The reason is that Prudential has taken good strides in the war against climate change by publishing two whitepapers on climate transition financing. The papers do outline a very practical framework for transitioning high-carbon projects to lowcarbon alternatives and emphasize the engagement required from emerging markets, especially in Asia and Africa. It is along these lines that the strategy of Prudential resonates with its commitment to sustainable and responsible investment and yet recognizes the challenges thrown at these markets by the global energy transition.
Definition of Transition Finance
The biggest challenge in defining climate finance is that there is no commonly defined term to indicate transition finance. In this, Prudential steps forward toward filling the gap by introducing a framework that is established upon principles to support and accelerate the net-zero journey. This very flexible frame with broad applicability across asset classes and managers is expected to result in an inclusive comprehensive approach toward supporting climate transition projects.
The first whitepaper published by Prudential elaborates on an agenda for the integration of emerging market considerations into strategies for energy transition. The company has been considered a major player in Asia and Africa for centuries, where climate transition needs are changing at breakneck speeds. By developing its own concept definition, Prudential hopes to inform asset managers and investors on how best to direct capital to truly transition projects from high-carbon to low-carbon operations.
A second white paper, this one the result of collaboration with Prudential’s asset management business unit, Eastspring Investments, offers a hands-on playbook on building a capital markets climate transition portfolio. It focuses on two critical areas: accessing capital for transitional projects from high carbon to low carbon, and engagement with emerging markets that present challenges and opportunities that are unique to energy transition.
Emerging Markets in Climate Finance
Emerging markets, mainly in Asia and Africa, are the heartland of global efforts to reduce emissions. These are fast-growing, industrializing economies that remain highly fossil-fuel-dependent. In this context, Ben Bulmer, CFO at Prudential, discusses how that organization is working to shape industry standards through its scale as a significant asset owner in these markets. The investment by Prudential in these regions will encourage its peers and investee companies to recognize the great importance these markets have in the global energy transition process.
This framework acknowledges the flexibility required to engage with such markets. The path for these emerging economies to transition to a low-carbon economy is that much more complex as opposed to developed markets. Considering this rapidly changing landscape in these regions, Prudential seeks to offer a transition-specific strategy in transitioning their energy systems.
Investment in Climate Transition Funds
For its transition finance strategy, Prudential has heavily invested in climate transition funds. It announced a US$200m commitment as a founding investor in Brookfield’s Catalytic Transition Fund-the newly introduced blended finance vehicle. In this fund, the core focus is on investment in clean energy and transition assets in emerging markets, providing the necessary capital to accelerate shift toward low-carbon alternatives.
Up to $150 million of climate-focused strategy from Prudential, managed by global investment firm KKR. This strategy focuses on infrastructure equity investments in Asia and will target energy transition initiatives -climate adaptation as well as climate mitigation projects. That’s because this strategy is aligned with Prudential’s overall objectives in terms of climate transition and goes well with its leadership in emerging markets’ responsible investment strategies.
Practical approach to Climate Transition Portfolios
From Prudential, in partnership with Eastspring Investments, is the second whitepaper on the practical approach to building capital markets portfolios with a focus on climate transition. In this case, it is indeed based on the framework drawn by Eastspring’s investment team to point out companies in various markets and sectors actively working towards change in emissions reductions and transitioning into climate-resilient business models.
The broader definition of climate transition expands the investable universe so that asset managers could capture undervalued or mispriced assets that can both generate financial return and influence the impact on climate. Through this framework, it provides a systematic means to analyze companies so that investment decisions can serve the broad purpose of getting the world to net zero emissions.
Vis Nayar, the Chief Investment Officer at Eastspring, comments that it needs to be made more pragmatic and accessible for climate transition. What has one been seeing thus far in the available guidelines on transition finance is either principles, emissions, or specific activities, which, of course, can be a far too narrow space for investment opportunities. On the contrary, the Eastspring-Prudential framework opens up the scope so that investors can harness capital markets to effect meaningful change in transition to a low-carbon economy.
Endorsement from Climate Bonds Initiative
The Climate Bonds Initiative is an independent body mobilizing capital for climate action. They have endorsed the Eastspring framework and approach of Prudential. They reviewed the framework set by Prudential against the key principles of transition finance. In this regard, this endorsement further strengthens the strategy of Prudential while reiterating the commitment of this company towards ambitious change and fast change globally.
According to Sean Kidney, CEO and Founder of the Climate Bonds Initiative, “credible and ambitious frameworks” are crucial for the transition towards global energy. In his opinion, asset owners and managers must work towards better alignment of economies with net-zero pathways and preventing lock-in risks of high-carbon assets.
A Just and Inclusive Transition
Prudential’s climate transition strategy is placed against the backdrop of its commitment towards a just and fair transition. A concept that highlights the need to consider social equity in the action of climate change was first revealed in the paper white by Prudential in 2022. The new framework would ensure that climate transition strategies benefit the environment and the communities and economies involved.
Prudential is actively working towards making the shift to low-carbon economies worldwide equitable and sustainable by focusing on emerging markets, which face acute energy transition challenges.
Conclusion
Publishing two whitepapers on climate transition finance is a great step forward in Prudential to confront these challenges posed by the global energy transition. Simultaneously, having an emerging market coupled with flexible strategies along with practical approaches towards capital markets portfolios puts it as a champion in ensuring and promoting responsible and sustainable investment practice. This is further highlighted through its partnerships with funds such as Brookfield and KKR, which keep further emphasizing the commitment towards driving change in some of the world’s most critical climate action regions.
Source: Prudential