Institutional investors announce Net Zero Model Investment Law at COP 26

The African Green Infrastructure Investment Bank (AfGIIB) today at COP 26, announced its Model Law on Institutional Investor-Public Partnerships (IIPP) initiative (ML-IIPP). This was unveiled at the AfGIIB Partnerships Dialogue Series on the Road to COP 27, that will take place from 7 to 18 November 2022 in Sharm el Sheikh, Egypt.

World governments and global development finance institutions, recognize there is no single NetZero pathway that can be met to address the SDG’s and Paris Agreement infrastructure and energy multi trillion-dollar financing gap, for bankable green transition and net zero infrastructure projects, without exponentially increasing the scale and speed, of global institutional investor allocations, that can be rapidly deployed and perform at the project and asset level.

First espoused by the African Unions’ 5% institutional infrastructure investment agenda initiative, and now championed as a global public good by the CFA Asset Owners Council (AoC) in New York, and its dedicated brain trust, the ML-IIPP framework can assist emerging and developing countries to de-risk and meet their Net Zero capital mobilisation goals.

In a similar approach last year, the CFA’s AoC pioneered and launched an innovative SDG’s-ESG Infrastructure Investment Impact Framework during the 2020 World Bank-IMF Annual meetings.

Lawrence Slade, CEO of the Global Infrastructure Investor Association (GIIA), which represents most of the leading institutional investors in the world, said that “the scale of global investment needed to address infrastructure-related climate challenges in markets all around the world has been laid bare at COP 26. Despite the billions of dollars committed by governments for investment in emerging markets, we also need to find ways to leverage significant allocation of private capital as well as the private sector’s expertise to deliver the progress that is needed. GIIA members are increasingly open to exploring investment opportunities outside of the traditional markets with upwards of $200 billion of dry powder to allocate globally. We are pleased therefore to support this new ML-IIPP which will help to build confidence amongst international investors in their future assessment of emerging market opportunities.”

Amy Hepburn, Chief Executive Officer of the Investor Leadership Network (ILN), a CEO-led group, composed of 14 global institutional investors representative of six countries with over $9 trillion in assets under management, said that “institutional investors are eager to increase their role in the global green transition, especially in sustainable infrastructure. But they have historically faced risks and barriers to investing in developing and emerging markets. One of our main priorities is to identify ways the public and private sector can work together to increase private capital flows into these markets. As such, we strongly welcome the introduction of the IIPP Model Law. We look forward to elevating this essential framework in our network to increase institutional investors’ access to de-risking mechanisms.”

Collaborative approach

The ML-IIPP initiative is a collaboration led by the AfGIIB and its global partner the CFA Asset Owners Council (AoC), in association with global law firm DLA-Piper (which is also COP 26’s Legal Service Provider). It aims to introduce and enable the use of a newly designed infrastructure investment procurement regulation and framework between governments and global institutional investors for green and Net Zero infrastructure investment programmes and projects (“IIP Partnership Projects”), both domestically and across borders.

Specifically, the ML-IIPP is a legal and regulatory partnership framework initiative for COP 26 and COP 27 to support of the goals of the Paris Agreement, the SDGs, Net Zero, and Agenda 2063 for policy makers and global institutional investors to:

  1. Mobilise private capital at scale
  2. Deploy capital at speed
  3. Deepen and green secondary and capital markets, and
  4. Stimulate and support innovative project developers.

Commenting on the ML-IIPP, Hubert Danso, Chairman of Africa investor (Ai), CBN, ASWPFF and CFA Asset Owners Council, stated that, “The legal and regulatory architecture in its current form is incapable of delivering the demands and needs of Net Zero targets. This is especially in terms of capital formation at scale and accelerated capital deployment – fostered through fast tracked procurement, and an unprecedented acceleration of financial close (rate and volume) for bankable and investable green public and private infrastructure investment projects and programmes.”

He went on to say that, “This Model Law for Institutional Investor-Public Partnerships (IIPPs) will therefore design the framework to deliver greater public-private finance mandate alignment and more catalytic private investment pathways. These fast track, scale, and de-risk private capitals’ participation in the green and just transition in emerging and developing countries, implemented through IIPPs.”

Providing the African Union’s perspective, Dr Ibrahim Mayaki, CEO of the African Union Development Agency (AUDA) said that “we look forward to further supporting AfGIIB and its partners with the development and advocacy around the IIPP’s Model Law. It is a catalytic legal and regulatory framework instrument to de-risk and crowd-in capital for African green infrastructure investments.”

Defining objectives

Dr Sharon Fitzgerald, Partner at DLA Piper, presented the ML-IIPP Draft Preamble. She stated that the five key objectives of the Model Law are to create a legislative framework that:

  1. Incentivises collaboration between institutional investors and the public sector in respect of the development and implementation of IIPP projects.
  2. Facilitates private sector investment into IIPP projects in line with best international practice.
  3. Utilises fast-track procurement processes to award IIPP projects in an efficient and streamlined manner, avoiding high procurement costs and delays to project implementation.
  4. Delivers demonstrated value for money for governments through the participation of the private sector, both at implementation and delivery of the IIPP projects based on internationally recognised and bankable risk allocation.
  5. Provides for an effective and efficient contract management framework with easy access to dispute resolution where appropriate.

