UK minister mulls ‘pension wealth fund’ to help schemes allocate to green infra in emerging markets

Church of England’s Adam Matthews suggests ‘the interested and the willing’ should meet to discuss the idea in the new year

The UK’s Pension Minister wants the country to establish “a kind of sovereign wealth fund” to help pension funds invest in green infrastructure in emerging markets.

Speaking on a podcast run by Church of England Pension Board Chief Responsible Investment Officer, Adam Matthews, and Lothian Pension Fund’s Head of Responsible Investment, David Hickey, Guy Opperman proposed that the UK create a “pension wealth fund”, to which schemes could commit capital.

Opperman said that UK pension schemes “are very keen to get into the space, but lack the capacity to do it themselves”. The government could facilitate or create a pooled fund which would allow schemes to combine their assets in order to invest in emerging markets infrastructure and illiquid investments, potentially alongside larger institutional investors or public investments. 

He did not provide further details on his proposals, and the Department for Work and Pensions (DWP) declined to comment further, but Opperman said he had been in discussions with “certain African representatives” who were looking to ways to facilitate overseas investment “in a safe and secure way that supports the country but also provides investment return”.

Both Matthews and Hickey were receptive to the idea, with Matthews describing it as a “really exciting proposition” and suggesting that the DWP convene “a meeting of the interested and the willing” in the new year.

The UN-backed Net Zero Asset Owner Alliance recently released a report urging development banks to “take on much higher risks” to allow members to make climate-aligned investments in emerging markets. The group, whose members include major pension funds like La Caisse de dépôt et placement du Québec, CalPERS and Alecta, identified blended finance as a key measure to mobilising the $1trn it estimates will be needed annually to build Net Zero emerging economies.  

Last week, Mark Mansley, the former Chief Investment Officer of UK pension pool Brunel Pension Partnership, told RI that investors needed to “rethink artificial barriers” around asset classes to help channel money to green assets in emerging markets.

 “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.”  

On last week’s podcast, Lothian’s Hickey also raised concerns around the reporting burden for pension schemes. “We’re finding a lot of our time that would be spent on doing the actual activities of responsible investment being taken over by an awful lot of new reporting and it set many of the leaders in the space back a little this year”, he said.

The UK brought in mandatory TCFD reporting for the largest schemes this year, with plans to expand the scope of regulations to smaller schemes in the future. While the proposals were generally welcomed, the trustee for FTSE100 chemical company Johnson Matthey’s pension scheme described them as “autocratic” and said they could lead to trustee departures. The CEO of the BT Pension Scheme, the UK’s largest corporate scheme, said that its stewardship reporting was “not helpful at all” to its members.

In response, Opperman said that while it would be wrong to pretend that the new regulations had not added a greater burden for schemes, the UK gained a “healthy and competitive” advantage from being the first country in the world to introduce mandatory TCFD reporting.