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Roundtable on Financing
Water
Peter Damgaard Jensen
OECD, 12 November 2018
Institutional investors’ engagement on
water
4th largest pension fund in
Denmark
Assets under management
~ DKK 275bn
Average return of investment
from 1995-2017: 8%
300,000 members
About PKA
PKA devotes particular attention to 7 of the 17 UN Sustainable
Development Goals - among them no. 6
Engagement in sustainable investments
3
PKA’s commitment to green finance and renewable energy investments is
based on:
4
Commitment to PKA members / policy holders
PKA members genuinely care for the ESG agenda
PKA’s commitment
Investments with attractive risk / return characteristics
PKA’s ESG approach is fully aligned with it’s fiduciary duties
Positive impact on climate change
PKA as an institution wants to stay at the forefront of the ESG agenda
5
PKA’s approach to green finance
1. Engagement with companies
• Engagement is done directly and through Hermes Investment Management to combine
strength with other institutional investors
• PKA is currently in active dialogue with +40 European companies
2. Exclusion of companies
• If engagement with a company fails, PKA excludes it from the investment universe
• PKA’s exclusion list totals 205 companies whereof approx. 130 are excluded for climate
and/or environmental reasons (more than half are coal companies)
3. Encourage public policies
• PKA has an active strategy through the Institutional Investors Group on Climate Change
(IIGCC) platform to put green finance, renewable energy and other related topics on the
political agenda. Peter Damgaard Jensen has acted as chair of IIGCC since January 2017
• Peter Damgaard Jensen has just been appointed Commissioner of the Global Commission
on Adaptation
4. Impact investing in green and renewable energy
• PKA is an active investor and has been so since 2011
• PKA has currently invested 7% of assets under management and announced earlier in
2018 that the target is 10% before the end of 2020
• PKA’s Impact investments portfolio has returned 10% annualized since inception
Hermes Investment Management is one of the largest institutional asset managers in the UK (source: hermes-investment.com, 08/11/2018)
6
Example of investments in water
1) Roserve in India
Key facts
Project type: Water treatment
Status: Signed
Fund partipation: DKK 16m
Expected total investment: DKK 95m
CO2 savings over project life: 2,817,090 t
Operating lease: 6 years
The project
An operating lease of Industrial Effluent
treatment plants to industries required by
law to have a zero liquid discharge (ZLD)
from their operations
Customers from industries
 Pharmaceuticals
 Chemicals
 Distilleries
 Yeast
 Tanneries
 Textiles
Waste water recycle market in
India
 At an early stage of development
 A compounded annual growth rate of
16%
Source: IFU, 07/11/2018
7
Example of investments in water
1) Roserve in India - Some operating Exchange
Traded Products (ETP’s)
Source: IFU, 07/11/2018
8
Example of investments in water
2) A Danish water development project I
 Establishment of a company with the aim of developing commercially viable
water projects
 A public-private partnership (PPP) company owned by the public-owned Danish
Investment Fund for Developing Countries (IFU) and others, e.g. private
investors
 Initiative made by the Danish Minister of Development Cooperation, the CEO of
IFU, and a representative from Suez, which operates water supply plants
 The project
 Pre-project development: Identify opportunities for projects together with
private and public partners
 Invest in development of commercial projects together with others
(e.g. invest up to 90% of the costs)
 Co-invest in projects or sell these to others (SDG equity fund)
 Invest in regional project development companies/facilities
Source: IFU, 07/11/2018.
9
Example of investments in water:
2) A Danish water development project II
Challenges
 Worldwide water resources are threatened due to climate change,
overexploitation and inadequate protection
 Need for investments in provision of water for households, industry and
agriculture and in wastewater treatment, if SDG’s are to be achieved
 International Finance Corporation (IFC) has estimated a requirement of an
additional USD 150bn per year to reach SDG no. 6
 The public sector of developing countries has failed to raise the needed capital to
achieve SDG no. 6
 Need for investment from private sector; however, the financial
markets are currently not delivering
 The price of water is often too low to cover all costs
 Regulatory framework and price mechanisms, which consider private investors in
the business model from the start, are often not in place
Source: IFU, 07/11/2018. IFC—a sister organization of the World Bank and member of the World Bank Group—is the largest global
development institution focused exclusively on the private sector in developing countries (source: ifc.org, 08/11/2018).
10
Investing in water
- What will it take to attract investors?
Key institutional changes can make water more investable for the private
sector:
Integration with other projects
 If water projects were integrated into other projects, such as construction
or infrastructure projects, they would become more investable
Long-term prospects
 Investing in long-term projects and be part of operations are more
attractive for investors than a one time investment
Scalability
 Opportunities for scalable projects make investments more attractive
Investing in water
- What will it take to attract investors?
