The Environment Agency Pension Fund (EAPF), part of the UK’s Local Government Pension Scheme (LGPS), is open to adopting the use of biodiversity credits in a bid to monetise ecosystem regeneration as part of its focus on the natural capital sector.
In its recently published responsible investment policy, the EAPF set out its natural capital sector strategy, saying it feels encouraged to adopt biodiversity credits because of new regulations, such as the UK’s Environment Act 2021, which has given investors more certainty by crafting a regulated market.
Monetise restoration
According to the new policy, the fund will continue to invest in more mature sectors such as sustainable forestry and agriculture, while also pursuing returns from the restoration of ecosystems such as peatland and grasslands, through biodiversity credits.
“We want integrity to be at the heart of our strategy, and we feel this has been created by the Environment Act in England,” said Becky LeAnstey, investment manager at EAPF.
“We want to be able to demonstrate in a scientifically robust way that the investments we make in natural capital have a net positive impact on nature,” she added.
As such, the fund will allocate 4% to natural capital and set a 17% target for climate solutions, LeAnstey confirmed.
The fund’s decision comes at a time when nature-based credits, a financial tool that allows private companies to fund activities that benefit biodiversity and nature, are struggling due to “a lack of consistency between schemes”, according to research conducted by Bloomberg New Energy Finance (BNEF).
LeAnstey stressed the need for a unified framework for avoided emissions as a way to create a level playing field to fairly compare companies and the actions they are taking to transition their businesses to lower carbon and more sustainable models.
EAPF expects its asset managers to engage with the companies they invest in to make sure activities that have the potential to harm nature are properly assessed and mitigated. The Task Force for Nature-Related Financial Disclosures (TNFD) has developed frameworks for businesses and financial institutions to assess these risks, and the EAPF said it will continue to use it to prioritise where they engage.
Looking ahead, LeAnstey said she hoped the fund’s new policy would create an easier framework that allows for fairer comparisons leading to better-informed investment decisions.
“We don’t believe this approach is concessionary. We believe this is where our long-term returns will come from by making sure we’ve properly assessed all these risks and seeing nature-based investment as an opportunity,” she added.
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