The partnership aims to facilitate the co-financing by Dutch and other European pension funds of sustainable development projects.
The European Bank for Reconstruction and Development (EBRD), the European Union (EU) and asset manager ILX Management (ILX) have launched a joint partnership to boost private-sector financing for sustainable development in Eastern Europe, the Caucasus, Western Balkans, Turkey, the southern and eastern Mediterranean and Central Asia.
The partnership’s objective is to facilitate the co-financing by Dutch and other European pension funds of sustainable development projects that would otherwise be unable to benefit from private-sector participation.
Supported by EU guarantees through the European Fund for Sustainable Development Plus (EFSD+) Guarantee Programme, the initiative aims to support the co-financing of up to €300m in projects focusing on sectors including climate smart solutions, digital transformation and financial inclusion.
Speaking to Impact Investor, Manfred Schepers, CEO of ILX, explained the investments through this partnership would be made over the coming three years and would be eligible for investment through the ILX Fund I, which invests on behalf of Dutch pension-fund managers, including the Netherlands’ largest pension provider APG Asset Management, this year and its successor fund, the ILX Fund II, in the future.
He said that ILX Fund I had already invested in some of the same countries and regions in projects with a credit quality that was “in line” with the fund’s strategy, but that the partnership would enable ILX to extend its investment universe and invest alongside the EBRD in projects that benefited from the EFSD+ guarantee.
The EBRD and ILX also explained that most of the countries and regions covered by the partnership had relatively underdeveloped corporate bond markets and that as a result, were typically excluded from the corporate emerging market debt indices.
“Furthermore, considering the balance between country and expected risk profile of the projects envisioned under these specialised programmes, they may not align with the overall investment strategy of pension fund investors,” said Schepers. “The ESFD+ guarantee will enable ILX to invest alongside the EBRD in higher risk countries and projects than the core ILX Fund I and II strategy [allows].”
Ines Rocha, managing director for impact and partnerships for the EBRD, who said the details of how the initiative would be implemented were still subject to discussion, added: “On the projects that benefit from EFSD+ partial guarantee, the EU will provide the EBRD a partial first-loss guarantee that will mitigate the overall risks of these projects and enable the EBRD to make the investments.”
Growing demand for climate mobilisation
Rocha said that demand for climate mobilisation in the countries and regions targeted by the partnership, was on the rise “driven by a multitude of investments in renewable energy, including innovative climate smart solutions such as hydrogen projects, digitalisation, and financial inclusion.”
“Particularly, in the smaller countries in the Western Balkans, Caucasus, SEMED and Central Asia, the EFSD+ facility will play a crucial role,” she added.
The EBRD said that it was working towards enhancing its partnerships with private institutional investors and that the initiative was an important part of its goal of doubling private co-financing by 2025, with a focus on developing greener, more inclusive and more digital economies across its countries of operation.
The initiative is also part of the EU’s Global Gateway strategy, which centres on mobilising private-sector capital to deliver large-scale investments of up to €300bn in sustainable and high-quality projects by 2027, in support of partner countries in their green and digital transition, as well as to achieve the UN Sustainable Development Goals.
ILX said it expected other Dutch and European pension funds to join its funds in the future.