CTF Eyes EM Clean Energy Deals as Momentum Builds
Initial announcements are expected later this year for Brookfield-backed fund which seeks to de-risk transition investments for asset owners.
Channelling clean energy investments into emerging markets (EMs) is front and centre for the Catalytic Transition Fund (CTF) following a recent US$2.4 billion initial close, with more inflows – and outflows – expected in the coming months.
The CTF was launched at COP28 with up to US$1 billion provided by ALTÉRRA, a US$30 billion investment vehicle created by the United Arab Emirates to support the climate transition with an emphasis on the Global South.
Canadian asset manager Brookfield, alongside BlackRock and American private equity firm TPG, was among the CTF’s launch partners, jointly seeking to mobilise US$250 billion of climate finance globally by 2030.
The fund has a total capital target of US$5 billion, with the asset manager contributing at least 10% of the fund’s total capital. Brookfield opened fundraising for the CTF in June and a “traditional” first close is scheduled for early 2025.
An estimated US$6.5 trillion will be needed annually for the global energy transition over the next 15 years. EMs in particular need as much as US$1.6 trillion of investment per year by the early 2030s to meet global net zero targets, a sixfold increase over current levels.
“There is a substantial gap between the annual investment required for these markets and the flows of capital today,” Jehangir Vevaina, Managing Partner for Renewable Power and Transition at Brookfield, told ESG Investor. “EMs outside of China represent receive less than 15% of global clean energy investment, despite representing nearly one third of global emissions and often yielding greater emissions reductions per dollar invested than in developed countries.”
The CTF’s mandate is to raise and deploy capital exclusively for emerging and developing markets, with a dedicated focus on supporting four key pillars: energy transition, industrial decarbonisation, sustainable living and climate technologies. Geographically, it is focused on deploying capital in South and Southeast Asia, Asia-Pacific, Central Asia, Eastern Europe, Latin America, and the Middle East.
The fund is expected to announce initial investments later this year, with a number of opportunities at an “advanced stage”, according to Vevaina.
“The fund benefits from catalytic capital provided by ALTÉRRA which has been very valuable since it improves risk-adjusted returns for the other investors in the fund,” said Vevaina. “ALTÉRRA’s capped return on its CTF commitment means that upside is shared with those other investors and thereby directly addresses the perceived additional risk of investing in EMs.”
Institutional investor interest
As part of the CTF’s initial close announcement, institutional investors CDPQ, GIC and Temasek, as well as multinational insurance firm Prudential, were named as having contributed to the CTF, alongside the commitments from ALTÉRRA and Brookfield.
Brookfield is also making ongoing efforts to raise additional capital from its network of institutional investors to edge closer to the fund’s US$5 billion target.
“CTF helps get more institutional investors involved in these geographies and that will, in turn, de-risk future projects and open up a much wider range of compelling investment opportunities,” said Vevaina.
Last month, Prudential launched a framework for climate transition-focused investing in EMs and developing economies, also pledging a US$200 million investment for the CTF.
The fund will focus on the same three areas as Brookfield’s own Global Transition Fund series – clean energy, sustainable solutions, and business transformation in carbon-intensive sectors. Vevaina describes the fund as a “natural extension of our existing strategy”, leveraging the firm’s three decades of operational experience in renewable energy technologies.
He asserts that private investment in the net zero is now following the lead set by governments and increasingly forging its own path, as return-on-investment expectations swing in favour of renewable energy.
“The momentum for transition investing has increasingly shifted from a ‘government push’ to a ‘corporate pull’,” said Vevaina. “The investment opportunities we see for all our transition funds are fundamentally driven by the positive economics for those projects, so we’re focused on finding those opportunities and using our capital to accelerate the investment.”
Further evidence was provided last week when BlackRock partnered with ALTÉRRA on a new blended finance emerging markets strategy focused on climate infrastructure opportunities.
The initiative will also involve other investors in BlackRock’s Climate Finance Partnership (CFP), the firm’s flagship public-private blended finance vehicle investing in climate infrastructure across EMs. BlackRock said the CFP has invested a majority of its capital into a diversified portfolio of wind, utility solar, and distributed solar assets across Africa, Latin America and Southeast Asia.
ALTÉRRA has already committed US$350 million to BlackRock’s EM climate infrastructure platform, with US$100 million co-invested alongside CFP and US$250 million committed as anchor catalytic capital to the forthcoming strategy.
This week, the International Finance Corporation and HSBC Asset Management partnered to set up an Article 9 Sustainable Finance Disclosure Regulation-aligned fund targeting corporate bond issuers in EMs. The fund is part of a joint initiative to support sustainable growth and impact in EMs, including via investment in sustainable technologies.
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