Sofia Bartholdy
Whether the US’s much-discussed absence from this year’s Cop30 is a good or bad thing for the climate talks, the summit kicked off this week against a backdrop of ever more extreme weather and temperatures.
Similarly, the alternative investment industry – seen as key to efforts to slow global warming – continues to focus on the economic impact of climate risk. LPs and GPs are incorporating environmental considerations into their strategies regardless of the political weather.
For instance, the Church Commissioners for England released a new Climate Action Plan at the end of October. In it, the £11 billion ($14.5 billion; €12.5 billion) endowment fund outlines its revised approach to external asset managers and direct investments and sets goals through to 2030 in relation to climate and related issues.
This came after the UK’s Railpen issued its latest net zero plan, also last month, making physical climate risk a key focus for the £34 billion railway industry retirement fund. The topic had barely featured in the plan’s first iteration in 2021.
The changes in the Church Commissioners’ strategy include advancing net zero alignment across managers and direct real assets; increasing engagement with companies on deforestation, food system transformation and a just energy transition; and expanding investments in environmental solutions, including renewable energy and nature restoration.
“We have prioritized setting goals in areas where reducing the climate impact aligns best with our investment strategy and where we have the most influence,” the report said. That will include setting quantitative alignment goals for new funds “invested in private markets with a longer-term view” – namely, primary funds in private equity and infrastructure.
Land assets
The Church Commissioners’ new report also introduces the endowment’s deforestation strategy to 2030, developed through its participation in the Taskforce on Nature-related Financial Disclosures transition planning pilot. This strategy aims to drive real-world reductions in agriculture-driven tropical deforestation across the investment portfolio.
The investor has also set goals relating to its portfolio of land and in the built environment. In respect of its roughly 80,000 acres of farmland, Church Commissioners sees the most potential for influencing equipped farms. In the built environment, it focuses most on commercial and residential properties that are not held on long leaseholds, as those can last for centuries and therefore offer little opportunity for effecting change.
“As we do not directly manage land or occupy buildings, our main area of control is through leasing and the processes that support it,” said the endowment in the report. As a result, its engagement goals relate to new tenancies across farmland and the built environment.
“Our net zero alignment goals focus on improving farming practices and improvements to environmental performance of buildings during refurbishments,” it added.
FARMLAND GOALS
Aim to include green lease clauses or criteria for new long-term farmland tenancies where compatible with future use(s).
Continue conducting a tenant survey for farmland every three years.
Meet regularly with tenants. We aim to meet with at least 20 percent of equipped farming tenants per annum.
ALIGNMENT GOALS
Aim for 80 percent of equipped farms to be adopting or starting to adopt regenerative or other nature-friendly farming practices across at least part of the farming system.
CURRENT STATUS
Fifty-six percent of equipped farms responding to our survey have started putting in place or are fully integrating nature-friendly farming practices.
Environmental solutions
Church Commissioners has also set new goals related to enabling ‘environmental solutions’ across its direct real asset portfolio (see table below). The endowment has grown its allocation to such investments over time and aims to continue to do so, though it has not set a specific target.
Between 2020 and the end of 2024, it more than doubled its investments in environmental solutions from around £450 million to about £920 million. “A key part of the increase came from building our allocation to infrastructure, particularly in energy transition-related investments,” the report said.
ENVIRONMENTAL SOLUTIONS GOALS
Farmland and forestry: seek to double renewable energy generation on land to over 400MW by 2035, subject to planning and financial viability. Aim to deliver at least 20 projects of varying scale in collaboration with environmental organisations.
Development land: aim to exceed 10 percent biodiversity net gain on site across all new masterplans, where feasible.
The built environment: aim to scope the feasibility of embedding on-site renewable energy or EV charging for all retail parks and multi-let residential buildings.
GPs’ climate progress
On the climate front more broadly, Church Commissioners said it would also continue to engage with 10 “key” asset managers to encourage them to make progress on its net zero alignment scale. It added that 63 percent of existing commitments to its private market “focus funds” were ‘making progress’ or better, compared with 59 percent on the public market side. The endowment aims for two-thirds of new commitments in private – and public – market focus funds to be at least ‘making progress’ by 2030.
Sofia Bartholdy, director of responsible investments at Church Commissioners, said GPs in general were increasingly actively in considering climate risk integration. She added that she had seen some “very encouraging” cases of best practice among private equity managers.
From a regional perspective, meanwhile, European managers are leading the way on ESG but their US peers are not as far behind as one might think, she added. “We’ve also seen leading practice [on ESG integration] in North America, including on climate risk.”
The UK’s Brunel Pension Partnership is also seeing progress.
“Some GPs are taking climate risk very seriously, with proactive engagement and robust processes such as climate maturity matrices and deep integration of climate considerations into due diligence and ongoing monitoring,” said Faith Ward, chief responsible investment officer at the £36 billion local government pension scheme pool.
Tools such as the Enterprise Data for Climate Initiative are helping to consolidate and standardise expectations, making it more efficient for managers to implement requirements, she added. “However, this level of integration is not yet universal. There remains a long tail of GPs for whom climate risk integration is less mature.”
Ward stressed how climate risk influenced Brunel’s investment decisions: “We have stepped away from investments where practices have not been strong enough, both on climate and broader ESG grounds.”
“Materiality is key,” she added. “Strong processes that demonstrate a GP understands these issues are a clear differentiator in our investment decisions.”