What is the investment focus of the Triodos Emerging Markets Renewable Energy Fund?
Blackie: “We provide capital for renewable energy projects in emerging market countries. We aim to invest for the long term and hold the loans until the end of the term. Compliance with ESG criteria is a very important factor. We finance project developments directly and grant loans to the project companies.

There are two areas: on-grid and off-grid solutions, in other words, the projects are either connected to the main power supply or they are what is known as island solutions. Off-grid projects are generally also guaranteed by government agencies. We fund wind and solar projects with Triodos Emerging Markets Renewable Energy Fund, but also hydro power projects in other portfolios. But the focus is firmly on established technologies. For instance, in the off-grid area we have financed rooftop installations for a university and retailers in India. But we also finance smaller development projects in Africa – in Nigeria and Madagascar.”

What kind of impact does the fund have?
Blackie: “The fund has sustainable investment as its objective as set out in article 9 of the SFDR. Our sustainable investment objectives are to increase renewable energy capacity, provide access to clean and affordable energy, and promote social and economic opportunities. Emerging market countries face huge challenges. Reliable and affordable energy supply is key to further social and economic development.

We use different indicators to report on these impacts, although each project has its own impact that's best expressed qualitatively. For instance, we are financing a major wind farm project in Vietnam that supplies the national grid and has increased country's wind power capacity by 30%. The project works with local communities and has set up a development plan with a range of advantages. In this case, the project financed direct access to drinking water, so women and children do not have to walk great distances anymore for their water.

The project has also financed the expansion of the education system in the villages, including schools and libraries. There are clearly defined benefits to be achieved for the local people in every project.”

Which regions do you invest in?
Blackie: “We cover a very wide area. We can invest in all emerging markets: in Africa, Eastern Europe, Central Asia, Southeast Asia and Latin America. We are currently heavily invested in Southeast Asia because we see interesting opportunities there in terms of both impact and return. We have also conducted many large transactions with multilateral development banks and development finance institutions such as the Asian Development Bank. We also see opportunities in Latin America. There is a lot of need for financing in this region, as it has evidently been underserved by development finance, which primarily goes to Africa.”

In what currency do you invest in these regions?
Blackie: “The fund is denominated in US dollars. We provide loans in US dollars and other hard currencies for most projects. For instance, we provide funding in British pounds in Rwanda and have conducted transactions in euros in Eastern Europe. We don't want to take currency risks. The other hard currencies are generally hedged in US dollars. Some projects are also financed in local currency, such as in India, but the volume is limited and always hedged in US dollars. Investors can invest in USD or EUR/GBP classes.”

How is the portfolio structured? Which asset classes do you invest in?
Blackie: “We primarily invest in loans; around 80% of the fund volume is invested in the form of loans. But we follow a multi-asset approach. We also issue subordinated loans and invest in equity to a limited extent. Most of the projects are financed through senior loans, and the risk is limited, as the projects usually generate stable cash flow after completion and have considerable collateral. Mezzanine structures have shorter terms during the development phase. One example of an equity investment is our position as limited partner in a project development fund that realises renewable energy projects in emerging markets. This also provides us with access to a diversified project pipeline.”

How do you cover the regions and segments you’re investing in?
Blackie: “Triodos is a Netherlands-based company but has been active in emerging markets for more than 30 years and in renewable energy even longer. We have an extensive network in the regions in which we are active, particularly with the developments banks that structure the transactions. We also provide added value, such as impact focus, and help to structure the transactions attractively for investors.”

What are your largest portfolio positions?
Blackie: “The largest project in terms of invested capital is the Lotus Wind Power project in Vietnam, which is also the largest project in terms of energy generated. And with an installed capacity of 144 MW, the project is also the largest wind farm in Vietnam. It comprises three separate 48-MW wind farms each with 12 Vestas turbines. The Asian Development Bank (ADB) structured the transaction. Triodos Investment Management invested USD 17 million. The loan has a 15-year term and is subject to a variable interest rate with a margin of around 4%. Interest is paid quarterly.

Together with the European Investment Bank (EIB) and EDFI ElectriFI, we invested EUR 19 million in mini solar plants in Madagascar, which provide 45,000 households with electricity. Three Triodos funds invested in the project, with USD 1.5 million coming from Triodos Emerging Markets Renewable Energy.

We invested USD 2 million in Fourth Partner Energy in India, which realises small and medium-sized rooftop installations for commercial customers. We invested in local currency, and the loan has a term of five years. The power generated is 40% cheaper than the electricity from the major energy providers. These are three very different projects that provide a good overview of what we do.”

What type of investor is the fund aimed at?
Blackie: “We aim to generate long-term value growth and long-term impact. The fund is aimed at institutional investors who have this long-term focus, such as foundations and pension funds, which do not generally have direct access to such projects. But we also see interest from family offices, private banks, high net-worth individuals, investment advisors and small-scale investors. We provide these investors access to private markets. Our goal is to offer access to impact investment in private markets to all investors, from institutional investors to retail investors.”

This interview was conducted by Christian Schiffmacher and published in Bond Magazine on 13 May 2023.