LGPS Fund Extends Forestry Investment Diversification
The South Yorkshire Pensions Authority (SYPA) has made a significant move towards sustainability by allocating £50m to a forestry fund managed by Gresham House. According to George Graham, director at SYPA, forestry is a crucial part of their natural capital allocation strategy.
Forestry, as Graham emphasizes, provides a resilient and diversified source of returns for SYPA, while also enhancing biodiversity. Moreover, he notes that forestry supports SYPA's journey to net zero.
Gresham House, known for its acquisitions in Scotland and Wales, manages the forestry fund, although the specific details of the fund were not disclosed in the announcement.
In a broader context, investors are somewhat divided on the return profile of natural capital strategies, particularly forestry investments, in relation to pension funds' net zero goals. However, there is a growing consensus that natural capital assets like timberland can offer stable, inflation-hedged returns and provide both financial and environmental impact benefits that align with net zero ambitions.
Nuveen, for instance, highlights that natural capital investments such as farmland and timberland provide portfolio diversification, inflation hedging, and stable returns, while addressing climate and biodiversity challenges through nature-based solutions. Impact investors and financial institutions also view nature-based forestry projects as promising, offering both financial returns and environmental impact.
However, returns can vary by region and strategy, and some investors aim for returns above 8%, which has excluded many UK forestry investments due to their lower return profiles. Pension funds, with their long-term liabilities and net zero commitments, may find natural capital investments attractive for aligning portfolios with sustainability goals, but they need careful selection of markets and credible asset managers to ensure a balance between financial return and climate impact.
In addition to the forestry fund, SYPA has also given a mandate to Campbell Global, part of J.P. Morgan Asset Management. Campbell Global's forestry strategy invests in global forestry assets, and the instruments generated by the strategy represent the reduction or removal of one metric tonne of carbon dioxide or its equivalent.
It's worth noting that SYPA is part of the Border to Coast pool, a collaborative investment partnership between eight Local Government Pension Scheme (LGPS) funds in the UK. The South Yorkshire Pensions Authority manages a £11.1bn fund.
Recently, another local government pension fund in the UK committed $100m (approximately £80m) to a forestry strategy aimed at sequestering carbon and generating instruments representing the reduction or removal of greenhouse gases. George Graham has also stated that forestry efforts help combat climate change.
These investments underscore a growing trend among pension funds to invest in forestry as a means to combat climate change while also generating returns that align with their long-term financial goals.
The forestry fund managed by Gresham House, as per George Graham, not only offers a resilient source of returns for the South Yorkshire Pensions Authority (SYPA) but also supports their journey towards combating climate change. Moreover, the environmental science behind these investments, such as timberland, provides financial benefits that align with SYPA's net zero ambitions and business strategies, as emphasized by Nuveen and other impact investors.
