23 Sep 2024
Prudential launches framework for climate transition investment with a focus on emerging markets
New whitepapers highlight critical role of financing a just and inclusive transition in achieving sustainable economic growth
Prudential plc (Prudential) has today launched two whitepapers on climate transition financing. The first outlines a framework that integrates emerging market considerations when investing in energy transition. Due to the absence of a standardised definition of transition finance, Prudential has developed its own proprietary approach where it has defined transition financing as investments directed into sectors and companies with the explicit intention of enabling and accelerating the net zero transition. Prudential’s approach is principles-based, so that it can be applied across asset managers and asset classes. The second paper, co-authored with Prudential’s asset management arm, Eastspring Investments (Eastspring) explores a practical investment approach that aims to outline how to construct a capital markets climate transition portfolio.
The framework aims to address two challenges that Prudential sees in the market in relation to financing the effort against climate change:
- The need to finance ‘brown to green’ (high carbon to low carbon) projects and the lack of a standardised definition for this
- The need for flexibility with regards to emerging markets in Asia and Africa, recognising that they require a considered and dynamic approach to the low-carbon transition, with greater balance and representation of their challenges
Ben Bulmer, Chief Financial Officer, Prudential plc, said, “Our responsible investment strategy leverages our unique position as a large asset owner in Asia and Africa. Our presence in emerging markets in these regions gives us a unique voice on responsible investment. We use this opportunity to influence industry, peers and investee companies to consider the role that emerging markets must play in the global energy transition.”
“As Prudential’s asset manager, Eastspring has been given a unique opportunity to contribute to a just and inclusive transition. In our research, we have found that climate goals cannot be reached if we ignore transitioning companies (brown-to-green or brown to less-brown) - which are committed to emissions reductions and are progressing towards climate-resilient business models,” said Vis Nayar, Chief Investment Officer, Eastspring Investments.
He added, "Given that current industry guidance in transition is mainly principles, emissions or activities focused, our Investment team has developed a framework that proactively identifies such companies across markets and sectors; this widens the investible universe and will allow investors to identify potentially mispriced assets. The Eastspring-Prudential Climate Transition framework can be applied to capital market portfolios across asset classes, and we believe this proprietary tool can help unlock the market's full potential in driving meaningful change."
Climate Bonds Initiative, an international not-for-profit organisation working to mobilise global capital for climate action, conducted a technical review of Prudential’s framework and the Eastspring-Prudential approach on climate transition in capital markets and have endorsed both. They confirm that the transition category alignment and composite transition screen developed by Eastspring and Prudential were guided by the core principles of Climate Bonds Initiative to ensure credibility of transition finance and endorses them on that basis.
Sean Kidney, CEO and Founder, Climate Bonds Initiative, said, "If we're going to leave our children a liveable and prosperous world, the global transition needs to be credible, ambitious, and rapid. By using clear robust investment frameworks and guidance like this, asset owners and asset managers can play a significant role in aligning economies with net zero pathways and avoid portfolio risks like emissions lock-ins, while growing and thriving in a net zero economy.”
In line with the launch of the financing the transition framework, Prudential are announcing investments in the following climate transition funds:
- Investment of US$200 million as a founding investor in Brookfield’s Catalytic Transition Fund, their first dedicated fund for transition investing in emerging markets. The fund is a blended finance vehicle focused on directing capital into clean energy and transition assets in emerging economies.
- Committed up to US$150 million to a climate-focused strategy managed by global investment firm KKR, which seeks to make infrastructure equity investments in Asia focused on the energy transition, including climate adaptation, climate mitigation and the brown-to-green transition.
Commenting on these investments, Mr Bulmer said, “Our investments in these funds show our commitment in demonstrating climate transition leadership and our support for blended finance. We recognise the importance of this type of financing in facilitating energy transition, as solely investing in green activities may not be sufficient. Given that Asia is responsible for over 50 percent of carbon emissions1 , Prudential sees significant opportunities emerging in the region.”
He added, “We are very pleased that Climate Bonds Initiative have endorsed our frameworks as we aim to align to industry standards and frameworks to encourage standardisation in the market.”
The just and inclusive approach forms a core part of Prudential’s responsible investment strategy and underpins its approach on climate transition within emerging markets. In 2022, Prudential launched a whitepaper outlining the case for achieving a just and inclusive transition. The new framework delves deeper into the implementation of its just and inclusive strategy with respect to Financing the Transition. To view the 2024 whitepapers, please visit here.
About Prudential plc
Prudential plc provides life and health insurance and asset management in 24 markets across Asia and Africa. Prudential’s mission is to be the most trusted partner and protector for this generation and generations to come, by providing simple and accessible financial and health solutions. The business has dual primary listings on the Stock Exchange of Hong Kong (2378) and the London Stock Exchange (PRU). It also has a secondary listing on the Singapore Stock Exchange (K6S) and a listing on the New York Stock Exchange (PUK) in the form of American Depositary Receipts. It is a constituent of the Hang Seng Composite Index and is also included for trading in the Shenzhen-Hong Kong Stock Connect programme and the Shanghai-Hong Kong Stock Connect programme.
Prudential is not affiliated in any manner with Prudential Financial, Inc. a company whose principal place of business is in the United States of America, nor with The Prudential Assurance Company Limited, a subsidiary of M&G plc, a company incorporated in the United Kingdom.
https://www.prudentialplc.com/
About Eastspring Investments:
Eastspring Investments, part of Prudential plc, is a leading Asia-based asset manager that manages USD 247 billion (as of 30 June 2024) of assets on behalf of institutional and retail clients. Operating since 1994, Eastspring Investments has one of the widest footprints among asset management companies across Asia*. We provide investment solutions across a broad range of strategies including equities, fixed income, multi asset, quantitative and alternatives and are committed to delivering high quality investment outcomes for our clients over the long term.
We incorporate ESG factors into our investment process and are aligned with a number of global sustainability initiatives including the United Nations-supported Principles for Responsible Investments (PRI) and the Asia Investor Group on Climate Change (AIGCC). We collaborate alongside industry peers to harness a collective investor voice to influence and drive change with investee companies.
For more information on Eastspring Investments, please visit: www.eastspring.com
*Eastspring Investments companies (excluding joint venture companies) are ultimately wholly owned/indirect subsidiaries of Prudential plc of the United Kingdom. Eastspring Investments companies (including joint venture companies) and Prudential plc are not affiliated in any manner with Prudential Financial, Inc., a company whose principal place of business is in the United States of America or with the Prudential Assurance Company Limited, a subsidiary of M&G plc (a company incorporated in the United Kingdom).