IPE ESG Briefing: Member preferences, buying into nature investment

European Commission president Ursula von der Leyen today unveiled who she would like to have in her cabinet for its next political term.

One of the items on the next Commission’s agenda is IORP II, with a legislative proposal on a revision of the EU pension fund legislation expected next year. This could include wording around requiring pension funds to take members’ sustainability preferences into account.

In the Netherlands, the president of the Dutch financial regulator AFM recently said pension funds should be required to base their investment policies on members’ wishes. The pension fund for the retail sector is already on a second, more ground-breaking attempt to democratise its investment process, having brought together 44 members in a bid to thrash out their sustainability preferences.

Separately, there’s been an interesting development in the UK in the form of a local authority pension fund taking a 25% stake in an asset manager seeking to provide nature-based infrastructure solutions to environmental challenges such as flooding and drought.

West Yorkshire Pension Fund, with approximately £20bn in assets under management, has the largest in-house investment team within the underlying local government pension scheme sector. Its investment in Rebalance Earth, in excess of £5m, is said to be one of the most significant seed investments in the UK.

Rebalance Earth, which was co-founded by entrepreneurial industry veteran Rob Gardner, has as its strategy to make a business case for companies to pay for nature restoration in their local areas on the basis of “Nature-as-a-Service” contracts.

In bad news for climate change, companies have been retreating from climate targets and projects. In a recent newsletter, We Don’t Have Time, a Swedish media platform for climate action, gave the examples of Volvo Cars giving up its global plans to sell only electric cars by 2030, and battery manufacturer Northvolt deciding to pause part of its production and cut jobs. It said this wasn’t happening because of a lack of ambition, but due to a lack of political will and money.

Separately, there is however also a question about whether existing corporate climate standards do enough to recognise some of the most important actions that companies can take to mitigate climate change.

In a new paper, researchers at University of Oxford and the Exponential Roadmap Initiative, a Swedish advocacy organisation, argue that a focus on emissions reductions within the value chain is critical but insufficient for recognising and rewarding the contributions companies can make to positive change. They argue there is a need for an additional reporting track to capture the impact of actions companies can take in three “spheres of influence” – product power, purchasing power and political power.

Items to note:

• The IPE Conference & Awards 2024 will take place 2-3 December 2024 at the Cubex Centre and Žofín Palace in Prague. Sign up now!

Susanna Rust

ESG Editor