Nest, the automatic enrolment scheme managing the pensions of nearly a third of the UK workforce, has appointed Octopus Renewables, part of Octopus Group, to boost its investment in clean energy infrastructure.
Octopus Renewables is the “largest investor” of utility scale solar power in Europe, as well as a leading UK investor in onshore wind and biomass, managing a global portfolio valued at more than £3 billion.
It invests in and manages a range of technologies, including several rooftop solar assets in Manchester and Birmingham, and wind farms in South Lanarkshire and Northamptonshire.
Nest, which currently manages more than £16bn of UK pension savings, is investing directly in green energy generation to secure stable, long term returns for its pension savers while helping achieve its ambition of becoming a net-zero carbon investor.
Octopus Renewables expects £250m to be committed this year in the UK and Europe, rising to as much as £1.4bn by the end of the decade
Mark Fawcett, Nest’s chief investment officer, said: “We want to invest in the energy of the future, not the past. The money we manage on behalf of our members needs to provide steady returns for the next 10, 20, 30 years.
“Renewable energy projects are fantastic opportunities. Every new site provides greater energy security, increases potential returns and contributes to tackling the climate emergency. We want to deliver bigger pensions for our members, in a better world.
“All minds are focused on how to help Build Back Better from the pandemic and this move means millions of UK pension savers will be playing their part.
“Investing in British green energy means our members will be investing in projects they can see and touch, a tangible connection to their pension and a way out of the climate crisis. The strong foundations of this kind of investment should help them achieve great returns for their future while directly investing in the future of the planet.”
Minister for Pensions, Guy Opperman added: “I welcome the decision by Nest to expand into innovative and green markets, and this should encourage other schemes to make the same leap. Nest’s action shows that schemes with economies of scale can access alternative investments, including renewable technologies, at a low cost to their members.”
Research shows that the majority of people want their pension to be invested in a way that tackles climate change.
According to data collected by YouGov (July 2020), four out of five adults (79%) believe it’s important the economic recovery from coronavirus should take climate change into account, while 65% of pension savers believe their pension should be invested in a way that reduces the impact on the environment.
As part of the deal, Octopus Renewables will arrange investment deals directly with the owners of renewable infrastructure projects.
The mandate will target deployment into renewable energy projects and associated infrastructure, predominantly in the UK and Europe to support the transition to a net zero economy.
Stephen O’Neill, Nest’s head of private markets, said: “Octopus stood out amongst a very strong field of candidates. They’re one of the largest developers of renewable energy assets in Europe, and carefully manage their energy price risk.
“We’ll also have full access to their diversified portfolio, across technologies and geography. This gives us confidence that our investment will provide strong returns for our members.
“Private markets are no longer exclusively for defined benefit pension schemes. They will play an important role in our portfolio and help buoy our performance when public markets, particularly equities, are struggling.
“We are supportive of government initiatives that will help smooth the way for schemes to access the long-term return potential in private markets at the right price for auto enrolled members. We hope to be among the first of many defined contribution pension schemes to offer members the diversification and return benefits available beyond equity and bond markets.”
Alex Brierley, co-head of Octopus Renewables, said: “With predictable income, diversification and sustainable investment all at the forefront of institutional investors’ minds, renewable energy is an incredibly attractive asset class, for which demand is growing at pace.
“This partnership will create a strong platform for Nest, covering a diverse range of technologies, geographies and assets across their lifecycle, whether that be at development, construction or operational stages. The fund will also allocate capital to growth opportunities in the wider energy transition.”
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