Key institutional changes can make water more investable for the private
sector:
Price mechanism
 Price of water is often too low to cover costs
 Price of water is politically sensitive as water is considered a human right
 New water pricing scheme required to attract private finance
 Experiences from other climate-related investments, such as windmills
and biomass plants, confirm the importance of an appropriate regulatory
framework and price mechanism, which consider private investors in the
business model from the start
Public sector
 Traditionally, the public sector manages the water supply; however,
often financed by increasing public debt
 For private investors to find investment in water attractive requires a
more market-friendly regulatory framework
11

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3rd-Roundtable-Financing-Water-Presentations-Peter-Jensen

  • 1. Roundtable on Financing Water Peter Damgaard Jensen OECD, 12 November 2018 Institutional investors’ engagement on water
  • 2. 4th largest pension fund in Denmark Assets under management ~ DKK 275bn Average return of investment from 1995-2017: 8% 300,000 members About PKA
  • 3. PKA devotes particular attention to 7 of the 17 UN Sustainable Development Goals - among them no. 6 Engagement in sustainable investments 3
  • 4. PKA’s commitment to green finance and renewable energy investments is based on: 4 Commitment to PKA members / policy holders PKA members genuinely care for the ESG agenda PKA’s commitment Investments with attractive risk / return characteristics PKA’s ESG approach is fully aligned with it’s fiduciary duties Positive impact on climate change PKA as an institution wants to stay at the forefront of the ESG agenda
  • 5. 5 PKA’s approach to green finance 1. Engagement with companies • Engagement is done directly and through Hermes Investment Management to combine strength with other institutional investors • PKA is currently in active dialogue with +40 European companies 2. Exclusion of companies • If engagement with a company fails, PKA excludes it from the investment universe • PKA’s exclusion list totals 205 companies whereof approx. 130 are excluded for climate and/or environmental reasons (more than half are coal companies) 3. Encourage public policies • PKA has an active strategy through the Institutional Investors Group on Climate Change (IIGCC) platform to put green finance, renewable energy and other related topics on the political agenda. Peter Damgaard Jensen has acted as chair of IIGCC since January 2017 • Peter Damgaard Jensen has just been appointed Commissioner of the Global Commission on Adaptation 4. Impact investing in green and renewable energy • PKA is an active investor and has been so since 2011 • PKA has currently invested 7% of assets under management and announced earlier in 2018 that the target is 10% before the end of 2020 • PKA’s Impact investments portfolio has returned 10% annualized since inception Hermes Investment Management is one of the largest institutional asset managers in the UK (source: hermes-investment.com, 08/11/2018)
  • 6. 6 Example of investments in water 1) Roserve in India Key facts Project type: Water treatment Status: Signed Fund partipation: DKK 16m Expected total investment: DKK 95m CO2 savings over project life: 2,817,090 t Operating lease: 6 years The project An operating lease of Industrial Effluent treatment plants to industries required by law to have a zero liquid discharge (ZLD) from their operations Customers from industries  Pharmaceuticals  Chemicals  Distilleries  Yeast  Tanneries  Textiles Waste water recycle market in India  At an early stage of development  A compounded annual growth rate of 16% Source: IFU, 07/11/2018
  • 7. 7 Example of investments in water 1) Roserve in India - Some operating Exchange Traded Products (ETP’s) Source: IFU, 07/11/2018
  • 8. 8 Example of investments in water 2) A Danish water development project I  Establishment of a company with the aim of developing commercially viable water projects  A public-private partnership (PPP) company owned by the public-owned Danish Investment Fund for Developing Countries (IFU) and others, e.g. private investors  Initiative made by the Danish Minister of Development Cooperation, the CEO of IFU, and a representative from Suez, which operates water supply plants  The project  Pre-project development: Identify opportunities for projects together with private and public partners  Invest in development of commercial projects together with others (e.g. invest up to 90% of the costs)  Co-invest in projects or sell these to others (SDG equity fund)  Invest in regional project development companies/facilities Source: IFU, 07/11/2018.
  • 9. 9 Example of investments in water: 2) A Danish water development project II Challenges  Worldwide water resources are threatened due to climate change, overexploitation and inadequate protection  Need for investments in provision of water for households, industry and agriculture and in wastewater treatment, if SDG’s are to be achieved  International Finance Corporation (IFC) has estimated a requirement of an additional USD 150bn per year to reach SDG no. 6  The public sector of developing countries has failed to raise the needed capital to achieve SDG no. 6  Need for investment from private sector; however, the financial markets are currently not delivering  The price of water is often too low to cover all costs  Regulatory framework and price mechanisms, which consider private investors in the business model from the start, are often not in place Source: IFU, 07/11/2018. IFC—a sister organization of the World Bank and member of the World Bank Group—is the largest global development institution focused exclusively on the private sector in developing countries (source: ifc.org, 08/11/2018).
  • 10. 10 Investing in water - What will it take to attract investors? Key institutional changes can make water more investable for the private sector: Integration with other projects  If water projects were integrated into other projects, such as construction or infrastructure projects, they would become more investable Long-term prospects  Investing in long-term projects and be part of operations are more attractive for investors than a one time investment Scalability  Opportunities for scalable projects make investments more attractive
  • 11. Investing in water - What will it take to attract investors? Key institutional changes can make water more investable for the private sector: Price mechanism  Price of water is often too low to cover costs  Price of water is politically sensitive as water is considered a human right  New water pricing scheme required to attract private finance  Experiences from other climate-related investments, such as windmills and biomass plants, confirm the importance of an appropriate regulatory framework and price mechanism, which consider private investors in the business model from the start Public sector  Traditionally, the public sector manages the water supply; however, often financed by increasing public debt  For private investors to find investment in water attractive requires a more market-friendly regulatory framework 11