Prudential Launches Climate Transition Financing Framework

Key Points

• Prudential plc has published two whitepapers on climate transition financing.
• Prudential says high-carbon projects need to be transitioned to low-carbon alternatives.
• Prudential has made significant investments in climate transition funds and is committed to blended finance in emerging markets.

Prudential plc has published two whitepapers on climate transition financing. A step in the right direction for energy transition investment.

The first paper outlines a framework that includes emerging market considerations in energy transition strategies. Since there is no standard definition of transition finance, Prudential has created its own, defining transition financing as investments that support and accelerate the journey to net zero. This principles-based framework is applicable to all asset managers and asset classes.

The second paper, with Prudential’s asset management arm, Eastspring Investments, sets out a practical approach to building a capital markets climate transition portfolio.

This framework addresses two key challenges Prudential has identified in the climate finance landscape:

• Funding projects transitioning from high-carbon to low-carbon and the lack of a standard definition for such projects.
• Flexibility in engaging with emerging markets in Asia and Africa, acknowledging their specific needs and fast-changing circumstances in the low-carbon transition.

Ben Bulmer, Chief Financial Officer of Prudential plc, says: “Our responsible investment strategy uses our scale as a large asset owner in Asia and Africa. We are in these emerging markets so we can shape industry standards and encourage our peers and investee companies to acknowledge the role these markets play in the global energy transition.”

Vis Nayar, Chief Investment Officer at Eastspring Investments, says: “As Prudential’s asset manager, we have a chance to support an inclusive transition. Our research shows that to meet climate goals we need to identify companies transitioning to emissions reduction and climate-resilient business models.”

He adds: “Since industry guidance on transition is mostly principles, emissions or activities, our Investment team has developed a framework to find such companies across markets and sectors. This expands the investable universe and allows investors to find mispriced assets. The Eastspring-Prudential Climate Transition framework can be applied to capital markets portfolios across asset classes to unlock the market’s power to create change.”

The Climate Bonds Initiative, an independent not-for-profit organisation that mobilises global capital for climate action, has reviewed Prudential’s framework and the Eastspring-Prudential approach to climate transition in capital markets and has endorsed both. They confirmed that the transition category alignment and composite transition screen developed by Eastspring and Prudential are in line with the Climate Bonds Initiative’s core principles for transition finance.

Sean Kidney, CEO and Founder of the Climate Bonds Initiative, says: “To have a liveable world for future generations the global transition must be credible, ambitious and rapid. By using clear investment frameworks and guidance asset owners and managers can make a big contribution to aligning economies to net zero pathways, reduce emissions lock-ins and grow in a net zero economy.”

Prudential also announced investments in climate transition funds:

• $200 million as a founding investor in Brookfield’s Catalytic Transition Fund, their first fund dedicated to transition investing in emerging markets. This blended finance vehicle will invest in clean energy and transition assets in these markets.
• Up to $150 million in a climate-focused strategy managed by global investment firm KKR, investing in infrastructure equity in Asia focused on energy transition, including climate adaptation and mitigation.

Mr Bulmer says: “Our investments in these funds demonstrate our leadership in climate transition and blended finance. We know that green activities alone may not be enough. With Asia accounting for over 50% of global emissions, Prudential sees opportunities in the region.

He adds: “We’re pleased the Climate Bonds Initiative has endorsed our frameworks as we work to industry standards to get consistency in the market.”

Prudential’s approach to just and inclusive is at the heart of its responsible investment strategy and underpins its climate transition work in emerging markets. In 2022, Prudential published a whitepaper on just and inclusive transition. The latest framework builds on this.

To download the 2024 whitepapers, click here.

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Source: Prudential