IFC hopes to tap pensions for climate capital

BARCELONA, June 1 (Reuters) – The World Bank investment arm, the International Finance Corporation, hopes to entice pension funds to inject capital into fighting climate change in the next few months, the global head of its climate business group said.

Pension and sovereign wealth funds control an estimated $28 trillion but less than one percent currently goes into climate-related activity.

The United Nations wants to steer at least $100 billion a year of investment into combating climate change by 2020.

“In an ideal world, 80 percent of the money should come from the private sector,” Mohsen Khalil told Reuters in an interview on the sidelines of a carbon conference on Wednesday in Barcelona, Spain.

Pension funds could provide a large source of private capital but have been cautious about investing in the sector.

“The missing link is pension funds and they have to be tapped,” Khalil said.

“We have been generally mobilising investment from commericial banks and equity but we have been working on a couple of financial instruments to make the sector more attractive for pension fund investment,” he said, adding that the IFC could reveal more details in the next couple of months.

Pension funds are currently more reluctant than other investors to put money into clean technology and climate change due to the risks of a sometimes changing regulatory environment.

“Of course pension funds are more cautious because people don’t want to see their pensions eroding,” Khalil said.

 

TAPPING THE PRIVATE SECTOR

This week the IFC launched a 150 million euro ($215 million) fund to buy carbon credits generated after 2012 to help provide market certainty for project developers under the United Nations Clean Development Mechanism (CDM)

Demand for CDM credits has fallen due to the lack of clarity around market rules when the Kyoto Protocol expires in 2012.

IFC has initially committed 15 million euros to its Post-2012 Carbon Facility, and is getting the rest from some European power utilities and energy companies.

The facility’s size is now 90 million euros.

The projects will mainly be in the renewable energy and energy efficiency sectors and will focus on developing countries in Asia, Africa and Latin America, Khalil said.

Although the fund will focus on post-2012 Kyoto credits, Khalil still hopes for agreement on the extension of the Kyoto Protocol.

“But there are alternative means to accompany the Protocol when it is approved and there could be alternative asset classes as well if people are willing to trade those types of carbon credits,” he added.

Such alternatives could be Indian renewable energy certificates or credits from a future Chinese carbon market, he said.

The fund forms part of the IFC’s overall strategy to make at least 20-25 percent of all its investment and advisory activities climate-friendly by 2013.