Exclusive: Taiwan’s Labor Funds chief on the long-term case for climate infrastructure

Nearly four months ago, Taiwan’s Bureau of Labor Funds (BLF) launched a search for five external managers. The public tender, results of which were announced last week, was aimed at a passive mandate for listed climate transition infrastructure securities.

All in all, the allocation totalled $3bn. $600m for each manager courtesy of $400m from the Labor Pension Fund, $100m from the Labor Insurance Fund and $100m from the National Pension Insurance Fund.

NZI Transition and Climate Investment Conference | 22 October | London | Register here

The mandate is a sign of things to come – with over $274bn under management, Taiwan’s Labor funds are looking to sharpen their climate investment focus. BLF’s director general Yu-Ching Su took Net Zero Investor behind the scenes of the funds’ climate capital allocation playbook.

Climate investing

The BLF is a public pension fund manager. This, director general Su says, determines the BLF’s approach to climate investing. “Our main goal is to deliver stable long-term returns for the funds while properly managing climate-related and other sustainability risks”, she outlines.

Su affirms that the BLF views climate change as a systemic risk. “For this reason, we consider climate-related risks when we make investment plans, assess market developments and manage portfolio risks”, she adds.

In recent years, the BLF has strengthened its governance systems in line with these views. A sustainable development committee was formed in 2023. Sustainability considerations were formally included in investment rules a year later.

That inclusion, and the BLF’s wider sustainable investment policies shape its capital allocation plans. “At the strategic level, the Bureau views sustainable investing as an integral component of its overall asset allocation, rather than as a standalone investment strategy”, Su explains.

When asset allocation plans for each fund are drawn up, climate risks and opportunities are weighed alongside risk, return and liquidity. This has implications for the BLF’s investment decision making on a granular, company level.

“In recent years, we have also placed more emphasis on companies’ climate targets, decarbonisation plans and actual implementation progress”, she notes.

Listed infrastructure

Within the BLF’s wider asset allocation, alternatives play a key role. Su highlights a range of benefits – relatively low correlations with stocks or bonds, stable cash flows and portfolio resilience for instance.

This time around, to tap into transition infrastructure, the BLF opted for the passive listed asset route. The choice was intentional.

“We are interested in listed climate-transition infrastructure for three main reasons: the long-term investment characteristics of infrastructure, the growth opportunities created by the climate and energy transition, and the balance between investment returns and sustainability”, she says.

The mandate sits alongside the funds’ existing alternatives allocations – extending their reach into listed infrastructure.

Climate mandates

Alongside asset allocation, the BLF’s views on sustainable investing also shape manager selection calls. The BLF’s manager review process encompasses factors such as sustainability research, risk management, portfolio construction, firm-wide governance and stewardship.

“In addition, we have launched a number of ESG- and climate-related mandates”, Su says, “these include strategies related to ESG, climate change, sustainable real estate and climate action. The climate-transition infrastructure mandate announced this year is another step in this direction”.

Looking ahead

Looking ahead Su views the energy transition is a source of long-term risk adjusted returns for Taiwan’s public pension capital.

“The main drivers are clear: decarbonization policies, energy security, grid upgrades and rising electricity demand. AI, data centers and advanced semiconductor manufacturing are also increasing the need for reliable power and supporting infrastructure”, she outlines.

Su does,however, note a caveat – the energy transition in her view will be neither smooth nor simple. Technology shifts, policy changes and supply chain risks make this likely.

“That is why we prefer a diversified approach rather than taking concentrated positions”, she says. The transition infrastructure mandate is a case in point.

The BLF intends to follow up on energy transition trends and opportunities that arise from it. The $3bn transition infrastructure mandate was a glimpse into what that could look like – a prudent, asset allocation-aligned pursuit of climate investment opportunities.