PensionDanmark Sees Bond-Beating Options in UN Climate FundMathew Carr
PensionDanmark A/S, the retirement fund that’s invested about $1.8 billion in renewable energy, may consider developing country projects for the first time as the United Nations-linked Green Climate Fund opens today.
“The Green Climate Fund could be an interesting partner for pension funds” if it reduces the risks from investing in emerging markets, Torben Moger Pedersen, Chief Executive Officer of PensionDanmark in Copenhagen, said by phone. “We are facing the same challenges as other pension funds. Yields on government bonds are very low and not an attractive safe haven.”
The Songdo, Korea-based climate fund, set up by the UN to help direct clean-energy financing to developing countries, has a private-sector facility where investors can take part in emission-reduction projects and renewable-energy plants in emerging nations. The fund is designed to be free of UN control and its independent board has full responsibility for deciding which projects are financed, according to its draft rules.
The GCF is seeking to channel a portion of $100 billion from industrialized nations to emerging countries by 2020, according to its website. The fund intends to raise part of that in next year’s initial call for cash, Manfred Konukiewitz, co-chairman of the organization, said at UN climate talks in Warsaw last month.
“Today is an historic day,” Christiana Figueres, executive secretary of the UN Framework Convention on Climate Change, said in an e-mailed statement on the fund’s opening. “Governments now have a crucial tool at their disposal to leverage billions in finance for developing counties to green their economies and increase their resilience to the inevitable effects of climate change.”
PensionDanmark says it has invested $1.8 billion in windfarms, energy grids and other “green” infrastructure. The aim is to spend a further $1.4 billion within the next four years in developed nations, it said.
The retirement fund, with 642,000 members, is seeking alternative investments to counter low-yielding benchmark government debt. German 10-year bonds yield about 1.78 percent, down from a high this year of 2.09 percent on Sept. 11 and an average 2.39 percent over the past five years, according to data compiled by Bloomberg. The U.S. 10-year Treasury yield is about 2.84 percent from 3 percent in September.
“Looking forward, we would be interested in finding investments in high-growth economies in the developing world,” Pedersen said. “We will be looking with interest at the Green Climate Fund. The most important message to governments, since we are dealing with long-term investments, is the credibility of the regulatory regimes.”
With rules in place to cut regulatory risk, the private sector could invest more than four times the amount developed-nation governments contribute to the Green Climate Fund, said Abyd Karmali, Bank of America Corp.’s head of carbon.
Bank of America provided $300 million of financing with Overseas Private Investment Corporation, the U.S. government’s development finance institution, for solar projects in Peru, according to an Oct. 20 statement on the U.S. Chamber of Commerce website.
The GCF “has the potential to be the financial conduit that significantly scales up and speeds up flows of climate finance,” Karmali said today in an e-mailed response to questions. “What makes it different is that a private-sector facility is part of its governing instrument from the outset.”