UK Pensions Back Rapid Action on Green Assets
The PLSA and industry members support government plan to plug investment gaps; call for focus on blended finance and LGPS.
The Pensions and Lifetime Savings Association (PLSA) has led fresh calls on the UK government to offer policy and regulatory certainty to improve the country’s attractiveness to investors – an idea supported by the pensions sector at large.
In a report released earlier this week, the PLSA issued recommendations to help direct a greater portion of retirement savings capital across four “promising” growth areas: climate; infrastructure; life sciences and AI; and social and community growth funds.
It follows the announcement last month by the UK’s new Labour government of a comprehensive pensions review.
“In terms of the basis for selection, for climate change, infrastructure and social and community, it’s relatively straightforward to identify investment gaps and [needs],” Justin Wray, Head of Defined Benefit, Local Government Pension Schemes (LGPS) and Investment at the PLSA, told ESG Investor.
The PLSA represents pension schemes that collectively provide a retirement income to over 30 million people in the UK, and invest more than £1.3 trillion (US$1.7 trillion) nationally and abroad. An estimated £1 trillion of pension fund capital is currently allocated to UK-domiciled assets – approximately half of the country’s total £2 trillion retirement savings sector.
But the PLSA says the government needs to take action to stimulate even greater financing of UK assets by pension funds.
The call for policy and regulatory certainty aims to improve the UK’s appeal versus globally, building a long-term strategy for investment and growth. The association recommended offering targeted fiscal incentives to make UK growth assets more attractive than competing assets from other countries.
Political uncertainty and low economic growth in recent years have negatively impacted the UK’s status as a place for investment compared to other locations globally.
“The PLSA’s recommendations could significantly reshape the investment landscape for pension funds and institutional investors in the UK, fostering a more conducive environment for investments in domestic growth sectors,” said Charlotte O’Leary, CEO at Pensions for Purpose.
Immediate action
Wray stressed the importance of the government taking action rapidly on the PLSA’s recommendations, adding that it should listen to the voice of asset owners – including pension funds – and be aware of their needs.
“These are long-term investment decisions, so if you want to see the consequences, you need to get going pretty quickly,” he said. “In most cases, planning reform is needed to encourage investment, certainly for climate and infrastructure, but also social community and life sciences and AI.”
James Alexander, CEO of the UK Sustainable Investment and Finance Association, also underlined that making the UK’s green technologies and industries more investable was the best way to get pension funds to invest in the country and drive growth.
“We welcome the PLSA report’s identification of policies such as planning reforms, improved grid connectivity, and closing the skills gap for the roll out of heat pumps in the UK,” he said. “[These are] effective ways to remove barriers to investment in the UK’s sustainable industries.”
A wider range of investment routes with different risk and reward characteristics, greater certainty on the delivery of major projects, and a reduced regulatory burden could all make UK projects more attractive for investment, suggested Richard Law-Deeks, CEO at LGPS Central. “Most UK pension funds would like to invest in the UK – and indeed do so when good opportunities arise,” he said.
Building out blended finance
As part of the its recommendations, the PLSA requested more transparency over the government’s approach to blended finance, including which blended finance structures would make sectors more investable.
According to Wray, this autumn the PLSA is working on investment incentives – with a significant focus on blended finance.
The UK has been increasingly more open to the idea of blended finance – including through the National Wealth Fund unveiled last month, which will combine public and private investment in emerging tech.
“Blended finance could help de-risk investments in areas like climate change and infrastructure, making them more attractive to pension funds,” said O’Leary. “Structures that combine public and private capital, such as the long-term asset funds mentioned in the report, could play a key role in this regard. The ability to offer downside protection or first-loss capital through government-backed initiatives would be instrumental in making these sectors more investable.”
The benefits defined from collaboration through public-private partnerships and government-backed guarantees could lower investment risks in emerging sectors and encourage growth, Law-Deeks suggested.
However, while O’Leary noted the PLSA’s recommendations for regulatory support are comprehensive, the potential for public-private partnerships in sectors like social housing is not fully explored. “Pension fund capital could be leveraged more effectively if the regulatory environment was adjusted to encourage collaboration,” she said.
LGPS potential
Earlier this week, Local Pensions Partnership Investments (LPPI) also called on the government to make it easier for LGPS pools to invest in the UK, and help the country “realise its full potential”.
UK Chancellor Rachel Reeves said the review would focus on unlocking the potential of the LGPS sector through greater consolidation. However, experts at the LPPI – one of the UK’s eight LGPS investment pools – have said reforms will only be successful if systemic barriers are also addressed.
The PLSA’s report identified the LGPS as the UK’s largest funded public sector scheme, managing more than £400 billion of assets for six million members. The association noted its combined potential to invest in growth assets, as well as its strong historical precedent for successful private market investments.
“The consolidation of the LGPS into one or a few super pension schemes could act as a powerful catalyst for realising the report’s goals,” said O’Leary. “It would enable more significant investments in critical growth sectors and potentially offer better returns for pension members, all while supporting the broader UK economy.”
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