François Bergère, Executive Director of the Long-Term Infrastructure Investors Association (LTIIA), said that “the private sector has to play more of a role in economic development if emerging markets and developing economies are to contribute to the SDGs and Paris-climate agenda. Many institutional investors, though wary of the risks involved, are keen to diversify their portfolios and find new opportunities for investing. This is where the ML-IIPP’s initiative can move the needle and help deploy private capital at scale and speed, by fostering collaboration between investors and the public sector. It can facilitate private sector investment into infrastructure projects in line with best practice. LTIIA therefore welcomes this new tool as an opportunity to better match supply and demand for institutional investors.”

Commenting on the AfGIIB Model IIPP Law, Ambassador Mary Burce Warlick, Deputy Executive Director of the International Energy Agency (IEA), said that, “Fostering the financial conditions for a rapid deployment of clean energy in emerging and developing economies, including Africa, is one of the defining challenges of our times.”

She went on to say that “the creation of new regulatory frameworks, such as the AfGIIB’s innovative ML-IIPP Framework, will help tackle many of the cross-cutting issues. This will allow for the mobilisation and deployment of private capital at scale and at speed.”

Peter Damgaard Jensen, Co-Chair of the Climate Investment Coalition (CIC), a cooperation between the public and private finance sector with the aim of raising capital for the green transition, explained that the CIC has a short to medium term focus because it is vital that concrete action is taken within the next 10 years. At COP 26, the CIC announced that before 2030, pension funds from the Nordics and the UK will invest $130 billion in the green transition. The CIC aims to grow this number considerably within the coming year(s).

“As a Co-Chair of the CIC, I welcome initiatives like ML-IPP. It has become clear that we now have found different models on how to increase investments in the green area in the developed world. This often happens in cooperation between the public and the private sectors. There is still a lot to be done, but there is something to build on. In the developing world, we still have a long way to go and there are not many good cases to build on. My hope is that ML-IPP can be an icebreaker in this area, so that we can get more investable projects to the market, from a part of the world where they are so much needed.”

Supported by its brain trust of institutional investment industry leaders, the ML-IIPP set out the following four phases for the initiative:

  • Phase 1: Develop and present Draft Model Law Principles during COP 26 in Glasgow.
  • Phase 2: Host a series of stakeholder engagement roadshows and capacity building workshops.
  • Phase 3: Launch the full Draft ML-IIPPs at COP 27 to be held in November 2022 in Sharm el Sheikh, Egypt.
  • Phase 4: Launch the Digital ML-IIPP Resource Centre for IIPPs.

Significant impact

Speaking on the increased role of ML-IIPPs for Sovereign Wealth Funds, Duncan Bonfield, CEO of the International Forum of SWFs, explained that, “Sovereign Wealth funds are very focused on a domestic mandate and bringing in additional capital, as well as bringing in their own into investable projects, many of which are renewable energy. We believe the ML-IIPPs’ recognition of these important skills and resources and creating a more direct leadership role for SWFs in support of their governments, is an approach we fully endorse and believe will catalyse not only that much-needed private capital mobilisation at scale for the green and just transition, but more importantly for that capital to be de-risked and deployed at speed.”

Ziad Alexandre, President of the World Association of PPP Units, said that “the global infrastructure investment and bankable project pipeline development needs are immense, and are urgent on both people and planet levels. Government funding is wholly insufficient and traditional means of deploying private capital for development infrastructure have proved to be slow and inefficient. A new approach is sorely needed. It is in this context that the AfGIIB ML-IIPPs’ initiative must be viewed, and fully supported.”

Speaking on behalf of World Business, John W.H. Denton AO, the Secretary General of The International Chamber of Commerce (ICC), emphasized, “Let’s be clear: the goal to limit global temperature increases to 1.5 degrees Celsius will remain in reach if finance can be mobilized at unprecedented scale to speed decarbonization in emerging markets. The creation of stable and consistent legal environments for new investments will be absolutely key to this. The Model Law on IIPP’s initiative offers a real opportunity to address this challenge—creating an important foundation to build investor confidence and mobilize CAPEX for green projects at genuine scale.”

Representing the global listed infrastructure investment community views, Fraser Hughes, CEO of Global Listed Infrastructure Organisation (GLIO) said that “many of the listed utility and transportation companies in the $4.5trn GLIO Index, are committed to Net Zero 2050. Plus, a number have recently brought forward their decarbonisation commitments. However, institutional pools of capital urgently need to be mobilised, and more innovative frameworks and new regulations such as the ML-IIPP are needed to stimulate private capital at scale and accelerate the deployment and transformation, that will give us a chance to meet our 1.5 degrees target. The introduction of the OECD recommended listed Infrastructure Investment Trust (IIT), will also contribute to our collective goal by attracting green capital, via a tax efficient vehicle.”

