Prudential, OMERS banking on emerging markets to advance climate transition

Financing the climate transition “is not just the nice thing to do or the right thing to do. It makes business sense,” Prudential's sustainability chief said.

But that can’t be done without securing long-term socioeconomic development for everyone — and that involves improving the access and affordability of energy in the emerging markets that Diana Guzman, chief of sustainability at Prudential PLC, works in. Prudential focuses its insurance business on providing services in Asia and Africa, and Guzman is also chair of its $1.09 billion philanthropic foundation.

Life and health insurance thrive in growing middle-class economies, and in those two markets “we have been present in each over 100 years,” Guzmán told a Sept. 24 panel at Sustainable Investment Forum North America 2024. “We live and breathe those markets, and we’re married to them for the next 100 years. If they don’t thrive holistically, there’s no business.”

At the British insurer, both the climate transition and economic development are material to its investment processes, she noted. On Sept. 23, Prudential released its framework for integrating emerging market considerations when investing in an economically inclusive and just transition. For the insurer’s investments, if the transition target isn’t met, its C-suite executives won’t receive bonuses.

While she said emerging markets “should be at the forefront of the transition,” Guzmán noted “you’re not going to get them there if you ignore their development needs,” which requires flexibility in line with their approach to the Paris Agreement. For instance, India is aligned with a 2070 net-zero target as opposed to an earlier year such as 2050 like in the cases of Canada, Japan and the U.K..

With the launch of the framework, Prudential announced transition-related commitments on Sept. 23, including $200 million to Brookfield Asset Management’s Catalytic Transition Fund and at most $150 million to an infrastructure equity fund at KKR focused on climate.

Investment professionals in other panels during the forum also shared how they’re investing in emerging markets to generate sustainable returns.

Ontario Municipal Employees’ Retirement Systems has less than 10% exposure to emerging markets, said Katharine Preston, vice president of sustainable investing, in an earlier panel. The C$133.6 billion ($97.7 billion) Toronto-based pension fund also has an office in Singapore, she noted.

In an effort led by the Investor Leadership Network, OMERS joined institutions including Quebec City-based pension fund C$452 billion Caisse de Depot et Placement du Québec, the $1.3 trillion Paris-headquartered firm Natixis Investment Managers, as well as the more than $6 billion New York-headquartered Rockefeller Foundation, in deploying capital to developing countries. They committed an initial $400 million investment to the Emerging Markets Transition Debt initiative in July.

This energy transition-focused initiative is an example of “how do we actually take capital from institutional investors that previously had not been allocated to emerging markets, and how do we build that trust — that they feel like they can engage” in this sort of work, said Amy Hepburn, CEO of ILN, in a later discussion at the forum.

Within the $276.96 billion New York City Retirement Systems, three of its five public pension funds have adopted a net-zero goal for 2040, said Jamie Statter during the panel with Preston. She serves as senior adviser for New York City Comptroller Brad Lander, who serves as custodian of the funds.

These pension funds include the New York City Employees’ Retirement System, the Teachers’ Retirement System of the City of New York and the New York City Board of Education Retirement System. Statter noted their holdings have exposure to emerging markets as well as infrastructure, both of which “are climate solutions, which is particularly exciting.”