The Avon Pension Fund’s investment strategy must work hard to generate good returns without taking too much risk in order to fund the pensions accruing well into the future, and keep members and employers contributions as affordable as possible.
This is a very difficult balancing act to achieve and no more so than in these volatile economic times. As a long term investor, the Fund recognises climate change and the shift to the low carbon economy as one of the risks to the value of the assets in the investment portfolio and will seek ways to mitigate that risk where it can afford to do so also recognising that not all risk is negative, as risk can also create investment opportunities.
One of the major opportunities available in the shift to the low carbon economy is in renewable energy. In 2017 the Fund made a commitment to invest in renewable energy and has now begun deploying this capital by committing £115m or 2.5% of its assets to Renewable Infrastructure funds through its partnership with Brunel Pension Partnership.
In addition to the investment in renewables, the Fund has taken steps to materially reduce its carbon exposure by investing around £450m of its assets in a global equity low carbon fund and extending its UK focussed socially responsible investment portfolio to cover global stocks. As a result in March 2018, the Fund’s equity holdings had a 28% lower carbon emissions-to-revenues footprint than the equivalent equity index.
This move into the Renewable Infrastructure sector is testament to how Avon Pension Fund is committed to delivering on its investment principles. Investments that measurably help to reduce carbon exposure, promote clean energy sources and contribute to social and environmental well-being now represent over 15% of Fund’s £4.6bn of assets.
The Avon Pension Fund is a member of the Brunel Pension Partnership, a pool of LGPS funds through which its assets are now managed. By tapping Brunel’s internal expertise and shared investment values, Avon’s commitment will help finance projects across a wide range of renewable infrastructure including wind, solar, electricity storage and social infrastructure projects. One such investment is the £14m invested in the NTR Renewable Energy Income Fund II. The fund, run by a well-regarded team with an impressive track record, has a strong focus on on-shore wind and solar.
“Avon’s investments such as NTR provide prospects of attractive investment returns whilst supporting a transition to a low carbon economy. Delivering sustainable financial returns is core to Brunel’s approach” says Faith Ward, Brunel’s Chief Responsible Investment Officer. Brunel’s Responsible Investment approach extends to all the assets at Brunel.