Stephanie Pfeifer, Chief Executive at Institutional Investors Group on Climate Change (IIGCC), a European membership body for investor collaboration on climate change with more than 360 members, mainly pension funds and asset managers, across 22 countries, with over €49 trillion in assets under management, added that, “Financing for net zero infrastructure projects needs to be scaled significantly if we are to meet the goals of the Paris Agreement and achieve the UN’s SDGs by 2030. There is undoubtedly appetite from institutional investors to participate in these projects, but the need for consistency in regulation and approach across different markets can be an obstacle, particularly when it comes to emerging markets. We welcome this initiative to provide a model law framework for Institutional Investor-Public Partnerships (ML-IIPP’s), which we hope will help facilitate greater capital mobilisation.”

Lionel C. Johnson, President of the Pacific Pension & Investment Institute (PPI) whose constituency represents $25 trillion of institutional assets under management and advisement, added that “the ML-IIPP initiative may be one of the most concrete post-COP 26 action steps that could drive real progress in the legislative development of public-private partnerships in sustainable infrastructure financing. We see its potential for accelerating the flow of institutional investor capital into bankable green projects, particularly in emerging and frontier market economies in Africa, as well as those in Asia, Latin America, and the rest of the developing world. We hope this initiative gains widespread awareness and support from the global institutional investor community, as well as from lawmakers, regulators, and project developers alike, as it prepares for its full debut at COP 27.”

Institutional support

Speaking at the announcement, Marie Lam–Frendo, CEO of the Global Infrastructure Hub (GI-Hub), said that, “We need the public and the private sectors to efficiently deploy capital and infrastructure stimulus together. If not, it will be a missed opportunity. Institutional investors will need to play a key role to be the bridge to make this happen.”

She continued to say that, “The AfGIIB will play a key role to bring capability and capacity to enable investment from institutional investors into a trusted mechanism. In particular this will support emerging markets who need the additional risk mitigation to be put in place to compensate for their often low sovereign credit rating.”

Speaking on the ML-IIPP’s importance to the global pension fund community, Nic Firzli, Director-General of the World Pensions Council highlighted that, “We welcome and fully support this innovative ML-IIPP initiative. The IIPP Model Law will be a responsible and fit for Purpose legal instrument. It will draw on existing and prospective legal and regulatory pockets of excellence from the global institutional infrastructure investment community (especially Canadian and Australian pension funds) and international best practice. It will present an implementable codified and ratifiable legal framework to support policy makers, investment decision-makers, project developers, and capital market professionals, overcome fundamental legal, regulatory, and project procurement bottlenecks. These constrain the scale and speedy deployment of capital for essential bankable green and Net Zero infrastructure projects.”

Institutional investment leadership expectations have been set for The Road to COP 27. The expectation is that they will drive innovative capital mobilisation and strategic allocations work, with a particular focus on innovative risk sharing models. This will result in several best of class asset owner-led initiatives and proposals being delivered at COP 27. There will also be a flurry of announcements from institutional investors on how long-term capital will not only decarbonise their portfolios, but also how those decarbonised portfolios will green the real economy and Scope 3 emissions in emerging and developing economies. The ML-IIPPs will be central to unlocking that capital and green dividends.

The ML-IIPP’s initiative will host a series of consultative stakeholder engagement roadshows and capacity-building workshops across the continent with the African Union, at the UN, with the G20, and during the Commonwealth Heads of Government Meeting (CHOGM), that will be hosted in Rwanda. These consultations will form the basis for the final drafting and presentation of the full ML-IIPP (and all associated guidance notes), at COP 27 in Africa, to be held from 7 to 18 November 2022 in Sharm el Sheikh, Egypt.

For more information, watch the ML-IIPP initiative presentation here, read the ML-IIPP Draft Preamble here and view the ML-IIPP Presentation here.

About the African Green Infrastructure Investment Bank (AfGIIB)

The African Green Infrastructure Investment Bank (AfGIIB) initiative is an African Union-convened and supported, African institutional investor-led, global finance initiative. It has been established to catalyse private capital for Africa’s green transition in the run up to COP 27 in Africa and beyond.

About The CFA New York Society, Global Asset Owners’ Council

In 2018 the CFA Society New York launched the CFA Global Asset Owner’s Advisory Council (AOAC), to bring CFA members perspectives from the most influential asset owners and local market decision makers. The AOAC convenes decision making Asset Owners from across the CFA’s global network of Societies, representing over $60 trillion of assets under management and advisement.

About DLA Piper

DLA Piper is a global law firm with lawyers located in more than 40 countries throughout the Americas, Europe, the Middle East, Africa and Asia Pacific, positioning the firm to help clients with their legal needs around the world.

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