Responsible Investment Forum: LPs expect GPs to ‘evolve’ climate change strategies

Asset owners that have in recent years refocused and calibrated their asset allocation to drive environmental change expect their managers to play their part too, a panel has heard.

Speaking at PEI’s Responsible Investment Forum: Europe, Diandra Soobiah, head of responsible investment at Nest Corporation, a UK defined contribution pension scheme, said: “Fund managers are a really important way for us to achieve our climate change policy.”

“We are working very closely with our fund managers in setting out targets and expectations on how we expect them to evolve over time,” Soobiah added. “We are asking them to think about how to evolve their strategies.”

Covid-19 has shown that investors need to continue that preparation around climate change and make their portfolios resilient and operational in the long term, Soobiah said.

Nest developed a climate change investment policy early this year, setting out its goal to become net zero by 2050 at the latest, with a view to halving carbon emissions by 2030.

The Office of New York City Comptroller, which manages $229 billion of assets across five public pension funds, may be at an earlier stage in its move to sustainable investing, but it has already been actively exploring commitments to buyout and growth fund managers whose “investment strategies are related to climate change or usually back companies within the energy transition trend”, said Cristian Norambuena, a senior investment officer at the pension system, who was also at the panel.

New York city pension system’s two main climate change initiatives include doubling its investment in climate change solutions from around $2 billion to $4 billion across public and private assets, and evaluating divestments in fossil fuel related investments, Norambuena added. Along with energy transition-focused GPs in its $14 billion PE portfolio, the investor is also spending a lot of time on impact funds dedicated not just to climate change but also financial inclusion and healthcare, as well as real assets funds, he said.

Maaike van der Schoot, a responsible investment officer at AlpInvest Partners, added that “asset managers have a big role to play” in moving the PE industry forward on climate change.

Van der Schoot said: “2030 seems far if you are a PE manager investing across three to five years … but if we can make people realise that this means they will be exiting in an environment where more governments are taking steps to meet those [climate change] goals, then that can affect their valuations at the time of exit.”