Strathclyde Pension Fund recently approved a capital commitment of £20m to be invested in the Clean Growth Fund, a venture capital fund targeting early-stage UK clean tech companies. Ian Jamison reveals why.
Everyone is talking about climate change and the UK’s drive to net zero. To get there we need readily available low-carbon solutions.
With this in mind we have just committed £20m to the Clean Growth Fund, a venture capital project accelerating the development of carbon emission reduction innovations in power and energy, buildings, transport and waste.
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Strathclyde Pension Fund, the pension fund for the 12 local authorities in the West of Scotland and various other public sector bodies, is by no means a newcomer to the climate conversation; Glasgow itself was among the first local authorities in Scotland to declare a climate emergency in early 2019 and we at Strathclyde have been developing our own climate change strategy since 2015, and have this year set ourselves a net-zero by 2050 carbon target.
This is because we see a systemic risk with material long-term financial risk for any investor needing to meet long-term obligations.
The pension fund is also a member of the International Investors Group on Climate Change and a supporter of Climate Action 100+ and discloses its carbon footprint in line with the Task Force on Climate-Related Financial Disclosures requirements.
Commitment
But it’s not just about adding our voice; our £27bn pension fund is actively committing to investments that we believe will really make a difference to the climate crisis.
The commitment to the Clean Growth Fund was made within the allocation of the direct investment portfolio (DIP), part of Strathclyde Pension Fund that was set up in 2009 to make opportunistic investments.
Now invested in 52 funds, the portfolio has grown to over £1.7bn in commitments and has invested over £500m in UK renewable energy infrastructure.
The DIP’s primary objective is to generate attractive risk adjusted returns for our pension members and, with a targeted return of 2.5x on investment capital and an IRR of 18.7%, the Clean Growth Fund met our financial objectives.
At the same time, everything that DIP invests in should have a positive impact. We have categories within the portfolio that include infrastructure funds, renewable energy funds, and growth or venture capital funds. So, although the new commitment into the Clean Growth Fund sits within the venture capital fund category, it clearly also has a foothold in renewable energy.
Technologies
Committing money to managers who build wind farms is all very well but this investment in the Clean Growth Fund goes further: it is about trying to find new ways to invest in technologies which can help reduce carbon emissions.
So much of the technology needed to reach net zero hasn’t been developed. Here was the perfect combination of a venture capital fund with great prospects to help mitigate climate change.
We so often hear that Britain punches above its weight in terms of science. But we’re not as strong at commercialising and reaping its benefits. You hear of other nations doing more, so this is our way of supporting the best home-grown climate tech.
The UK focus is very important for us. All DIP investments need to stand against three main criteria:
- The vast majority of the fund needs to be invested in the UK;
- The fund manager needs to be UK-based;
- The fund needs to be unlisted and denominated in sterling.
Our approach is to be one of a number of investors. The fact that the Clean Growth Fund was already backed by solid investors such as the UK government’s Department for Business, Energy and Industrial Strategy and specialist public sector fund manager CCLA, gave us confidence.
Evaluation
While we have established a five-step investment evaluation process, funds will need to make it through our initial review, conducted by my colleague, Lorraine Sweeney and myself.
One of the measures we looked at when assessing whether to put the fund forward for further consideration was the expertise and experience of the senior team at the Clean Growth Fund.
They have a fantastic track record in terms of venture capital and clean technology having spent time in venture teams at leading energy companies and in the venture space, screening early-stage technology companies. They have walked the walk for over 15 years and have deep climatetech sector knowledge.
We were also attracted to their close working relationship with the UK government and Carbon Limiting Technologies, a consultancy supporting clean tech entrepreneurs to commercialise innovations, as it ensures a strong origination pipeline, access to experts for due diligence and venture partner support to the portfolio companies as required.
While we’re excited about this investment, we’re even more excited about supporting great businesses to get the funding and support they need to make a positive impact on wider society and to help achieve the UK’s goal of net zero emissions by 2050, all while providing the level of returns our members deserve. These aren’t just core objectives of our investment strategy, but also objectives to which our team is deeply committed.
Ian Jamison is investment manager for the direct investment portfolio (DIP) allocation within Strathclyde Pension Fund.
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