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Towers Watson urges “beliefs-led” approach for cleantech

Change of tack to get funds allocating to new sector

Investment consultant Towers Watson is urging its corporate pension fund clients to take a “beliefs-led” approach to investing in the cleantech sector.
If clients demonstrate “consensus and conviction” that climate change investments can bring returns then the firm will recommend an allocation of assets to the area, said senior consultant Emma Hunt. She saw parallels with initial emerging market investments.
She said: “It’s a different form of an asset allocation model from what we’ve seen so far. This is beliefs-led investment. It’s going to help cleantech investment and help pension funds make decisions in these particular areas.
“Indeed within our own asset allocation models, we’re moving much more towards these beliefs-led types of assumptions to drive our decision making processes for our model portfolios and our advice giving.”
Hunt, speaking at the Clean Investor conference in London, said there are several barriers for pension funds to invest in cleantech. It’s a new investment area, with a lack of good quality backward looking data. And cleantech can be confused with socially responsible investing, which is a turn off for some clients.
Hunt said the firm is trialling the concept at two funds in Australia, two in the UK and one in Continental Europe.She said the firm is not confident yet in climate change funds’ data as a way of forecasting returns and correlations and would not be confident about inputting it into its asset allocation models. Few pension funds, with the exception of some government sponsored ones, were currently allocating to assets to cleantech, Hunt observed.
Alan MacDougall, managing director of advisory firm PIRC, in a question from the floor, blamed consultants for “occupational blindness” on cleantech and called for the launch of an independent cleantech platform for investors and product providers.
Hunt responded by saying that Towers Watson has looked at 60-70 cleantech funds in the last year and is actively following and researching about 30-40.
But there hasn’t been much traction from clients, she said. “We can’t move too far ahead of our clients otherwise we’ll be researching funds that just aren’t being invested but at the same time you need to stimulate demand.”
“One of the reasons we’re trying a beliefs–led investment approach to our asset allocation is that the traditional methods just aren’t working very well, we’re not getting that engagement and we don’t really understand why.”