On the go: Private markets offer schemes access to transactions that will facilitate the transition to a green economy, but staying ahead of the regulatory curve is vital to achieving success within the space, the Pensions and Lifetime Savings Association’s annual conference has heard.
Stephen O’Neill, head of private markets at Nest, said that the master trust’s attitude to implementing environmental, social and governance factors in private markets stems from the “influence and control” you have as an investor, alongside the returns available.
Julien Halfon, head of pensions and corporate solutions at BNP Paribas Asset Management, one of Nest’s private credit managers, detailed how this kind of ongoing investor influence means that small elements of an investment, such as the sustainability of materials used in a new construction project, can be fed back to the investor through quantifiable metrics.
Nest has a host of “micro” objectives, alongside broader commitments, such as a halving of emissions by 2030, and its private market allocations are constructed with these ambitions in mind.
O’Neill said that, through collaboration with fund managers, forecasts are created with differing milestones and goals, with current three-year outlooks focused on improving “disclosure and scenario analysis”.
“Moving beyond that, once we have got the data and the scenario analyses, the next issue will be decarbonising ourselves,” he said.
He added that Nest’s approach to private market investments places a degree of exclusion to carbon-intensive opportunities, with “little to no high emitters”, and “very clear and tangible journeys towards reducing their emissions and reaching net zero”.
Likewise, “investments that offset carbon exposures elsewhere”, specifically around renewables and battery storage, are key tenets to Nest’s approach.
In August, Nest announced that it intends to invest 5 per cent of assets in private equity — estimated to be worth £1.5bn by the end of 2024. The mandate is part of ‘building block’ funds that make up the scheme’s default Retirement Date Funds.
But the longevity of investors’ success within private markets is dependent on being proactive when it comes to regulation, and moving beyond the “simple risk-return” calculations when incorporating ESG, Halfon explained.
O’Neill said: “At the same time, I think that regulators and policymakers need to be careful that they aren’t setting the goals, deadlines and thresholds at a level so high that, whether it’s a pension scheme, an asset manager or a corporate, it is struggling to tread water to keep up with the requirements.
“I definitely think trying to be on the front foot about all these things is the best way to make sure that you don’t get dragged under,” he added.
