How local government pensions are fuelling regional green investment

Councils including West Midlands, Staffordshire, Bedfordshire and Greater Manchester are making significant gains with Gresham House’s sustainability infrastructure strategy for pension funds. Here’s how the model works to create local jobs and build vital new climate-positive infrastructure to benefit constituents.  

‘We need trillions of dollars to make enough impact to fundamentally change the way we work, travel, everything… So the pension sector needs to reform.’ 

Ten minutes ago Environment Journal jumped on a call with Peter Bachmann, Managing Director of Sustainable Infrastructure at Gresham House, a company playing a pivotal role in financing major green industry projects across the UK. Profitable infrastructure and assets are being funded through the creation of climate-friendly investment portfolios for pension funds, and local authorities are out in front. 

‘We generally deal with local government pension scheme investors in our strategies because they are in a position to take a longer term view. A lot of other pension funds look for liquid assets – equities, bonds. These are fine, but they don’t build new projects from scratch. They don’t provide long term solutions,’ Bachmann explains.  

‘Managers we work with need to have a long enough time horizon [for investments], so prepare to invest over seven, eight, 10 or 12 years. This means investment in larger scale projects,’ he continues. ‘We’ve created thousands of new jobs, and the portfolio turns over more than £60million as of last year. We’re expecting that to be significantly higher this time round.’ 

Pointing to Greater Manchester, Bachmann explains the combined authority’s pension fund also facilitates greater investment in green infrastructure on a local level. Alongside a main fund managed by Gresham, a so-called ‘sidecar investment vehicle’ focuses capital on assets within the North West.

Another example is Staffordshire County Council, which has invested in a local vertical farm through Gresham House’s sustainable infrastructure-aligned pension portfolios. ‘We started by building a farm, which is effectively a large, commercial prototype for us. We proved it worked, which took three years, and now have started building farm two, which is the world’s largest, fully-automated vertical farm,’ says Bachmann.

‘In simple terms, we’re taking good thematic ideas, finding good teams involved, then building them up almost from scratch and scaling them to do some very cool things,’ he continues. ‘Typically, we target deals around £50million, as there’s a relative lack of capital and expertise transactioning around that mark. We get in early so our peers can join. We create the platforms, and then build with a view of getting businesses to billion pound-plus type values.’ 

Although Bachmann says the pensions sector as a whole is not moving in this direction fast enough, he’s quick to point out one size does not fit all. In Australia and Canada, for instance, infrastructure accounts for around 30% of investment by pension funds. Could regulatory reform in the UK lead to a similar situation, affording private sector managers the long-term view enjoyed by the public sector?

‘Some people really care about social agenda issues, some people care more about environment. I think having a clear lens as to what matters to the organisation at a policy, macro level is important,’ he replies when we ask what advice he would give to local authorities looking for more impactful investment opportunities. ‘I think once you’ve got down to that level next comes knowing any particular areas that resonate best with your membership, or that complement what you’re doing elsewhere.’

In many ways, the model is almost circular. With an investment sidecar model prioritising local investments, every public servant in the region is essentially supporting green job creation in their area over many years, just by having a pension. In turn, the success of any new businesses these investments create contributes to pension payments for the investors down the line. The concept makes sense financially, but Bachmann also believes there’s a growing moral driver, too. 

‘I think there is a dawning understanding that you need a planet people want to retire into, and for that you have to do more. I could frighten you with stats, but basically not enough is happening fast enough… and I think most pension trustees see they need to deploy their capital to try and address some of these solutions,’ Bachmann tells us. ‘And they can generate a great return, so that’s very attractive. One of our [investment vehicles] is running at double the original target IRR. 

‘Local government pension schemes also love us for impact. They can quantify things exactly because it has impact – for every £100million invested, we save 10% on overall daily water usage, for example. They can extrapolate this into reporting, and tell members how money has been put to good use. I think the wider pensions market is still too focused on liquid assets,’ he continues. ‘A cherry on the cake is like what we did with West Midlands, with staff coming out to the vertical farm to see their money come to life.’

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https://environmentjournal.online/features-opinion/inside-cheshire-easts-lower-carbon-highway-service/

https://environmentjournal.online/features-opinion/britain-bankrupt-net-zero/

Images: Fischer Farms vertical agriculture at Burton-On-Trent (C) Gresham House