Asia has a vital role to play if global net-zero targets are to be met by 2050. But the region only receives a fraction of global funding into clean and renewable energy, creating opportunities for institutional investors to help plug a funding gap worth trillions of dollars.
Michael Sieg, CEO of impact investor and infrastructure specialist ThomasLloyd Group, highlighted that the 4.6 billion people living in Asia are responsible for more than half of the world's energy consumption.
He said: "Around 85% of Asia's energy consumption is still being served by fossil fuels. As a result, Asia has higher carbon emissions than Europe and North America combined. So net zero by 2050 won't happen without addressing the issue in Asia.
"However, despite that super emphasis, Asia only gets a fraction of global funding into clean and renewable energy. Our mission is to shift the focus of investment, from unlimited funding supplies in Europe and North America towards the areas of the world where they are needed most."
Tony Coveney, Head of Infrastructure Asset Management at ThomasLloyd, explained the group has been focused on financing and investing in sustainable energy infrastructure in Asia's fast-growing markets since 2011. "We recognise the importance of energy security to these markets, creating a significant commercial and sustainability basis on which to invest."
He believes the rationale for investment in Asia is even more appropriate today.
"If you look at our target markets, three key elements are running faster than in Europe and North America," he said. "First, on average, their economic growth rates per year are higher. Second, their population growth rates are significantly higher. But third, and most important, they are urbanising. We know there is a direct correlation between demand for electricity and those three factors of economic growth, population growth and urbanization."
The challenge now is to mobilise trillions of dollars of institutional capital to help plug the funding gap for sustainable energy infrastructure in the region.
ThomasLloyd recently attracted new investors into this space with the IPO of the ThomasLloyd Energy Impact Trust ('TLEI') on the London Stock Exchange ('LSE') in December 2021, which received a Green Economy Mark upon admission. The Trust is the first and only impact-focused company on the LSE dedicated to sustainable energy infrastructure projects aimed at helping reduce Asia's significant greenhouse gas emissions.
Sieg said a number of barriers are left to overcome, including a lot of institutions in Europe having a home bias and lacking experience of investing in this area: "When it comes to the fast-growing economies of emerging Asia, there is pretty much no experience when it comes to illiquid Real Asset investments."
He said that a listed vehicle, like the Trust, was an attractive product structure to overcome liquidity issues. But there were barriers in terms of attracting European investors who were less familiar with the UK trust structure.
The involvement of ThomasLloyd in the first infrastructure competition launched by the Foreign, Commonwealth & Development Office's (FCDO) Mobilising Institutional Capital Through Listed Product Structures (MOBILIST) programme, which was a cornerstone investor in the Trust at launch, was instrumental in overcoming some of these barriers. ThomasLloyd is the first fund manager to complete this competitive process successfully and gain investment from the UK government.
Ross Ferguson, who leads FCDO's MOBILIST programme, explained: "What public money we do have at our disposal to solve developmental challenges, such as the climate transition, is rightly constrained. Where we do have capability, we must ensure the government's efforts are directed at helping build the financing architecture to enable more and more meaningful distribution channels for capital. One of our key objectives is to help create the conditions for institutional capital to seize the opportunity that these nascent, but rapidly growing, markets present, and over time reduce the burden on the public purse. That's why MOBILIST is working with partners like ThomasLloyd to help put transparent price signals into the public domain: in this instance about the price of renewable assets in the Philippines, India, and in due course, a broader portfolio of Asian markets.
"Backed by equity capital, technical assistance and the UK's global network of diplomatic missions and financing tools, MOBILIST represents the government's offer to public markets, an offer recently articulated in the new International Development Strategy launched by the Foreign Secretary on Monday 16 May."
Ferguson explained that MOBILIST is now running a series of competitive windows termed the ‘Source, Select, Support' process. "The process is underpinned by the principles of scalability, replicability, commercial viability, additionality and feasibility and involves an extensive investment appraisal and due diligence process. We are delighted to have collaborated with the ThomasLloyd Group and helped ensure the successful IPO of the ThomasLloyd Energy Impact Trust, but this is not ‘job done' for MOBILIST. This isn't about enabling investment in the millions, welcome as that is. The demand for capital and the development challenges that need addressing will require capital in the billions and even trillions. Through MOBILIST, our investment in the ThomasLloyd Energy Impact Investment Trust was a first step in efforts to normalise investment in clean energy in developing countries through the medium of the LSE, following a similar template to expansion of public market opportunities for UK renewables. The programme continues to appraise new listed investment propositions across a range of themes."
"As custodians of public money, MOBILIST needs to see a clear line of sight between its investment and solving development challenges, such as the climate transition, delivering on the Sustainable Development Goals and closing the financing gap for developing countries," Ferguson said.
"For example, we expect to see these listed products adopting International Finance Corporation performance standards at a minimum."
"If we do invest equity capital to enable a successful IPO, we are flexible about the quantity as long as we always remain a minority investor and don't assume control. What is important is that the proposition is compelling, we can see demonstrable evidence that institutional investors want to invest and over time the product and the market for this type of offering can grow without us."
ThomasLloyd's Michael Sieg added: "These trillions of funding needs require the mainstream financial market. I think with the Trust and with the support and backing of the UK Government, we have made a first step in showing people how that can be done."
This post was funded by ThomasLloyd.