$9bn UK development fund doubles down on Asia climate finance
British International Investment (BII), the UK’s $9.2 billion foreign development finance institution, is stepping up its search for co-investment opportunities in Asia alongside pension funds, insurers and other institutional investors, for major climate infrastructure and climate finance projects.
The fund is set to increase its climate investments disproportionately in Asia in the coming years, according to CEO Nick O’Donohoe and board Chair Diana Layfield.
“Climate is going to be dominant theme, you’ll get more segmentation [between] middle income countries, particularly many in Asia, where our role will be very focussed around climate … and the rest of our work, which will be increasingly focussed on the lower income countries,” said O’Donohoe, speaking at the launch of the fund’s 2023 Annual Review Report in London in mid-July.
BII
CO-INVESTMENT VISION
Both O’Donohoe and Layfield stressed the central importance of BII’s funding in mobilising private capital – an effect that was most pronounced in large scale infrastructure projects, particularly those with a climate impact, in the fund’s more developed markets.
The majority of those developed markets are in Asia.
“Mobilisation of other capital at scale is … more likely to be in infrastructure and climate finance than small scale development projects in frontier markets,” said Layfield, speaking at the same event.
She said the focus on infrastructure and climate finance was partly due to the larger sizes of these projects, which made them more attractive to other investors.
In addition, it is also about the lower risk profile associated with large infrastructure, compared with the small-scale micro venture capital-style investing that characterised much of the fund’s allocation.
“It’s partly about ticket size and partly risk profile. We are thinking how to structure projects and portfolios differently, [to] create a climate where [we can mobilise] pension funds and ins companies [investments],” said Layfield.
GROWING PORTFOLIO
In 2023, the fund made $1.69 billion of new commitments globally, of which $318 million were funnelled into Asia.
New commitments are funded by sales of existing holdings and new capital provided each year by the UK government.
The $9.2 billion portfolio has grown from $6 billion in 2019.
About 34% of total allocations ($3.13 billion) are in Asia.
India, which is far and away the fund’s largest target country, accounts for 26% of total assets, ahead of second placed Egypt with 8%. The fund currently invests in 730 businesses in Asia and 812 in Africa.
O’Donohoe said that mobilising other investor capital was crucial to achieving the fund’s objectives, which include creating jobs, reducing poverty and social inequality and averting climate collapse, according to O’Donohoe.
“We know we can’t solve these problems without large amounts of commercial capital. … What we’re able to do in terms of bringing other [investors] along with us will be a more important thing,” he said.
BII
“If we can take $1 from BII and [attract] $6 of other investment we’ll have a bigger impact,” said Layfield.
She highlighted initiatives in Africa that the fund had supported that pooled investor resources and another that created an investment platform for access to solar projects.
The fund, which targets a 2% annual return in its home currency sterling, has returned an average 5% since its inception in 2017.
Over that time the fund has grown from 220 people to more than 600. In 2023, it returned 1.1% in its sterling home currency, and 5% in dollar terms.