Representatives from Investment Managers Quinbrook and Stafford Capital provide a presentation as part of this item. Copies of the slides are attached.
Minutes:
The Subcommittee considered a report by the Director of
Corporate Resources which provided members with information in respect of the
infrastructure portfolio review and proposed investments. A copy of the report
is filed with these minutes marked ‘10’.
The note was not for publication by virtue of Paragraphs 3
and 10 of Part 1 of Schedule 12(A) of the Local Government Act 1972
Representatives from Hymans Robertson set out their review of
the Fund’s infrastructure portfolio, and recommendations that had arisen.
[At this point representatives from Quinbrook Investment
Managers joined the meeting]
Representatives from Quinbrook presented to the Subcommittee
on the Net Zero Power fund, a fund that focused on renewables
Arising from the discussion the following points were noted:-
i)
Quinbrook demonstrated their strong track record
with Environmental, Social and Governance (ESG) factors. Having achieved a A+ United Nations Principles for Responsible Investment
(UNPRI) ESG rating and awarded 2021 ESG investment fund of the year, alongside
alignment with Article 9 of the Sustainable Finance Disclosure Regulations.
ii)
Quinbrook could provide quarterly updates on
carbon metrics, including Scope 1, 2 and 3. The Investment Manager was working
with KPMG to identify gaps in its reporting to be confident of end impact.
Members were assured that a third party audited any carbon metric reporting.
iii)
Quinbrook did not see wind power as value-add
for the Net Zero Power fund, due to constraints on ageing, transition, and distribution.
Quinbrook cited that it was generally windiest between 9pm and 9am in the
morning, where there was lower energy demand. The portfolio preferred solar
farms given they could be located closer to where there was demand.
iv)
Quinbrook had teams in each location it invested
in and continued to evaluate different types of technology, including the
lifecycle of technology which was factored in.
v)
It was noted Quinbrook also offered a
co-investment sleeve with attractive investment costs which the Fund could utilise.
[At this point representatives from Quinbrook left the
meeting]
Hymans Robertson introduced the next investment proposal in Stafford
Capital’s Carbon Offset Opportunity fund (COOF). The Subcommittee noted the
fund presented attractive risk-adjusted returns and net zero benefits.
[At this point representatives from Stafford Capital
joined the meeting]
Arising from the discussion the following points were noted:
i)
The fund would be made up of 65% afforestation
15% natural forest reforestation 20% improved forest. Due to the increased
demand for carbon credits, it was now profitable to set aside the 15% for
natural forests to create wildlife corridors with native species. Investment
returns would be achieved through a mixture of carbon credits from stored
carbon, and timber harvesting.
ii)
The Committee noted that a carbon credit was a
certificate which represents the reduction of emissions by the equivalent of
one ton of CO2e. For assets within the COOF to qualify as a verified emissions
reduction and be claimed as an offset, stringent rules had to be met. Rules
included how the forest would be managed and what the timber was eventually
used for to ensure carbon credits claimed were genuine and additional. For
example, the timber could not be burnt as biofuel, instead must be used for
lumber or furniture.
iii)
In response to a query regarding the risk from
fire, wind and disease, Stafford assured the Committee that specialists were
appointed to manage key risks to the asset class. Properly managed forests
included fire breaks and regular clearance of what accumulated on the forest
floor which lowered risk. As a result, tree loss along commercial plantation
was very low, in comparison to natural forests.
iv)
In the event of forest fire or disease, that
resulted in reversal, or loss of carbon, it was covered by a ‘buffer pool’.
Stafford, alongside other carbon projects contributed a certain percentage to
the buffer reserves of non-tradeable carbon offsets to cover unforeseen losses
in carbon stocks.
v)
The jurisdictional risk was further queried
given illegal logging and instability within certain areas that may affect ownership
rights if certain countries looked to nationalise their forests. Stafford
assured the Committee that it undertook due diligence on its local partners to
reduce the risk, and that the issues raised were more of a risk to unmanaged
forests.
vi)
Due to the dearth of new tree planting in the
last 30 years, while timber demand continued to increase, even without
recognition of the benefits from the role in producing carbon credits, timber
revenue and asset appreciation was attractive. If demand for the carbon market
was not as high as predicted, there was still the option to focus on the
afforestation within the fund that still held high value for sale to
traditional investors or industry.
vii)
The COOF considered the whole lifecycle of a
tree. Stafford monitored its forests and ensured it had reliable inventory
data, which was independently audited for verification.
[At this point representatives from Stafford Capital left
the meeting]
The Committee supported the review of the Fund’s
infrastructure portfolio, and recommendations that had arisen.
RESOLVED:
a.
That an
additional £30m commitment to the LGPS Central Core / core plus infrastructure
fund, bringing the total commitment to £100m be approved.
i. approve
the commitment to the Stafford fund as detailed in paragraph 78. d. i. of the
report, subject to satisfactory due diligence being undertaken by Hymans
Robertson.
ii. instruct
Stafford to sell the carbon credits generated, as detailed in paragraph 71 of
the report, subject to recommendation i. above,
iii. continually
review the position to sell the carbon credits as set out in paragraph 72, and
that any proposed change to the approach is subject to a further report to the
Local Pension Committee or Subcommittee.