Shiventa Sivanesan, West Midlands Pension Fund: ‘We are looking at new and emerging technologies’

Wind and solar have over the last decade evolved from experimental contenders to widely accessible, cost-competitive technologies. 

Other emerging technologies could enter a similar dynamic. Floating off-shore wind is on the cusp of an acceptable risk-return profile. Hydrogen, low carbon fuels, carbon capture and storage technologies could follow suit.

West Midlands Pension Fund is closely monitoring these markets as an important part of its net-zero investment strategy. The local government pension fund, which is part of the LGPS Central Pool is the UK's 19th largest pension fund, with £19.5 billion assets under management.

As part of its mission to “create sustainable futures for all”, the fund emphasises the link between positive environmental and social outcomes. The fund is highly conscious of its duty to generate returns to meet its members’ pensions payments, some of which won’t be due for decades.

It’s important that members have “a liveable and safe world to enjoy the benefits they have worked so hard to earn”, Shiventa Sivanesan, the fund’s assistant director of investment management and stewardship, told Net Zero Investor.

How do new and emerging technologies feed into that overall mission?

We feel it’s important that we keep an open mind and continue to look for opportunities in new and emerging technologies that support the wider energy transition, such as alternative low carbon fuels. We have mandates that are specifically focused in this area.

All this needs to be framed within the wider context of our objectives making sure we are appropriately diversifying and managing risk.

Could you tell me about a recent investment?

We have invested in a market leading specialist manager within energy infrastructure focusing on developing technologies within renewables, such as offshore wind, biomass and transmission.

We also have a mandate for a global, OECD-focused infrastructure fund that targets assets such as renewable power and low carbon fuels that drive the net zero transition.

Thanks to these mandates, we have gained exposure to attractive opportunities, such as a US-based renewable natural gas platform, which captures, purifies and transports biogas from existing organic waste streams. This gas is then sold as pipeline-quality renewable natural gas.

How do you select the right kinds of opportunities?

We're by no means experts in the complicated field of new and emerging technologies. That means it’s really important that we partner with the right people. There needs to be a strong process around picking the right managers and ensuring mandates remain fit for purpose.

Greenwashing is a real risk, of course. As an investor, you need to know what you’re getting into and ensure your partners align with your values.

This is true not just for infrastructure, but across all investments. We live in dynamic and a fast-paced environment, in which there is constant change, ranging from the political/regulatory landscape to best practice and the latest scientific evidence.

Having a flexible approach and partnering with investment managers who can shift and spot new opportunities and allocate capital accordingly is beneficial.

Could you describe your approach to proven technologies, such as wind and solar?

We’ve been investing in renewable infrastructure for decades so have had some early exposure to the sector. It’s great to see advancements in technology and efficiency within wind and solar making them more viable and scalable as investment opportunities.

Regarding wind, we have been investing in offshore and onshore through direct holdings and as part of broader mandates. These are not restricted to the UK. We have invested in wind globally, in North America and Europe but also in developing countries. For example, we recently invested in an Indian-headquartered company to support the expansion of wind energy generators.

However, we’re also very aware of increased demand on the investment side, particularly for operational assets, which can put pressure on returns. 

It’s not just about wind and solar. For example, we have an investment in a portfolio of hydropower plants in Europe with plans to further improve efficiency and scale.

There has been a lot of focus on developed markets, but emerging markets and less developed economies also have a huge role to play in the broader energy transition. This is something we will be considering as we develop our strategy.

You have committed £400m to infrastructure opportunities, which include renewable energy and energy transition assets. Could you talk me through that £400m figure? What investments have you already made and what investments are you considering?

As part of our latest strategy, we are increasing allocations to private markets and income generating assets. Our recent £400m commitment to infrastructure includes areas leading and enabling the energy transition. Our current infrastructure portfolio is over £1bn and will be £1.4bn accounting for capital that is committed and waiting to be drawn down.

We have worked closely with our pooling partners and our investment pool company, LGPS Central Ltd, to design infrastructure products that can be blended to meet our requirements.

The £400m commitment in question was made to LGPS Central Ltd’s infrastructure funds, which span core/core plus and value-add/opportunistic strategies across various geographies and sectors. LGPS Central Ltd’s net-zero ambitions align with our own, making them a natural partner in helping us achieve our targets.

For example, one of the mandates is a commitment to NextEnergy Capital’s UK ESG Fund, an SFDR-designated Article 9 fund that focuses on investing in new-build utility scale, subsidy-free solar power plants in the UK.

What factors went into the NextEnergy investment decision?

Our capital allocation decisions always start with a clear idea of what we want to achieve in terms of risk, return, liquidity and how well the investment aligns with our investment beliefs. That means balancing risk-return and liquidity needs with responsible investment beliefs, ESG integration and our climate ambition.

In this particular example, the actual implementation of the mandate was delegated to our pooling partner, LGPS Central Ltd. It is fundamental that they have a clear understanding of our objectives and we worked closely with them on this.

Investments are then selected via clear process and stringent scoring criteria with a specific focus on responsible investment and engagement. Minimum standards need to be met before a potential investment is considered.