The Universities Superannuation Scheme expects to invest up to £2.5 billion ($3.4 billion; €3 billion) in decarbonisation technologies and services in private markets over the next five years. It has allocated £500 million to invest in 2022 and expects to deploy the same amount for each of the following four years, a spokesperson told New Private Markets.
USS, a UK pension fund worth £81 billion, is seeking climate-focused funds, generalist funds and “fund managers focused on earlier stage energy transition and climate change opportunities where technologies are less proven”, a USS spokesperson wrote to New Private Markets.
The allocation has a global mandate and will be deployed across sectors and industries, including renewable energy infrastructure. USS has already made three investments from the allocation strategy, one of which is a commitment to TPG’s Rise Climate fund. The pension did not disclose details about the other two investments. USS will also pursue direct investments as buyouts of cashflow-generating companies tackling climate change and contributing to the energy transition.
USS is not alone in using private markets to pursue a decarbonisation agenda: $183 billion has either been recently raised or currently being raised by private markets managers to push the transition to a low-carbon economy, research from placement agent Campbell Lutyens shows. And a number of investors have created dedicated climate impact buckets separate from their main private markets strategies, including the UK’s Environment Agency Pension Fund, New Private Markets previously reported.
USS’s allocation supports the pension fund’s target to reach net-zero carbon emissions generated by its portfolio by 2050, the pension said this morning. USS has also announced its interim targets towards its net-zero goal; it has committed to reducing carbon emissions generated by its portfolio by 25 percent by 2025 and 50 percent by 2030, from its 2019 baseline.
“The Sustainable Growth Mandate will not only support USS’s net-zero ambition but will also enable members to reap the benefits of investing in a broader range of attractive companies who stand to benefit from the global energy transition,” said Mike Powell, head of USS’s private markets group.
It’s unusual for an investor to roll net-zero targets and climate impact allocations into one announcement: climate impact allocations contribute to a global transition to a low-carbon economy, but do not directly reduce an investment portfolio’s own carbon footprint.
But the spokesperson said USS’s climate allocation will create a “diversified portfolio of decarbonisation interests”; which will include carbon sinks such as forestry and carbon capture and storage technologies. Carbon sinks can offset an investor’s carbon footprint and help them achieve net-zero carbon emissions across their portfolio.
USS’s investment director for private equity, Teia Merring, previously discussed the pension’s plans to create a separate climate allocation at PEI Media’s Women in Private Markets Summit in December last year. “We will try to help issues across the climate spectrum, especially investments in sustainable infrastructure – solar or windmills – or growth investments into new technologies like electric vehicles,” Merring said at the time.
“These targets are a statement of intent, and give us important staging posts against which to assess our progress,” said Bill Galvin, group chief executive of USS, in today’s announcement.
“We hope that these announcements give confidence to our members and to other stakeholders of the seriousness with which we are treating decarbonisation. This is not an easy task, and along with the rest of the industry we will face challenges in the early years before the data quality improves.”
USS also has a separate renewable energy strategy for wind and solar energy generation infrastructure, which had assets worth £1.2 billion as of March 2021.