Environment Agency targets energy efficiency, renewables, forestry in €300m real assets mandate

Leading RI pension fund seeking expressions of interest from managers

The £1.9bn (€2.4bn) Environment Agency Pension Fund is seeking expressions of interest from asset managers to run up to £250m (€300m) in ‘real assets’ – property, forestry/timberland, farmland/agricultural assets and infrastructure.

The fund says it prefers to invest in real assets like energy efficient buildings, renewable energy projects, public transport, water treatment facilities, eco-friendly farming, and sustainable forestry. It is envisaged that the portfolio will consist primarily of managed funds investing in sustainable property (c.£90m), infrastructure (c.£70m), forestry (c.£35m) and farmland (c.£35m).

Managers are expected to run the assets in accordance with its Responsible Investment and Environmental Overlay Strategies and environmental, social and governance (ESG) policies. The contracts will be for five years with extensions possible.

The fund would also prefer the appointed managers to show commitment to responsible investment as shown by, for example, being a signatory to the UN Principles for Responsible Investment (PRI), “support for other responsible investment initiatives in relation to investments in real assets and/or allocation of resources to responsible investment”.
“You will be expected to assess the environmental impact of a proposed fund’s investment strategy and thecapability of its management to assess the environmental impact/management of the underlying investments,” the fund says in its tender. It doesn’t want to invest in areas of unacceptable environmental risk such as high carbon impact sectors (coal power generation, road, air travel), or high environmental impact investments (oil pipelines, refineries, chemical facilities, deforestation).

Howard Pearce, Head of the EA Pension Fund, said: “The EAPF places high priority on long term responsible investment. We currently have c. £250m or 13% of our fund invested in the “green” economy and this new mandate will take us towards our target of 25% by 2015.”

The Bristol-based fund is seeking average returns of 4-6% above inflation (net of fees and costs), a broad geographic and sector exposure with variable maturity and vintage. It also requires limited operational risk and economic exposure.

The underlying investments are expected to be long term (over five years) and to have limited liquidity.

It is specifically not seeking exposure to commodities, gold, derivatives, listed equities and equity funds, private equity or hedge funds.

Interested managers must have a minimum of £1bn under management.

Up to 15 firms will be invited to tender and the deadline for responses is November 30.