Hendrik du Toit, Founder and CEO of Ninety One

With endorsement from US Secretary of the Treasury Janet Yellen and SA Finance Minister Enoch Godongwana, Ninety One’s Emerging Market Transition Debt (EMTD) investment strategy has received commitments to contribute $400 million (R7.4 billion) in commercial capital to the portfolio.

The commitments come from Canadian asset owners Caisse de dépôt et placement du Québec (CDPQ), and the Ontario Municipal Employees’ Retirement System (OMERS), together with other institutional investors such as the UK’s Legal and General Investment Management and Wiltshire Pension Fund.

The EMTD strategy approach is consistent with the South African Presidential Climate Commission’s Recommendations on a Just Transition Financing Mechanism Report, released last month. The report notes that the current financial ecosystem needs to adapt to accommodate just transition financing. This includes a shift in investment logic to ensure that financial stakeholders view just transition portfolios not only as a social or environmental responsibility, but also as a strategic imperative to reduce multi-faceted risks. The report also states that it is crucial to carve a space for EM finance within the existing climate finance ecosystem, which will require a robust framework that can adequately manage a mix of public and private, local and international funding.

The EMTD portfolio will invest in the energy transition in emerging markets (EM), with a strong focus on investments in three areas: clean infrastructure, clean technology, and decarbonisation. It will provide emerging markets with commercial financing to make critical investments, including in low-emission infrastructure. It will also support industrial change among companies that produce the highest emissions today, but which have credible transition plans, thus helping to reduce carbon emissions and support the global energy transition.

Hendrik du Toit, Founder & CEO of Ninety One, said: “Ninety One is unusual for a global asset manager, in that over half of our AUM is invested in emerging markets. We see a growing pipeline of attractive investments in these markets and, in many of them, we are seeing companies taking decisive action to make investment to either decarbonise their current operations or roll out green infrastructure. However, International Energy Agency (IEA) research tells us that China is the only emerging market that can self-finance its energy transition.”

Historically, the average developed market institutional investor’s investment in emerging markets has been largely confined to public equities and sovereign debt. The bulk of investment in the energy transition – particularly in middle income emerging markets – will not be financed through these mechanisms. Instead, the capital is required in the form of private equity, private debt, project debt and corporate debt.

Du Toit said: “Investors remain cautious of making these investments in most emerging markets – preferring to allocate their capital in these areas to North America and Europe. While there are real risks that need to be addressed in emerging markets, the perception of risk is much higher than historical realised risks. The best way to narrow this gap is for investors to gain experience in these markets.”

He said the Emerging Market Transition Debt initiative is a mechanism to allocate a growing pool of capital to the EM energy transition as the strategy grows and other such initiatives are developed.

“For many of the investors involved, this initiative represents a significant step forward in expanding their investments in emerging markets. It shows that we are making tangible progress on our ambition to increase private capital mobilisation for emerging markets, with hopefully much more progress ahead,” Yellen said at a G20 event in Brazil last month.

“We would like to thank the investors that have anchored this strategy.  They are pioneering an asset class that provides both attractive risk-adjusted returns and real-world climate impact. We consider transition finance an exciting new growth vector aligned with our purpose of investing for a better tomorrow.”

ENDS