As the International Finance Corp. looks for ways to increase its investments in fragile and conflict-affected states, it’s trying to convince pension funds to seek opportunities in places they might normally fear to work in.
“It’s part of our agenda,” said André Laude, the IFC’s chief investment officer for Europe, of mobilizing financing for private investment in fragile states. “But if we talk about large institutional investors such as pension funds, they might have an initial allocation for clean energy projects, but then to bring them outside of their sphere of competence to fragile and conflict affected states is more of an uphill struggle.”
The idea of unlocking the billions of dollars that are currently sitting in rich countries’ pension funds for development often comes up in conversations about future sources of development financing, especially for infrastructure. More direct investment by institutional investors may be necessary to close the financing gap for global infrastructure and achieve the level of investment in fragile states that the World Bank’s private sector lending arm is shooting for.
Laude, who spoke to Devex on the sidelines of the ESCO Europe energy conference in Barcelona this week, said that alternative energy investments are a great match for pension funds who are eager to invest in clean technologies and take a long view on returns. In the coming weeks, he will be meeting with several large European pension funds to start a dialogue on potential investment opportunities in clean technology in fragile countries like Nepal and Ivory Coast.
The IFC official shared he sees energy infrastructure as a critical part of private sector development in weak states, whether they be hydropower projects or distributed generation projects, like small-scale solar.
“Infrastructure and power production has not been on the agenda for many years, and you don’t have an uninterrupted power supply, but access to energy is essential to growth and job creation,” Laude said.
Charles Kenney, a senior fellow at the Washington, D.C.-based think tank Center for Global Development, has pointed out that the off-grid energy sector in fragile states has features like low reliance on existing infrastructure and relatively straightforward finance, which make it well-suited to the type of private sector investment the IFC is trying to encourage.
The IFC’s advisory services have researched opportunities for exactly those types of investment, Laude said, but the next step is to develop the financing structure that would bring in other partners — pension funds and other institutional investors included — and create the appropriate scale for IFC investment.
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