Outlook on Natural Capital Investments: Insights from Brunel's Alvarez-Dominguez
Brunel Pension Partnership Expands Investment Strategy Beyond Renewables
The UK's Brunel Pension Partnership, a £35.9bn local government pension pool based in Bristol, is broadening its investment strategy to include natural capital and transition assets beyond renewable energy. This move is part of a growing trend among UK public pension funds to meet environmental and ESG objectives [1][4].
One of the key areas of focus for Brunel is natural capital, with investments generating returns from environmental outcomes alongside financial returns. This strategy aligns with the pension fund's aim to diversify and grow its portfolio in a way that supports environmental goals [1][4].
Investments in natural capital assets, such as forests, wetlands, and soil carbon, offer a promising avenue for long-term growth. Brunel has already made significant strides in this area, having been an early investor in Aurora, a US forestry credits firm [5]. The investment in Aurora, backed by 600,000 hectares of mixed hardwood with over 120 species of trees, was made through one of Brunel's infrastructure funds [5].
Microsoft has recently entered into a 10-year carbon removal deal with Aurora, indicating the growing demand for carbon removal services from large corporations with net zero targets [3]. This demand could potentially boost the value of carbon credits, making them an important tool for enhancing value and supporting climate transition in Brunel's portfolio. However, direct statements from Brunel Pension Partnership on carbon credit allocations were not found in the search results [2].
Brunel's infrastructure strategies have a significant allocation to renewables, reflecting strong demand from partner funds. However, the returns on renewable energy investments have been too low, and assets with 10-year PPA agreements are being priced similarly to 20-year deals [6]. This has led to concerns about concentration risk due to the scale of exposure to renewables.
To address these concerns, Brunel's team is planning a new mandate separate from infrastructure for natural capital. This move suggests there may yet be a new role for nature in the pension portfolios of tomorrow [7]. In addition to Aurora, Brunel has also invested in Clear Frontier Meadowlark I, a first-time agriculture fund, which includes long-term land leases to family farmers willing to transition to organic [8]. The aim was to reduce harvesting by 50% and generate additional revenue through carbon credits.
Jaime Alvarez-Dominguez, from Brunel's investment team, will speak at a Climate Solution Summit on 11 September. He remains optimistic about the broader outlook for carbon markets, driven in part by demand from large corporates with net zero targets [2]. The UK government's push to consolidate LGPS assets, potentially dissolving Brunel or merging it into another pool, may impact Brunel's investment strategies in the future [1].
In conclusion, Brunel is expanding its investment strategy to include natural capital and transition assets beyond renewables. This move is consistent with broader trends among UK local government pension schemes aiming for diversified, climate-aligned portfolios that go beyond traditional renewables [1][2]. The role of carbon credits in Brunel's portfolio remains unclear, but given the connection between natural capital investments and carbon sequestration, carbon credits likely play a complementary role in monetizing the environmental benefits of these assets.
[1] https://www.ft.com/content/31f807c4-36f8-440b-99f5-15d918833388 [2] https://www.ft.com/content/18d3d202-8445-44d4-a024-93f87a751156 [3] https://www.reuters.com/business/environment/microsoft-inks-10-year-deal-us-forestry-credits-firm-aurora-2021-09-09/ [4] https://www.brunelpensionpartnership.org/sustainability/ [5] https://www.ft.com/content/4704e71a-f87d-4e0d-b34d-720a0e25b97d [6] https://www.ft.com/content/d7626074-4378-4b8e-9e1d-817c801d37e4 [7] https://www.ft.com/content/6b0e820f-38a3-45f5-9f24-7e592e5f488a [8] https://www.brunelpensionpartnership.org/news/brunel-pension-partnership-invests-in-clear-frontier-meadowlark-i/
- Brunel Pension Partnership's investment strategy now extends beyond renewable energy to include natural capital and transition assets, aligning with the aim to yield financial returns as well as environmental outcomes in support of their ESG objectives.
- Investments in natural capital assets, such as forests, wetlands, and soil carbon, have the potential to offer long-term growth and are an important tool for enhancing value and supporting climate transition in Brunel's portfolio.
- Brunel has made strategic investments in companies like Aurora, a US forestry credits firm, and Clear Frontier Meadowlark I, an agriculture fund, diversifying its portfolio beyond traditional renewables and reflecting the pension fund's aspiration for a climate-aligned portfolio.
