“We are seeing decarbonisation impacting just about everything, how we get to work, how we power our homes, how we transport goods,’’ according to Blackstone Credit’s Sustainable Resources Global Head Robert Horn.

And along with that, private credit has a bigger and better opportunity to help decarbonise the world than the market realises, he told a panel discussion at Investment Magazine’s Fixed Income and Private Credit Forum.

“It’s a broad and diversified opportunity set across a number of sectors and a lot of places to look to find the best risk-adjusted returns,” he said.

Horn referred to Blackstone’s launch of an Environmental, Social and Governance (ESG) platform in January to deploy $US100 billion in private credit over the next decade, in response to Paris Agreement estimates that the world needs $US100 trillion by 2050 to fully decarbonise.

Sharing the upside

Horn said Blackstone was investing in new and established businesses to scale their commitments, earning equity-like returns and sharing in the upside as they grew.

“In private credit,  you can pick a protected position in the capital structure and look to earn a favourable yield and benefit from upside share in those investments [and] downside protection with current income inflation protection, because we have a lot of investments that are floating rate, and upside sharing through the combination of conversion features and warrants,’’ he said.

Opportunities lay in building up supply chains such as those for electric vehicles, which would give Australia a role in producing natural resources as well as building efficiency in areas such as residential solar.

“(Energy transition is driving a) huge capital need, it’s growth oriented, it’s impacting hard assets and established businesses and this is the type environment that creates a favourable investment opportunity for us in the private credit business,’’ he said.

Addressing policy uncertainty

IFM Investors debt investments executive director Hiran Wanigasekera told the panel IFM was investing in energy and power generation with hopes that “taking policy uncertainty off the table” would accelerate investment.

“I think certainly, in the Australian market context, there’s an enormous market opportunity but we are somewhat quite a way behind in having infrastructure in place to allow the transition to happen,’’ he said.

“Our focus comes down it impactfulness and concentrating on the end of the spectrum where we can have bigger bang for [our] buck.”

This included a recent private credit investment in a manufacturing facility to improve water usage.

Best-of-class approach

Jessica Zarzycki, global fixed income portfolio manager at sustainability investment specialist Nuveen, had a best-of-class approach to investing for net zero.

Nuveen is the largest global holder of green bonds, a sector which was helping companies transition to net zero

“There was $US1.2 trillion in green bonds [issuance] last year [and] we’ll have another $US1.5 trillion in this space [soon]. It’s growing, but [it’s] still only 3 per cent of the fixed income market,’’ she said.

“There’s a real opportunity to support this transition through the green bond market.”

Nuveen avoided 330 million metric tonnes of carbon dioxide in its flagship fund last year, equivalent to taking 95 coal fired plants off the market, she said.

“This shows your clients that you can put your money towards good, you don’t have to sacrifice returns and that’s a powerful statement.”

Debt holders driving change

UniSuper senior investment manager in fixed income and macro portfolios David Colosimo said his fund was one of the largest sustainable investors in Australia.

He said debt holders were driving change just as much as equity holders.

“It’s debt investors that can force transition. If companies aren’t doing enough, the first point is when their debt becomes more expensive,’’ he said.

“Companies that have not been as willing to be involved in transition are now doing so and its debt investors driving that change.”

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