Pentagreen Capital (“Pentagreen”), is a debt financing platform dedicated to accelerating the development of sustainable infrastructure in Asia, with an initial focus on Southeast Asia. Its objective is to catalyse financing for “marginally bankable” clean infrastructure projects to help advance climate change mitigation and adaptation efforts and, more broadly, achieve the UN’s Sustainable Development Goals.
Headquartered in Singapore, and with initial capital of US$150 million provided by shareholders HSBC and Temasek, Pentagreen aims to deploy blended finance at scale in over US$1 billion of loans within 5 years to unlock and crowd in commercial capital for marginally bankable projects.
Its primary sector focus is renewable energy and energy storage, clean transport, and the water and waste management sectors. Transactions in other areas such as climate adaptation, agriculture and land use, and technology-led solutions are likely to be considered in the future.
The Need
Asia is not on track to deliver its 2030 climate targets. According to the Southeast Asia’s Green Economy 2024 Report, Southeast Asia alone will need over US$1.5 trillion in investment to meet its target of reducing emissions by a third by 2030 – with only $45 billion in investments made across dedicated green investments since 2021.
The Asian region is especially important to the world’s fight against climate change, as it accounts for half of global carbon emissions and produces about 85% of its energy from fossil fuels. It is imperative for Asia to grow the amount of funding and the ways in which that funding is deployed if we are going to meet critical climate targets.
In Asia as elsewhere, the green transition faces challenging constraints such as limited access to private capital and the marginal “bankability” of many infrastructure projects that would contribute to the clean energy revolution. Even though many investors have both enthusiasm and potential to shift investments towards more sustainable infrastructure, they cite challenges such as high capital costs, constraints on market access, insufficient investment returns and uncertainty about policy direction.
This creates the need and opportunity for innovative financing entities or platforms to take on the complex task of structuring a capital stack to suit investors from philanthropic, public, quasi-public, and private sectors, each with distinct risk and return expectations.
Pentagreen’s aim is to help bridge this gap and reduce the barriers to bankability for sustainable infrastructure projects.
Setting first Examples
Accelerating solar development in the Philippines
In September 2023, Pentagreen and Citicore Solar Energy Corporation (“CSEC”), the solar development vehicle of Citicore Renewable Energy Corporation (“Citicore Renewables”), a Philippines-based integrated renewable energy platform, signed a landmark financing to accelerate the development of new solar power projects.
Pentagreen, acting as exclusive Mandated Lead Arranger in its first project financing, structured a US$100 million Mezzanine Construction Green Loan Facility and committed an initial tranche of US$30 million for a portfolio of six solar power projects with gross capacity of 490 megawatts (“MWs”) across the island of Luzon in the Philippines.
Pentagreen’s commitment is the first international institutional investment and is designed to enable mobilisation of additional debt funding to support the construction of the company’s ready-to-build projects. Pentagreen’s US$30 million commitment comes with a greenshoe option to increase the committed amount to US$100 million to fund additional greenfield solar projects and the expansion of the portfolio to over 1 gigawatt (“GW”).
This initial tranche will provide funding for the construction of four greenfield projects and two more that have been recently completed. These projects are expected to add around 691 gigawatt hours (“GWHs”) of renewable electricity supply into the Luzon grid annually and result in avoided Greenhouse Gas (“GHG”) emissions of 430,000 tonnes of CO2 annually, as estimated in accordance with the methodology established by the International Financial Institutions Technical Working Group on Greenhouse Gas Accounting.
Developed by CSEC, which has plans to roll out 1GW of solar capacity per year over the next five years, the projects will sell green electricity to a combination of long-term and spot market customers, supporting the Philippines’ Department of Energy’s goal of generating 35% of the country’s energy needs from renewable sources by 2030 and 50% by 2040.
Advancing distributed sustainable bioenergy projects across Southeast Asia and India
In July 2024 Pentagreen and Clifford Capital, an infrastructure financing platform, announced a joint green loan collaboration of US$30 million with BE C&I Solutions Holding Pte. Ltd. (“BECIS”) to catalyse the construction of distributed sustainable bioenergy projects across Southeast Asia and India.
The loan will finance 14 individual decentralised installations across Indonesia, Thailand, Cambodia, the Philippines and India. The projects convert agricultural waste and other sustainably sourced feedstock into renewable steam, which is delivered to industrial customers under offtake agreements, and are expected to result in 114,404 tons of CO2 emissions avoided annually. The installations are located at industrial and manufacturing sites operated by established local and multinational companies across industries, including food and beverage, consumer goods, construction materials and agricultural products.
