Some of the largest pension funds in the UK and Australia have joined forces to lobby the UK government to improve the investability of the UK’s clean-energy infrastructure market.
Large domestic pension funds, including Universities Superannuation Scheme (USS), Border to Coast and NEST, have co-signed alongside Australian superannuation funds a “blueprint” that recommends government policies that aim to encourage greater institutional investment in clean energy.
Signatories to the document include the UK’s LGPS Central and the North East Scotland Pension Fund (NESPF), and Australian funds Aware Super, CareSuper, Cbus Super, HESTA, Hostplus and Rest.
The collaboration between UK and Australian institutional investors also includes the UK trade assoication Pensions and Lifetime Savings Association (PLSA) and the blueprint has been led by Australian superannuation-owned infrastructure fund manager IFM Investors.
Australian superannuation funds and IFM Investors have a longer history of investing in infrastructure than their UK counterparts. A growing number of Australian investors have established a presence in the UK and have been talking to the UK government and domestic institutional investors about infrastructure investment.
Towards the end of last year, IFM Investors and Aware Super committed to investing more than £15bn in UK infrastructure and energy-transition projects at government investment summit. Australian Retirement Trust is the latest to set up an office in London.
IFM said the blueprint, whose signatories manage an estimated £1.7trn (€2.03trn) of retirement capital, was launched today at a roundtable event in Westminster featuring the CIOs of several large pension funds and government representatives.
Gregg McClymont, executive director at IFM Investors, said: “This world-first collaboration between some of the UK and Australia’s largest funds maps out how the government can accelerate the energy transition and deliver strong returns for working peoples’ retirement savings.”
The blueprint is seeking to capitalise on commitments from the new Labour government, elected in the summer, to achieve clean power for the UK by 2030 and to attract more private investment in renewable energy.
IFM said pension funds needed “the right policy settings in place” to invest more clean energy while meeting their fiduciary duties to pension scheme members”.
The principal recommendation is to reform fiscal rules so that the net worth of illiquid infrastructure investments is included in the government’s measure of public borrowing.
The blueprint argues that such a reform would encourage more public investment in the net-zero transition, “creating the conditions” for new entities like Great British Energy (GBE) and the National Wealth Fund (NWF) “to crowd in pension capital at scale”.
Other recommendations include: incorporating the government’s legally-binding emissions reduction targets in the National Planning Policy Framework and enabling rapid permitting of the repowering of wind farms; fast-tracking the deployment of renewable energy, in part through GBE, and longer-term contracts for difference; and focusing the NWF on supporting the commercial development of higher-risk emerging net-zero industries.
“Mobilising pension fund investment has the potential to create benefits for society, but quite rightly pension funds have a fiduciary duty and must only invest in their members’ best interests,” McClymont added. “There are a number of steps to unlocking this investment, but a pre-requisite is that the government should account for infrastructure assets more like a long-term investor and less like a commercial bank holding equity as loan collateral to be sold in a fire sale.”
All of the recommendations can be seen here.
Pension funds backing the blueprint
Elizabeth Fernando, CIO of the UK’s largest defined contribution pension fund NEST, said: “NEST members represent a third of the UK workforce, so why wouldn’t we want to make great returns and invest in their communities and the infrastructure they rely on? As one of the world’s largest economies and a global leader in the transition to net zero, the UK presents significant opportunities for green investment. We already have hundreds of millions of pounds invested in solar and offshore wind farms across the country, and we welcome discussions on how a scheme like NEST can further support the UK’s green transition.”
Carol Young, group CEO at USS and NWF taskforce member, said: “We’re delighted to be involved with this important blueprint and its recommendations to government. Used well, the policy options offer the opportunity of better aligning pension scheme interests and capital with the government’s net-zero ambitions.”
Graham Buntain, investment manager at NESPF, said: “NESPF is fully supportive of the recommendations within this UK energy transition blueprint, as we recognise the need to support the decarbonisation of the UK economy. With the right approach and policies, collectively we can ensure suitable returns and provide the accelerated stimulus required towards net zero, balancing all considerations.”
Nigel Peaple, chief policy counsel at PLSA, said: “Pension fund capital rightly flows to the assets its managers believe offer the best risk-adjusted returns for pension scheme members. This timely report by IFM aligns with recent PLSA policy recommendations which highlight how specific regulatory and fiscal interventions can attract pension fund investment to grow the UK economy and help the transition to net zero.”
Joe McDonnell, CIO at Border to Coast, one of a number of local government pension schemes (LGPS) ‘pools’, said: “The transition to a net-zero economy will require wholescale changes to how the economy and society functions, and demand significant capital investment. The collective scale offered by pooling enables the development of innovative solutions that not only expand partner fund access to the investment opportunities involved in decarbonisation – through the likes of the innovative £2.6bn Border to Coast Climate Opportunities strategy – but also to provide the capital needed to fund the energy transition and support global net zero goals.”
Richard Law-Deeks, CEO of LGPS Central, another LGPS pool, said: “At LGPS Central, we have been a strong supporter of the UK’s energy transition and are positive on the market outlook. It’s not only additional capital from long-term UK investors that is required, but also a step change in the UK’s planning processes and policy reforms, as outlined in this report, to attract private investment and help achieve the government’s clean energy goals.”
Deanne Stewart, CEO of Aware Super, said: “As a large global institutional investor, Aware Super can offer economies, including the UK and Australia, a valuable source of long-term and sophisticated capital to help meet net-zero emission targets. These opportunities are also a key contributor to the retirement futures of our 1.1 million members – which include nurses, teachers, police and other essential workers.
“The enormous scale of energy transition and need for private-sector capital should enable appropriate opportunities for generating strong, risk-adjusted returns for their investment portfolios, as well as strengthening the communities in which they live, work and retire.”
Kristian Fok, CEO of Cbus Super, said: “Cbus welcomes a focus on creating an investment environment that enables renewable energy projects to move forward more efficiently. By setting clear objectives and streamlining processes, there’s a compelling opportunity for long-term investors to partner with the energy sector and accelerate the deployment of renewable energy infrastructure, with the aim of securing long-term risk adjusted returns for our members while helping to meet ambitious climate targets.”
Debby Blakey, CEO of HESTA, another Australian superannuation fund, said: “HESTA is dedicated to investing 10% of our portfolio in climate solutions by 2030. Investing in opportunities arising from the global energy transition will help us aim to deliver strong long-term returns for our members. This blueprint includes a range of policy recommendations that can help encourage long-term investment from asset owners in renewable energy and innovative climate solutions.”
David Elia, CEO of Hostplus, said: “Investment in sustainable infrastructure and innovative energy solutions can help drive strong, long-term returns for our members. This blueprint provides a pathway toward ensuring the right policy settings are in place to facilitate these important opportunities for investors like Hostplus and unlock the capital required to advance the energy transition.”
