UK pension schemes search out forestry investments

Nest and Cushon are jointly seeking asset management partners to develop new forestry investment strategies to address the pressures of climate change for two UK pension schemes with over £26 billion in assets.

By allocating funds to forestry projects, both pension schemes offset environmentally harmful emissions from other investments and become more attractive as the price of carbon rises, reflecting the increasing cost of pollution from human activities. I believe it will bring significant benefits.

The scheme has secured an initial £600m for co-investment mandates and by joining forces aims to secure lower fees with third party managers.This kind of partnership approach has already been successfully adopted by some of Australia’s largest pension funds.

As the UK’s largest workplace pension scheme, Nest currently manages around £25 billion on behalf of 10 million members and plans to invest around 2% of its assets in forestry and other natural capital projects .

“We want to explore how much we can actually put into Timberland on an annual basis and how much it will cost,” said Mark Fawcett, chief investment officer at Nest.

With around £900m of assets by the end of the year, Cushon expects to be able to gradually increase its allocation to natural capital strategies to 5% of its assets, including its controversial carbon credits. increase. He is seeking regulatory approval to launch by the end of the first quarter, a new Schroders he has already agreed to act as a seed investor in a multi-asset climate fund.

“Climate change represents a significant risk to the future interests of our members. Pension providers have the opportunity to realize environmentally and financially sustainable investments thanks to natural capital. said Julius Pursaill, Strategist at Cushon.

Both pension schemes say they avoid forestry projects whose logging contributes to deforestation. For example, forests in tropical regions such as the Amazon have high potential for carbon sequestration, but are also plagued by climate change impacts as well as local political and fire risks.

Leading asset managers offering forestry management as an option to UK clients include Abrdn, Axa Investment Managers, Gresham House, JPMorgan, M&G and Nuveen. Last year, Schroders launched Akaria Natural Capital, which plans to invest in climate projects in Asia in partnership with Conservation International, a US non-profit environmental organization.

Carbon credit schemes based on forest projects as a way to offset pollutant emissions have proliferated in recent years, but are notoriously unregulated and plagued with problems with their quality and verification.

One of the pitfalls of carbon credit schemes is that projects do not capture as much carbon as they claim. Accurately tracking trees, often in remote locations, calculating carbon accumulation, tree health, and distinguishing between species that accumulate carbon at different rates is one of the practical problems.

The influential Science Based Targets initiative prohibits offsets from counting toward a company’s net-zero target.

But the UK has the potential to attract investment in a nascent carbon offset market that could provide a stable and guaranteed revenue stream for landowners, said a policy fellow at the Grantham Climate Change Institute at the London School of Economics. One Brendan Curran said:

“Validation and monitoring of carbon credit projects created by UK forestry projects should be easier than in many emerging markets,” he said.

The UK government has committed to meeting a target of 30,000 hectares of new forest plantations per year by 2025, with 67,333 hectares of forest carbon projects registered at the end of December. It is estimated that these plantations could sequester approximately 21.7 million tons of carbon. This is just a fraction of what the UK needs to reach her net zero emissions target by 2050 from 1990 levels.

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