Joachim Fröhlich, Evangelische Bank: "The emerging markets offer particularly promising conditions for renewable energy projects." Photo: Dennis Blechner

Social responsibility and solid returns

Author: Joachim Fröhlich and Timo Lüllau

Mention of emerging market projects makes one instinctively think of development aid where return orientation is not really a priority. The Evangelische Bank is following a different approach. It works closely with the German Investment and Development Association (Deutsche Investitions- und Entwicklungsgesellschaft (DEG)) and selects sensible projects that promise stable returns to investors while making the emerging markets less dependent on foreign energy imports. For the first time ever, the experts of the Protestant Bank are now bringing selected projects together in a separate account to make them accessible to a broader investor base. Universal-Investment spoke with Joachim Fröhlich, head of asset management, about the selection of products, the return expectations and the benefits of the individual projects.

Joachim Fröhlich, Head of Asset Management, Evangelische Bank Photo: Dennis Blechner

Universal-Investment: Renewable energies become increasingly important as an asset class. Why do you emphasise this theme in particular? 

Fröhlich: As a bank of the church, we have a clear mandate. Protecting the Creation is always a key objective, and that in turn puts sustainable investing centre stage in our corporate strategy. As a result, our business model focuses on issues such as financing the social economy or renewable energies.

Universal-Investment: Together with Universal-Investment, you have structured a separate account that targets renewable energy projects in the emerging markets. Why do you concentrate on emerging market projects?

Fröhlich: The emerging markets offer particularly promising conditions for renewable energy projects. One of our projects is located in Kenya, for instance. The wind park that is being in construction there is the biggest of its kind in sub-Saharan Africa where conditions for wind power are ideal. Natural resources are typically better than for instance in Europe. And the wind park creates new jobs. On the geopolitical level, the emerging markets need the electricity to become less dependent from foreign energy supply. Most of these countries have large energy deficits and power generation supports their economic development. Energy is always an important element of social policy and basic supply. Where there is no electricity, there is no heat, only limited manufacturing and no access to mass media. Apart from the project in Kenya, our portfolio currently also invests in a hydro-electric power project in Peru and a wind park in Nicaragua that is already up and running. We are also contemplating the addition of one project each in Peru, Uganda and Honduras. Besides hydroelectric and wind power, our separate account is also interested in solar parks and measures that improve the energy efficiency of thermal plants. Importantly, we don‘t just analyse the actual project but also social conditions on site. We check to what extent the project partners must provide social support or comply with environmental standards.

Universal-Investment: What are your selection criteria for projects you plan to add to the separate account? Which factors do you look at?

Fröhlich: In a first step, we analyse the economics of the project. We drill down into factors such as credit quality, life-span and margins. In the next step, we determine whether the project is a good fit for the existing portfolio for instance based on country diversification or the type of energy generation. The financing structure of the project is another crucial factor. The wind park in Kenya, for example, is financed by the DEG, the European Investment Bank (EIB) and other renowned financial institutions. All of them have long-standing and extensive expertise in project development and support in the emerging markets. Another important aspect is the technical equipment; in Kenya, it is provided by the renowned turbine manufacturer Vestas. Furthermore, the wind park is a top-priority project for the government of Kenya, which is always a key requirement for our investments. In the case of the wind park, this government ensures that the electricity will actually be bought because local electricity companies in the emerging markets are mostly state-owned. That is a mission-critical factor for the project. Renewable energies also have the advantage of being less complex than other infrastructure projects. Institutional investors can easily relate to these projects. And renewable energies are based on proven technologies investors know and can understand in the context of their deployment in emerging markets.