Interview – NatWest Group Pension Scheme
made some great calls, which meant we managed to get our hedging up, which was key, and our assets have delivered against that.
Why have you invested in net-zero retire- ment villages? We have agreed to help finance the con- struction of 34 retirement villages across the UK in a joint venture with Legal & General. Such villages are proven to be a healthier and, for those who chose them, a more enjoyable way for people aged over 65 to live. These are also net-zero properties, so they have good green credentials.
This was about pivoting our property portfolio. We sold £100m of offices to finance these villages. So, our property portfolio is not full of UK commercial assets. We have, for example, 2,500 US family rental homes, which we bought in the early 2010s. We
would prefer to own retirement
villages and US family homes over office or retail assets, where we do not see an attractive future return. The way we use land as a society is changing and this means we are investing in the future.
How much is the total investment in these retirement villages? It is £130m today. As we build out these 34 villages, we could easily end up investing £500m in this portfolio.
This appears to be an impact investment focusing on the “E” and the “S” of ESG. Was that deliberate? We prefer to invest in assets that are ben- eficial to society. Looking at the forests that we own, the wind farms that we bought in 2014, the greenhouse that we built in Cambridgeshire – which reduces food miles – they were all bought because they are good in investment terms. Aside from this, they are beneficial for society and help reduce carbon emissions, but we would not buy them if we could not get the investment returns.
14 | portfolio institutional | April 2022 | issue 112
How important will ESG be in your invest- ment approach going forward? ESG has always been, and will continue to be, integrated into everything we do. Our ESG strategy is to engage our equity, ditch our debt and get active in alterna- tives. What this means is making sure the equities we own are signed up to net zero.
That seems a realistic approach to ESG: the returns come first, but ESG underpins much of it. Absolutely. It should underpin the quality of the asset. Buying real assets benefits society in terms of reducing the carbon footprint among other things. It is a bet- ter way to deal with the carbon emergency, rather than reducing carbon intensity in a quoted-equity portfolio, which we think is a dubious measure.
Do you have further projects like this in the pipeline? We are currently building a waste-to-ener- gy plant, which will convert waste that cannot be recycled into an energy input for cement kilns. When that is finished, we will be fully invested. We will have hit peak assets, so we have nothing else planned because we are going to have cash outflows for the next 30 years, so we will need to sell assets to finance this.
The recent tragic invasion of Ukraine reminds us that governance is the most important letter in ESG.
We do this through engagement and col- laboration with our peers and fund man- agers. A lot of people are focusing on the carbon intensity of an equity portfolio; we do not think that this is the most con- structive measure. For example, most mining companies have been selling their coal assets. So, if I vote in favour of Anglo American selling its coal assets, then my carbon footprint has gone down. Now, those coal assets are sold to an entity that decides to mine more coal because that is now its only source of profit. So, I have reduced the carbon intensity of my equity portfolio, yet the amount of carbon emit- ted in the real world has gone up. This is why people need to be careful. It is a com- plex subject and what we need to do is to engage with our companies to sign up to net zero and make their operations aligned to science-based targets. We do not want to fund the debt of com- panies that are not aligned to our net zero objectives. In 2019, we removed invest- ment grade oil and gas debt from our portfolios. We have more than 400 com- panies on our restricted securities list. We are also active in alternatives, by get- ting out into the real world and making sure we buy assets that are part of the transition and engage in good govern- ance. This often means having board seats to move this in the right direction. Of course, the recent tragic invasion of Ukraine reminds us that governance is the most important letter in ESG. Bad governance can result in the total loss of an asset or, in this case, a market.
Do you think, therefore, that ESG reporting is wrong? A lot of energy is wasted on worrying about a portfolio’s carbon exposure. Peo- ple need to be careful that when the Task Force on Climate-Related Financial Dis- closures reporting comes out that they do not just take a knee-jerk reaction and say: “This is a high carbon intensity portfolio, and this is a low carbon intensity portfo- lio.” That does not tell you whether some-
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48
