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Navigating the climate crisis – why it pays to look ahead in pension investments

Diandra Soobiah, Head of Responsible Investment at Nest (Photo: Alex Griffiths)
Diandra Soobiah, Head of Responsible Investment at Nest (Photo: Alex Griffiths)

 

When pension schemes invest your money, it’s key we don’t get too distracted by short termism.

 

While it’s important to know what’s happening right now in the global economy, it’s more important that as long-term investors, looking after your money for potentially 30, 40, perhaps 50 years, we think what types of investments will help provide steady returns for decades to come.

 

Investing in something that will perform strongly for a few years but then falter is not what we want.

 

Instead, we want to know where economies are heading, how they’re evolving, and what type of companies and industries are likely to flourish. We also want to know about growing risks that could affect how companies operate.

 

One risk we’re all aware of is the growing impact of climate change. We know it presents a real threat to our way of life, but there’s also a clear financial risk if we put our members’ money into companies or industries not preparing for the low-carbon economy.

 

It’s why many global investors, such as Nest, want to support the energy of the future by investing directly into green energy sources.

 

These present fantastic opportunities. We know the importance and demand for green, renewable energy sites will rise as countries and corporations step up their activities to reduce greenhouse gas emissions.

Take the UK. Last year the government set the target for us to become a net zero emitter, starting by reducing our total carbon emissions by at least 68 per cent by 2030. Individuals also want to do their part.

 

With this political and consumer pressure, the creation of renewable sources of energy, such as solar and wind farms, should only increase.

 

Being able to directly invest into green infrastructure really excites us, but like any investment selecting the right projects still requires careful consideration.

 

That’s why Nest recently appointed Octopus Renewables, a company with expertise and knowledge that comes from managing hundreds of energy assets, to help us navigate this growing industry. Some of their previous investments include rooftop solar assets in Manchester and Birmingham, and wind farms in South Lanarkshire and Northamptonshire.

 

When deciding whether to invest, they have some key questions in mind:

  • Energy is highly regulated, so is the new plant being built in stable political and regulatory environments?
  • Are we confident in the construction of the plant so it’ll be able to produce electricity? No production means no revenue.
  • Are we backing a range of renewable energy technologies rather than putting all our eggs in one basket?
  • Will the plant be designed and operated by competent people and businesses, in full accordance with health and safety regulations?
  • And will the actual price received for each unit of energy generated be sufficient to justify our investment?

 

This last one is key. There’s always a risk of changing energy prices so what assurances can we receive that we’ll get the returns we want? It’s a core risk of any portfolio featuring energy-generating plants.

 

We want to help tackle climate change and bring about greater energy security, but we don’t lose focus that we’re investing our members’ money to help boost their incomes in retirement. Fortunately, the evidence shows investing this way into green energy can be very lucrative.

 

As the impact of climate change on our lives will only grow, investors need to be positioning themselves on the right side of history, ensuring we move with the change rather than being left behind.

 

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