ILX Fund I: Mobilising private capital towards emerging markets

PRI Awards 2024

Organisation: ILX Management B.V. 

Signatory type: Investment manager 

HQ country: Netherlands 

The approach, initiative or process 

ILX Management B.V. is an Amsterdam-based asset manager that specialises in private debt in emerging markets (EMs). ILX Management’s first fund, ILX Fund I, provides institutional investors opportunities to invest in development finance through private sector loans arranged by Multilateral Development Banks (MDBs) and Development Finance Institutions (DFIs). The fund’s investment strategy benefits from the DFI’s experience of investing in EMs to deliver attractive risk-adjusted returns, whilst mitigating ESG risks and delivering positive climate and SDG-related results. These partnerships also allow for a scalable and diversified portfolio. 

ILX Management’s sustainable investment philosophy is underpinned by three core principles: 

1. Emerging market investments
   ILX focuses its investments in EMs where SDG and climate goals are most urgent and growing. These regions represent the fastest-growing sector of the global economy and are set to account for the bulk of GHG emissions growth in the coming decades. However, there is still a lack of sufficient long-term capital to support the adoption of cleaner technologies and adaptation to climate change. The World Economic Forum estimated an annual financing gap of about $4 trillion to achieve sustainable development in these countries. 

2. Strategic partnerships with MDBs and DFIs
   ILX partners with MDBs and DFIs, recognised pioneers in impact investing, to effectively address SDG and climate issues in EMs. By co-investing with these institutions, ILX leverages their robust, sophisticated and harmonised methodologies for ESG safeguarding to ensure efficient deployment of capital, while measuring and reporting the intended impact of the investments. 

3. Embedding ESG and impact commitments into underwriting
   The ESG and impact commitments (including climate) of the borrowers that ILX invests in are embedded in the contractual arrangements with the counterpart MDB or DFI. This allows for greater leverage from lenders to deliver on specific impact goals, improve ESG practices, and transparently measure and report impact. 

At the same time, ILX’s sustainability strategy is based on three key pillars: 

• Exclusions: The fund excludes investment opportunities if proceeds are intended for activities deemed controversial, such as weapons, tobacco or fossil fuel-related activities. 

• ESG safeguarding and engagement: The fund incorporates the principle of double materiality by considering how its investment decisions impact ESG factors and how its portfolio performance may be affected by these factors. ILX leverages the capacity of its MDB and DFI counterparts to engage with the borrower of the loan; identify ESG risks; and contractually agree on key mitigants in the form of ESG action plans. 

• SDG and climate results: The fund invests in projects and companies with the potential to generate positive and measurable environmental, social and/or economic development results, alongside attractive risk-adjusted financial returns. 

The fund’s approach does not trade impact for return. Its sustainability strategy is embedded within its investment strategy, and allows institutional investors, namely pension funds, to invest in EM projects that provide market-equivalent risk-adjusted returns. Co-financing alongside MDBs and DFIs unlocks a globally diversified asset class that delivers total returns that are more stable and, in the long term, higher than those of comparable asset classes in investor portfolios. 

Two examples illustrate the effects of the fund’s sustainable investment strategy: 

• Wind energy project (Europe & Central Asia): This facility finances the development, construction and implementation of a combined wind power plant with 240 MW of installed capacity as well as two 33kV/220kV substations. The project incorporates a bird protection system and access roads. The plant is expected to reduce carbon emissions by more than 400,000 tCO2e annually. The borrower agreed to improve its ESG performance by, for example, implementing a Biodiversity Action Plan (BAP), a Biodiversity Offset Plan and a stakeholder engagement plan to enhance communication with local communities. This project supports SDG 7.2, SDG 13.a and SDG 8.5. 

• Logistics warehouse (Latin America & Caribbean): The facility finances the design, construction, operation and maintenance of a greenfield logistic warehouse and storage facility. The project is expected to obtain a best-in-class green building certificate, the EDGE certificate. The borrower agreed to improve its ESG performance by developing internal labour regulations; preparing an annual GHG emission inventory; and monitoring key performance indicators (KPIs) on water volume and waste treated. This project supports SDG 7.3, SDG 13.a, SDG 9.1 and SDG 8.5. 

The measures to ensure transparency and generate outcomes 

The fund is committed to maintaining a high level of transparency in its investment process and outcomes by: 

• Regular reporting: ILX Management provides detailed information on ESG, SDG and climate results to its investors on a quarterly basis. Additionally, it meets its Sustainable Finance Disclosure Regulation (SFDR) requirements as a manager of an Article 9 fund on an annual basis, and it discloses to the general public an annual sustainability report, highlighting key achievements in terms of its strategy, portfolio, methodology development and advocacy efforts. These reports offer an in-depth view of the investments, including project details, ESG action plans, and progress on SDG- and climate-related indicators. 

• ESG engagement and action plans: For investments that do not meet minimum standards at entry, a detailed and timebound ESG engagement plan is included in the loan documentation. As noted above, the borrower agreed to implement a biodiversity action plans and stakeholder engagement initiatives. These ESG action plans are communicated to stakeholders. 

• SDG and climate outcomes: Specific SDG and/or climate outcomes are identified and tracked for each project. For instance, the wind energy project aims to generate 893 GWh of clean electricity annually, reducing carbon emissions by over 400,000 tCO2e annually and supporting the government’s renewable energy goals. 

• Adherence to best practices: The fund adheres to international standards and best practices, including OPIM Principles for Impact Measurement, UN Principles for Responsible Investment, Task Force on Climate-related Financial Disclosures and the Net Zero Investment Framework, produced by the Institutional Investor Group for Climate Change (IIGCC). 

The fund’s investment approach is strategically designed to align capital allocation with positive sustainability outcomes. 

Additionally, at the COP28 in Dubai, ILX Management announced its commitment to achieve net zero by joining the Net Zero Asset Managers Initiative and the IIGCC. ILX is aligning its operations and investment strategies with global climate goals. This commitment is a reflection of ILX’s proactive stance on climate action and determination to lead by example in the asset management industry. 

PRI disclaimer:This case study aims to contribute to the debate around topical responsible investment issues. It should not be construed as advice, nor relied upon. It is written by a guest contributor. Authors write in their individual capacity – posts do not necessarily represent a PRI view. The inclusion of examples or case studies does not constitute an endorsement by PRI Association or PRI signatories. 

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