In part 2 of our Climate Investing Symposium Blog Series, we'll dive into the panel discussions on Investing in Climate Infrastructure and Investing in Nature-based Climate Solutions. Each session offers valuable perspectives and practical insights on financing climate initiatives across different sectors. For a recap of Dr Jim Salinger’s keynote address and the panel discussion on Investing in Climate Innovation, please check out the first post in our event series which is linked at the end of this blog.
Investing in Climate Infrastructure Panel
The panel discussed the challenges and opportunities investing in and raising capital for (non-nature based) climate infrastructure - across asset lifecycles – in New Zealand and elsewhere.
"Global collaboration is needed to drive real change in emissions and scale up climate infrastructure." Will Thomson, Blackrock.
Highlights/key themes:
Climate infrastructure spans multiple sectors. Panelists highlighted renewable energy, energy efficiency and green buildings as key focus areas to drive New Zealand’s low-carbon transition – including the potential of hydrogen particularly for industrial and heavy transport uses. Estimating the need to deploy around $60 billion in capital to deliver the energy transition by 2050.
From an investment perspective, the line between climate innovation and infrastructure is somewhat fluid. Relevant factors include the nature of the asset or activities, ticket size, stage of maturity, proposed use of capital, type of investor and type of financing structure.
A good idea and a good business strategy - demonstrating scope to scale - are essential but strong governance and execution strategy are key to securing investment capital. Enable investors to say Yes more often.
Customer demand side is critical to success – who and where your customers? The panel encouraged engaging with customers on long-term (e.g. 10-15 year) procurement approaches and getting them excited about supporting the transition. For example, Lodestone Energy’s long-term deal with The Warehouse contributing to the build of three solar farms. More secure and predictable revenue streams make it easier for investors to allocate capital.
Exposure to physical climate impacts and related insurance risks are a real issue for location of climate infrastructure assets and can affect their long-term investibility. Panelists spoke of managing those risks through physical modelling, resilient infrastructure design and diversifying the risk with a portfolio of developments across different regions of New Zealand.
Think of climate infrastructure as a global investment opportunity offering long-term value creation and portfolio diversification benefits for institutional investors. Panelists noted that allocating capital [at scale] is more challenging for daily liquid funds like KiwiSaver and suggested that insurance companies are a more natural fit. Be prepared to take some risk (investors). Take some first steps.
A global investment approach is important from a climate impact perspective too. Driving change in large economies such as China and India will be crucial to meeting Paris goals. Look for opportunities to support climate infrastructure in New Zealand also - some investors may choose to prioritise local contribution and impact. Panelists noted the real need for capital in the New Zealand infrastructure sector.
Allocation of capital could be accelerated through access to structured products that meet the needs of institutional investors. Products offering scale, diversification and understandable data-backed cashflows that can be plugged into valuation models. Overseas players such as Blackrock see strong interest from New Zealand clients and the opportunity to leverage their scale and expertise to add value in the New Zealand market partnering with high-calibre local management teams.
Collaboration and partnerships will also help unlock private capital and drive climate infrastructure projects. For example, NZGIF is increasingly focused on the capital supply side. How to create and structure opportunities to bring in other investors including corporate partnerships and meet the needs of institutional investors.
Long-term thinking and stable regulatory environments are crucial to building confidence in climate infrastructure investments. This includes pricing carbon properly to reflect climate risks and make better economic decisions. Regarding the impact of New Zealand’s subsidy-free approach on attracting global capital, panelists considered that some areas (e.g. offshore wind) may need targeted government support to commericalise and scale due to their development costs and timeframe, whereas other or more mature technologies (e.g. solar) are already economic unsubsidised.
Energy sector transformation will require evolution of the electricity market. Panelists noting the transition from marginal cost providers to renewable generators with zero marginal cost. The discussed the role of utility-scale storage, innovation in demand-side management and long-term contracts in mitigating market volatility.
Investing in Nature-based Climate Solutions Panel
The panel discussed the challenges and opportunities investing in and raising capital for forestry and other nature-based climate solutions in New Zealand and elsewhere.
