In the field of investments, size matters. This is particularly true when a fund targets new terrain such as driving climate financing in emerging economies. The responsAbility-managed climate fund has recently crossed the USD 500 m threshold when it comes to committed capital to investees. We talked to Antoine Prédour, who heads the Energy Debt Financing team at responsAbility Investments and asked him about the recipe behind this success.
The fund has just released its annual results for 2017. what is the biggest achievement?
In the business year 2017, the fund has grown by close to 50% to reach USD 503 million of committed capital to investees at year end. Since then, it has continued to grow and now stands at USD 520 million. This strong growth shows that the fund is managing to convince both investors and investees of the potential of climate financing, both financially and impact-wise.
Why is it so important for this fund to reach a certain size?
In the world of investments, size matters. Owners of large private investment funds often only start considering investment opportunities once the total fund size exceeds USD 500 million. By crossing this threshold, our climate fund has gained entry into a whole new league. Last but not least, by increasing its size, the fund is achieving a larger impact. Recently, the fund also passed the symbolic threshold of 10 million t of expected lifetime savings. To give you an example, this corresponds to the yearly carbon footprint of a country like Luxembourg. This is a major achievement.
What is the fund’s main success factor in scaling up climate financing in emerging economies?
On one hand, the Fund is able to provide partner institutions with longer loan tenure than are commonly available in the markets. As energy loans typically require longer terms, this is one key factor. On the other hand, the Fund puts a lot of effort and funding into support services for partner institutions. In 2017 alone, we initiated 44 new Technical Assistance projects designed to enable our partners to exploit the potential of energy loans in their respective markets. Also, the Fund has a team of in-house engineers whose only mission is to provide technical support to our partner institutions.
«Our climate fund has gained entry into a whole new league.»
Antoine Prédour, Head of Energy Debt Financing at responsAbility Investments
How has the fund's approach broadened along with its volume?
At the beginning we almost exclusively financed energy projects via financial institutions in our target markets. Today we are also directly funding a whole series of project owners or SMEs in the renewable energy space, thereby gaining a foothold in the areas of larger-scale energy generation or distributed energy.
So it’s really about building a market among investors for this type of investment. Is kfw planning to expand this approach in the future?
Our role is to invest where the private sector is not working. It’s always difficult to find timing to say the market is now senior enough for us to exit. One thing we have learned, however, is that we should plan exits from the very beginning. And we should also keep the subsidy element of first-loss shares at a level where we can use it flexibly, so it isn’t fixed for the whole period. This will allow us to adapt subsidies depending on how markets develop.