The former Chief Investment Officer at UK pension heavyweight Brunel is calling on institutional investors to publish ‘climate capital commitments’ instead of fixating on portfolio decarbonisation.
Mark Mansley, who helped lead Brunel Pension Partnership – the investment body running £30bn on behalf of local government pension schemes – for three years until 2020, told RI that “investors in the responsible investment community sometimes seem to lose track of the fact that they’re investors”.
“All the talk about Net Zero is great, but achieving that at portfolio level doesn’t mean a huge amount – it only works if it happens globally, and that means allocating capital.”
Mansley said a ‘climate capital commitment’ alongside a Net Zero pledge would help large investors focus on investment flows rather than quantifying climate performance within portfolios.
“One of the problems investors have is that they often work in siloes based on asset classes. And then you take something like emerging markets infrastructure, which is crucial for reaching Net Zero, and it doesn’t fit neatly into one of those siloes – it’s often seen as too high risk for a standard infrastructure allocation, but it’s not the right profile for a traditionally higher-risk allocation like private equity.”
He said that a ‘climate capital commitment’ approach would encourage investors to “rethink those artificial barriers” and identify any areas that are truly problematic. Those can be “fed in to the growing political conversation” about meeting Net Zero, and governments can be asked to intervene.
Today, the UN-backed Asset Owner Alliance published a report on the role of development banks in enabling investors to allocate to the climate transition in emerging markets by de-risking investments.
Mansley, who was Chief Investment Officer at the UK’s Environment Agency Pension Fund for more than six years before it was absorbed into Brunel, said that shifting the focus from emissions reductions to capital allocation would also create better engagement practices.
“If you’re engaging with a company on their [climate] transition plans, you need to start asking them to account for their capital expenditure – how are they funding it and how much will it cost? – because that’s what really matters, and it gives investors the legitimacy to choose which companies within sectors they want to stay invested in”.
He added that the current focus on pushing companies for more climate disclosures could become unhelpful. “Sometimes it feels like the whole industry that has grown up around responsible investment – of footprinting and disclosure – is a distraction. Investing has always been about making decisions without perfect information. We’ve had company accounts for hundreds of years and they’re still not perfect. It would be good if carbon information could get better, but we don’t need some really expensive consultants to measure it or tell us what to do – we already know we need to invest in low-carbon technologies, so let’s just get on and do it.”