From concept to catalyst: ILX’s strategy for sustainable investment in emerging markets :: Environmental Finance

ILX has created a replicable and scalable model that can be adapted to various contexts, write Callum Thomas and Sofía Vega Núñez

The financial gap to achieving the UN’s Sustainable Development Goals (SDGs) and climate objectives continues to widen, now estimated at over $4 trillion for emerging markets (EMs) (UNCTAD, 2023¹).

These regions are disproportionally affected by climate change and are also set to account for the bulk of the emissions in the coming years.

Within this context, ILX Management B.V emerged as an innovative scalable vehicle to mobilise impact-driven capital flows into emerging markets. Established in Amsterdam in 2022, ILX is an asset manager specialising in global development finance co-investment strategies.

Focused on narrowing the SDGs and climate finance gap in EMs, it collaborates closely with Multilateral Development Banks (MDBs) and Development Finance Institutions (DFIs), investing in b-loan participations.

Through ILX Fund I and II, its private debt funds, the firm provides institutional investors — primarily pension funds — with access to private-sector loans arranged by these entities.

Mobilising institutional investors is crucial, as they represent an immensely large source of private capital that remains, for the most part, untapped. According to the OECD, a shift of only 3.7% of the $100 trillion of assets held globally by institutional investors towards sustainable activities in developing countries would be sufficient to fill the current financing gap (OECD, 2021²).

ILX’s strategy centres on investing in syndicated loans originated and structured by MDBs and DFIs. This co-investment model allows ILX to participate alongside these institutions in high-impact private sector loans, ensuring that investments are both financially stable and aligned with development and climate finance goals.

By leveraging the extensive experience, resources, local presence, and due diligence processes of MDBs and DFIs, ILX mitigates the perceived risks associated with emerging market investments, making them more attractive to institutional investors.

“Another critical aspect of ILX’s model is its ability to mobilise private institutional capital without relying on scarce concessional or blended finance”

ILX Management, with incubation support from the German, Dutch, and UK governments, launched ILX Fund I in early 2022. APG, Europe’s largest pension fund manager, served as the cornerstone investor with an initial commitment of $750 million on behalf of ABP and bpfBOUW. Achmea Investment Management contributed on behalf of Pensioenfonds Vervoer, bringing the total commitments to $1.05 billion.

In 2024, ILX launched its second fund, ILX Fund II, with commitments from Danish pension providers Sampension and Akademiker. Additionally, the original investors increased their allocation to ILX Fund I, bringing the total Assets under Management (AuM) of ILX to $1.7 billion.

This marked a significant expansion of ILX’s investor base, further channelling capital into projects that support the SDGs and climate objectives in emerging markets.

By investing in loans organised by different MDBs and DFIs such as ADB, DEG, EBRD, FMO, IDB-Invest, and the IFC, investors can access a broad and diversified portfolio.

This diversification mitigates risks associated with individual projects or regions and provides pension funds with a stable investment landscape, due to returns on these loans being market equivalent and risk-adjusted, as well as proven largely uncorrelated with public market volatility.

This model not only provides a pathway for smaller DFIs to mobilise private capital but also offers a template that can be replicated in other regions and sectors.

Another critical aspect of ILX’s model is its ability to mobilise private institutional capital without relying on scarce concessional or blended finance.

By co-investing pari-passu with MDBs and DFIs, ILX ensures that concessional funds can be preserved for projects where they are most needed, while still attracting substantial private investment into sustainable development projects.

ILX’s investment focus spans core sectors such as infrastructure, renewable energy, agribusiness, manufacturing, and financial institutions.

By channelling funds into these areas, ILX supports projects that not only offer attractive risk-adjusted returns but also contribute significantly to economic development and environmental sustainability in emerging markets.

With these investments, investors do not need to trade return for impact but rather achieve both.

The success of ILX Fund I demonstrates the viability of its innovative approach to mobilising private finance for sustainable development.

By aligning the interests of institutional investors with development objectives, ILX has created a replicable and scalable model that can be adapted to various contexts (CGD, 2023³).

Additionally, pension funds have long-term investment strategies and risk profiles that align closely with those of MDBs and DFIs, making them the perfect partners.

As the global community continues to seek effective mechanisms to finance the SDGs and climate goals, ILX stands out as a testament to the power of strategic partnerships and innovative financial structures in driving meaningful change.

ILX exemplifies how private capital can be effectively mobilised to support sustainable development in emerging markets. Through its innovative co-investment model, strategic partnerships, and focus on impactful sectors, ILX not only addresses the pressing need for development finance but also sets a precedent for future initiatives aiming to channel finance where it is needed most.

ILX’s innovative approach to mobilising private capital will be discussed as a key case study in the panel session Navigating Structured Funds: How best should we structure Collective Investment Vehicles to de-risk private finance investments? as part of the broader OECD Community of Practice on Private Finance for Sustainable Development Conference. Scheduled for the 4 and 5 of February in Paris, the conference will convene over 500 professionals from across the development finance ecosystem to exchange policy solutions on critical development finance issues and act as a pivotal platform for advancing the mobilisation agenda towards the 2030 Sustainable Development Goals and beyond.