“We have the tools and knowledge to drive real change. It’s now about bringing together the right partners, the right capital, and the right projects to make it happen.” Rebecca Mills, The Lever Room.
Highlights/key themes:
NBCS are actions to protect, better manage and restore nature to reduce greenhouse gas emissions or capture and store carbon. They include activities such as avoided deforestation, reforestation, wetland restoration and regenerative agriculture. A subset of nature-based solutions, NBCS are designed primarily for climate change mitigation purposes while providing additional benefits such as biodiversity enhancement, water quality improvement and economic development.
Globally NBCS could deliver more than a third of emissions reductions needed by 2030 to meet climate targets while enhancing ecosystem resilience. Global investment reached $154 billion in 2023 - a significant increase from previous years yet still far short of the scale of investment urgently needed to realise this potential. Immediate and increased investment is needed to harness the multifaceted potential of NBCS.
New Zealand has the potential to become a leader in NBCS with its unique land use and extensive coastal ecosystems. Developing a pipeline of opportunities would help to attract local and international investment. Tāmata Hauhā – planting trees and generating income for Māori communities - is one example of a local success story.
A stable climate may be the target outcome but the modalities of getting there are very important too. We need to think broader than just carbon, apply a holistic approach to land use management and invest in diverse, high-quality projects considering wider impacts. The panel spoke about the risks of monocultures in forestry projects for example, stressing the importance of ensuring environmental and cultural integrity of projects and engaging with local communities and iwi for success. Also, the role of banks in supporting and incentivising sustainable land use practices.
Net Zero commitments and frameworks such as the Taskforce on Nature-Related Financial Disclosures and RIAA’s Nature Investor Toolkit are drivers for investment in NBCS. For example, BayTrust’s investment into Tāmata Hauhā towards its ‘carbon neutral by 2030’ portfolio target.
Blended finance could play a critical role in scaling NBCS, demonstrating commercial viability and attracting institutional investors. The panel cited examples such as the Althelia Climate Fund and the Land Degradation Neutrality Fund as well as funds recently launched by Pollination supporting regenerative land-use projects.
Innovative financing models are emerging globally to support investment in NBCS. Panelists shared the following examples:
Loan-Based Strategies: Ranging from short-term regenerative operating loans to longer-term structures that cover the initial dip in yields often seen in the early years of sustainable projects. Such loans are critical for smallholder farmers and other stakeholders who require upfront capital to implement sustainable practices.
Real Asset and Project-Focused Impact Investment: These strategies involve investing in equity or participation loans in a portfolio of demonstrator projects. This model often includes follow-on investment rights, providing a growth equity strategy that incubates and scales successful projects.
Environmental and Climate Risk Insurance: This approach involves using insurance products to underwrite environmental outcomes, often supported by multilateral organizations like the Global Environment Facility. It offers an additional layer of risk mitigation for investors, encouraging more capital to flow into nature-based projects.
Despite such promising developments, significant barriers to investment in NBCS remain. Risks identified by the panel included uncertainty about carbon pricing and regulatory settings, concerns about greenwashing and a lack of long-term track record for this relatively new asset class.
Get started through small, strategic investments with trusted partners to manage risk and build confidence in the market. Panelists urged progress and practicality over the pursuit of perfect solutions. Even small investments from a large investor can have substantial impact, particularly for smaller organisations and communities, catalysing significant environmental and economic benefits.
Acknowledgements
We extend our heartfelt thanks to all speakers for sharing their expertise and insights on connecting capital with climate solutions. We would also like to acknowledge the following hosts, organisers, and contributors for their invaluable support in making this event a success:
BayTrust
Climate Venture Capital Fund
KPMG
Responsible Investment Association Australasia (RIAA)
Centre for Sustainable Finance, Toitu Tahua
Philanthropy New Zealand (PNZ), Tōpūtanga Tuku Aroha o Aotearoa
Principles for Responsible Investment
Event summary contributors:
Justine Sefton, Impact Investing Network
Rohan MacMahon - Partner, Climate Venture Capital Fund
Carolyn Brooke, PNZ
Matthew Jackson, Alimentary Systems
WOY