LPs expect GPs to ‘evolve’ climate change strategies

Representatives from AlpInvest Partners, NYCRS and the UK's Nest pension fund say it is only when GPs play their part in tackling climate change that LPs can make their portfolios resilient.

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 sister title Private Equity International’s Responsible Investment Forum: Europe last week, 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.”

Responsible Investment Forum
Responsible Invest Forum: panellists said managers have their part to play to drive environmental change

“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 and has committed to brand-name secondaries funds, is at an earlier stage in its move to sustainable investing and has been actively exploring commitments to buyout and growth fund managers, said Cristian Norambuena, a senior investment officer at the pension system, who was also at the panel. Those managers include ones whose “investment strategies are related to climate change or usually back companies within the energy transition trend”.

New York City’s pension systems’ two main climate change initiatives include roughly doubling its climate change-focused investments 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 climate change, 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.”