy for the sake of energy security and the avoidance of rising greenhouse gases By scaling blended finance structures that leverage public capital together with the private sector we can accelerate the green transition and counter energy security and geopolitical risk.

The most prominent commercial investors in the blended finance space have historically been commercial banks, primarily through project finance, albeit with a declining share. An increase in investment activity into blended finance in the climate area has recently been observed from institutional investors (increasing their share of investments from 18% of private investments between 2016-2018 to 25% between 2019-2021).

Given the preferences of institutional investors such as pension funds and insurance companies for larger ticket sizes to reduce relative transaction costs, they commonly invest through funds. To mobilize the available long-term institutional capital for the net-zero transition globally scaling standardized portfolio approaches is therefore key.  

Historically, the geographical focus of blended finance transactions has been in the context of EMDEs. However, it can also be seen as an effective measure to mobilize required capital within any developed market where a risk-return mismatch of investments hinders the flow of capital to finance the transition.

Through the NZAOA’s Call to Action to Asset Managers for climate-focused blended finance vehicles (first launched in February 2021), the Alliance collaborated with asset managers to drive the design of scalable blended finance vehicles that meet the needs and requirements of institutional investors. To date, 26 vehicles have been submitted by a diverse set of asset managers. With a focus on developing and emerging economies, the proposed private debt and private equity vehicles and platforms cover a broad range of sectors, reflecting the immense universe of investment opportunities in the net-zero transition.

The Alliance has worked on five proposals:

1. To close the gap between high investment risk in EMDEs and investors’ obligations to earn risk-adjusted returns, governments and philanthropists must create sizeable and flexible pools of concessional capital to de-risk investments to bring them within investors’ risk limits. We suggest scaling and aggregating pools of concessional capital that create fiduciary investment assets...
2.  more at Net-Zero Asset Owners