Catalytic Capital | December 1, 2023

ImpactAlpha Deal Spotlight: Blending global insurance assets for impact

David Bank
ImpactAlpha Editor

David Bank

ImpactAlpha, December 1 — The new $1.1 billion SDG Loan Fund is significant for the use of catalytic capital, in the form of a $25 million guarantee from the MacArthur Foundation and a $111 million first-loss reserve from the Dutch development bank FMO. Equally significant is whose capital is being catalyzed.

“All investors in the fund are European insurance companies that are sustainability shapers in their respective countries,” said Nadia Nikolova of Allianz Global Investor, the asset management arm of the German insurance giant that was the largest provider of senior capital for the SDG fund.

Insurance companies worldwide manage more than $41 trillion in assets. And, together with pension funds, they represented the largest increase in allocations to impact investing, with a compound annual growth rate of 32% between 2017 to 2022, according to the Global Impact Investing Network.

Big ambitions

Allianz, the rare insurance company with a dedicated development-finance team, took the initiative to create the SDG Loan Fund, teaming up with FMO to submit a proposal in response to the MacArthur Foundation’s call for projects demonstrating the use of catalytic capital.

“It was private-led. It had very big ambition and scale, at $1 billion dollars. And it had a very sizable chunk of investment committed at the time. That was extremely unusual,” MacArthur’s Debra Schwartz told ImpactAlpha (disclosure: MacArthur Foundation leads the Catalytic Capital Consortium, which supports ImpactAlpha’s coverage of catalytic capital).

Systemic risks

The awareness of insurance companies’ about climate risks is perhaps to be expected, given their exposure to such risks in their underwriting businesses. A survey last year by Nuveen found that insurers also expressed stronger commitment to social impacts and diversity, equity and inclusion than corporate or public pension fund investors.

Insurers haven’t quite sworn off the fossils, however. As of 2019 – the most recent data available under California’s insurance-industry disclosure rules – U.S. insurers held $536 billion in fossil fuel-related assets. Some companies told researchers they have since made “huge changes” in how they loan to and invest in such assets – which may show up in future disclosures.