Distributed energy business models are not well-understood in emerging Asia as they are new in this market. By pooling projects together, working closely with the borrower on structuring mitigants for risks inherent in the model, and combining the two debt tranches – a more bankable deal was unlocked.
Clifford Capital and Pentagreen are providing a US$30 million Secured Green Loan Facility on a 50:50 basis. Clifford Capital, as the Structuring Arranger, together with Pentagreen Capital as the Green Loan Coordinator, arranged an innovative dual-tranche structure where Pentagreen’s tranche is differentiated to the commercial tranche provided by Clifford Capital. The combined solution unlocks the full required financing package for the Borrower, catalysing growth in energy efficiency and sustainability activities in the region. In anticipation of future growth, the financing comes with an accordion feature to allow the facility size to be increased to US$50 million. The committed US$30 million has the potential to unlock US$60 million in project value.
BECIS Bioenergy applies Supplier Due Diligence and Responsible Sourcing Criteria to installations consistent with the key principles of international standards, such as the Roundtable on Sustainable Bioenergy’s Principles and Criteria. This includes independent third-party assessment to ensure standards are well maintained.
The financing has been structured as a Green Loan under BECIS’ Green Loan Framework, which is aligned with the Green Loan Principles 2023, administered by the Asia Pacific Loan Market Association and Loan Syndications and Trading Association. A Second Party Opinion has been issued by Sustainalytics.
Approach to ESG and Impact
Pentagreen has developed an ESG framework based on internationally recognised ESG best practices (Equator Principles, World Bank and IFC Environmental and Social Framework, ADB Safeguards Policy Statement). Where appropriate and over time, Pentagreen will look to measure sustainability outcomes of the loans it provides.
Understanding the ESG risks its borrowers face and the impact of such risks is a key part of the evaluation of any transactions in which Pentagreen may participate. Prior to making any financial commitment, all prospective loans are screened for compliance with its ESG Framework, the objectives of which are:
To embed good practice ESG requirements within the full loan lifecycle
To integrate ESG considerations into the investment evaluation and approval process to identify ESG risks, impacts and opportunities in potential transactions
To work with clients, projects, and co-financiers to adopt good industry practices, comply with applicable country-level laws and regulations and seek improved ESG practices to address the identified risks and impacts
To set out the responsibilities for ESG risk and impact identification, assessment, decision-making, monitoring and to facilitate a record of such considerations
In assessing whether an asset would qualify as a “Sustainable Infrastructure Asset,” Pentagreen will refer to the guidance provided in the FAST Sustainable Infrastructure Label Framework Document (FAST Infra Framework), including the non-exhaustive list of eligible infrastructure.
Given that the FAST Infra Framework is still being developed, other frameworks such as the ICMA Green Bond Principles and the LMA/ LTSA/ APLMA Green Loan Principles can help provide guidance on the types of projects eligible for green finance. Pentagreen will adopt the relevant parts of the FAST Infra Framework methodology as far as is reasonably practical.
Pentagreen maintains an exclusion list of sectors that the company will not finance, which include (but are not limited to) activities such as new oil and gas fields, coal-fired power generation, coal mining, coal-related infrastructure such as coal rail and coal ports, brown or grey hydrogen, weapons and munitions, harmful or exploitative forms of labour and any activities prohibited by host country legislation or international conventions relating to the protection of biodiversity resources or cultural heritage.
Pentagreen has adopted the approach used by the IFC and the Equator Principles to categorise the level of environmental and social risk in projects.
Where appropriate and practical, Pentagreen will aim to work with borrowers to measure sustainability outcomes (such as avoided GHG emissions and other relevant metrics) for specific projects in line with industry best practices.
Conclusion and Outlook
The Pentagreen experience over the last 2 years has demonstrated that there is a significant opportunity set in Southeast Asia green infrastructure where capital is needed and where it is not flowing. This is due to the innovative nature of projects and financing structures that fall within that opportunity set. Blended finance can be a powerful tool to unlock the flow of capital to these projects. Designing and executing such blended finance vehicles has the key challenge of aligning various groups of capital providers – commercial, public sector, philanthropic – on a common set of objectives that can then be practically achieved.