Partnerships can help sovereign funds operate as climate-aligned investors

Sovereign wealth funds can leverage partnerships to help them bridge “capability gaps” and operate more effectively as climate-aligned investors, according to a new report from the Organisation for Economic Cooperation and Development (OECD) Development Centre. The report cites Mubadala Investment Company’s Masdar as an example of a company that has made partnerships a “core component” of its investment strategy.

While sovereign funds have a combined US$8.2 trillion in assets, and hold about 8 percent of all listed equities globally, they “have so far played a very limited role in climate finance,” the Centre said in the report, titled ‘The Role of Sovereign and Strategic Investment Funds in the Low-Carbon Transition’. According to various estimates, the total value of sovereign funds’ green investment amounts to no more than 1 percent of their total assets under management, the report shows.

“While developing in-house capacity to operate as climate-aligned investors, sovereign funds can seek to bridge capability gaps through partnerships with organisations that have relevant complementary capabilities,” the Centre said in the report. Such partners may include service providers, equity investors, lenders, industry regulators and industry associations.

“One significant exception to the rule of low sovereign fund investment in low-carbon assets is the United Arab Emirates’ Mubadala Investment Company, a sovereign fund that through its fully owned subsidiary Masdar has developed a high level of capacity to invest in clean-energy infrastructure,” the Centre said.

“Partnerships have been a core component of Masdar’s strategy to develop the capabilities required for investing in greenfield clean-energy infrastructure,” the Centre said.

“It is crucial to select partners that add value; you need to build an extensive network among suppliers, equity investors, lenders, regulators, industry associations, and other potential partners,” Masdar Chief executive Officer Mohamed Jameel Al Ramahi was cited as saying in the report. "Leverage partnerships to get to where you want to be.”

At the beginning of 2019, Masdar set a target of doubling its renewable energy capacity – then at 4GW – within five years. It now expects to exceed that target before the end of 2020. The company participates in some of the world’s largest clean-energy infrastructure projects, including the London Array in the UK– which when built was the world’s largest offshore wind project.