DANISH CLIMATE INVESTMENT FUND Torben Huss, Executive Vice President, IFU

46 10 115 800 years bn DKK WHAT IS IFU? bn DKK Independent government-owned fund, operating on commercial terms 800 Advice and risk capital for globalisation of Danish companies investments in 88 developing countries Total contracted investments of more than 46 10 115 years bn DKK bn DKK of experience invested in share capital and loans 09/11/2018 Danish Climate Investment Fund

A DANISH CLIMATE INITIATIVE Public Private Partnership Provides risk capital Operates on commercial terms for climate investments and climate-related projects Investment with a Danish interest 09/11/2018 Danish Climate Investment Fund

Challenges – investments Private investors do not like investments with: Country risk Upheavals, conflicts, inefficient or corrupt legal system, etc. Political risk Subsidies, competition from dominant state owned enterprises, etc. Unclear timing of cash flows When is cash paid in? When/how is investment repaid? Low returns 09/11/2018 Danish Climate Investment Fund

Challenges – investment managers Private investors do not like investment managers who are: Controlled by the government IFU’s board and CEO is appointed by the Danish government Not investing their own money (“no skin in the game”) Will the team work hard enough if they have “no skin in the game”? Not aligned with the incentives of the investors Does the government have the same success criteria for the investments as the private investors, does IFU? 09/11/2018 Danish Climate Investment Fund

Solutions Challenges – investments Solution Country risk Insurance schemes (e.g. MIGA) Political risk Broad geographical scope of fund – more choice of countries Unclear timing of cash flows Private equity type closed-end fund structure Low returns Preferred return for private investors Challenges – investment manager Solution Controlled by the government Independent investment committee No ”skin in the game” IFU track record in climate projects (12% p.a.) + IFU investment in fund Alignment of incentives Independent investment committee and preferred return 09/11/2018 Danish Climate Investment Fund

Danish Climate Investment Fund (1/2) Terms and conditions €175 million in committed capital (expected total investments: €1.4bn) €105 million – Danish pension funds €37 million – Danish State €33 million – IFU Broad geography All DAC countries Private equity fund structure Limited partnership with a 10 year lifespan Preferred return Losses shared equally Up to 6% p.a. – private investors Above 6% p.a. – state receives more than the private investors Independent investment committee 3 highly experienced and reputable independent members and 2 private investor representatives 09/11/2018 Danish Climate Investment Fund

Danish Climate Investment Fund (2/2) Investment strategy – highlights Renewable energy projects only in countries where fossil fuel is not significantly subsidised Renewable energy business case must be sound without subsidies for renewables and carbon credits Building in-house developer capability – local developers lack skill or are too highly priced Avoid passive or extortionate local ownership stakes, all shareholders must put capital at risk and provide value to the project 09/11/2018 Danish Climate Investment Fund