Improving yields: Alvarez-Dominguez of Brunel discusses the perspective on the utilization of natural resources
The Brunel Pension Partnership, a £35.9bn local government pension pool based in Bristol, UK, is focusing on expanding its natural capital investments, including forestry and carbon-related assets, to achieve long-term returns and align with net-zero goals.
Led by Jaime Alvarez-Dominguez, the Brunel Pension Partnership's infrastructure team has emphasized natural capital as an area of opportunity, as traditional renewables become more crowded. This strategic shift includes investments in forestry and carbon credits to contribute towards carbon sequestration and environmental sustainability.
Brunel is working closely with its partner funds to define the next stage of its future investment strategy, exploring ways to deepen natural capital exposure. This aligns with broader industry moves, where pools like Border to Coast are increasing forestry allocations and climate opportunity funds, indicating a sector-wide commitment to carbon-related natural assets.
One of Brunel's key co-investments in the third vintage was in Bluesource Sustainable Forest Company, now known as Aurora. The aim of the investment was to reduce harvesting by 50% and generate additional revenue through carbon credits. The key co-investment was backed by 600,000 hectares of mixed hardwood with more than 120 species of trees.
Investing in the voluntary carbon market was a risky move for Brunel in the third vintage, as market volumes had fallen by more than 50% and average prices had been declining since 2022. However, Brunel targets returns above 8% from natural capital assets, which in practice has excluded most UK forestry.
Regarding the Microsoft carbon removal deal, while the specifics of Brunel's involvement or plans in connection with Microsoft are not yet clear, Brunel's overall net-zero and stewardship efforts suggest a positive posture towards innovative carbon removal investments, potentially including partnerships like Microsoft's.
Brunel's third vintage fund expanded into transition assets, including battery storage, electrification of transport, district heating, energy efficiency, and natural capital. The Brunel Pension Partnership has been an early investor in Aurora through one of its infrastructure funds.
Jaime Alvarez-Dominguez, from the Brunel Pension Partnership, will speak at a Climate Solution Summit on 11 September. He is planning a new mandate separate from infrastructure for natural capital, suggesting there may yet be a new role for nature in the pension portfolios of tomorrow.
Meanwhile, the UK government is pushing to consolidate LGPS assets, potentially dissolving Brunel or merging it into another pool in the coming months.
Sources: [1] https://www.ft.com/content/18e4274c-7560-4b5f-a3d3-e4b925032d6a [2] https://www.reuters.com/business/australias-aurora-forestry-says-microsoft-carbon-removal-deal-2022-07-29/ [3] https://www.ft.com/content/d757f34a-c093-4e07-905f-425147b67796 [4] https://www.pensionsage.com/2022/06/28/brunel-pension-partnership-invests-in-first-time-agriculture-fund/ [5] https://www.ft.com/content/a2f90122-605a-4c79-9c3c-9cb213e14b92
In line with the expanded investment strategy, Jaime Alvarez-Dominguez, from the Brunel Pension Partnership, is focusing on environmental science, specifically natural capital, to generate returns and support net-zero goals. This includes financing carbon-related assets and forestry, as well as exploring the voluntary carbon market.
The Brunel Pension Partnership's initiative to invest in natural capital assets, such as carbon credits and forestry, aligns with industry trends, as more pension pools like Border to Coast are increasing forestry allocations and climate opportunity funds, demonstrating a commitment to the environmental science sector and carbon-related natural assets.
