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Invesco Launches EM Climate Change Bond Fund
Emerging markets funds

Invesco Launches EM Climate Change Bond Fund

The fund will invest in public and private bonds supporting climate change adaptation in Emerging Markets.
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15 MAY, 2024

By Jose Luis Palmer from RankiaPro Europe

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Invesco has unveiled its latest initiative, the Invesco Climate Adaptation Action Fund (ICAAF), designed to invest in public and private bonds that support climate change adaptation in emerging markets. The fund aims to attract $500 million through an initial public offering (IPO) spanning nine months.

Triple Dividend Strategy and Investment Focus

The ICAAF is structured to provide institutional investors with a 'triple dividend': mitigating the economic impact of climate change, achieving positive financial returns, and delivering broader social and environmental benefits. This will be accomplished by investing in bonds issued in developing countries, with the proceeds directed towards climate adaptation projects.

The fund has a 12-year term, including a seven-year investment period and a five-year run-off period. During the investment period, ICAAF will focus on sectors critical to climate adaptation, such as food security and agriculture, coastal zones, urban infrastructure, water management, energy, and nature-based solutions.

Balanced Risk and Reward

Invesco's strategy employs a layered capital structure to balance risk and reward for both private and public investors. The fund features a junior share class, comprising 25% of the fund, targeting a return of 11.75% per annum and primarily aimed at the public sector. The senior share class, representing 75% of the fund, targets an 8.1% annual return and is designed for private sector investors.

Invesco plans to leverage its proprietary frameworks for climate adaptation impact evaluation and its extensive experience in thematic investing, supported by its eight-member climate mitigation team. Partnerships with organizations such as the Global Centre on Adaptation will also play a crucial role in the fund's strategy.

Leveraging Blended Finance

Hamid Asseffar, head of Europe, the Middle East, and Africa sustainable and impact investing distribution at Invesco, highlighted the potential of blended finance to overcome investment barriers in emerging markets.

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Blended finance, as a structuring approach, offers a huge opportunity to address some of the key barriers to invest in emerging markets and developing economies and offers institutions an attractive risk-adjusted way to invest in an important thematic, while driving positive impact.

Hamid Asseffar, Head of Europe, Middle East and Africa Sustainable Impact Investing Distribution at Invesco

Invesco's new fund underscores the firm's commitment to addressing climate change through innovative financial solutions, aiming to deliver both strong returns and significant environmental and social benefits.

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