A UK pension fund has agreed to commit capital to a new kind of investment fund whose creators claim it can generate market-beating returns through nature restoration programmes.
West Yorkshire Pension Fund, which manages about US$27 billion ($34.41 billion) of assets, will allocate GBP25 million ($43.72 million) to the fund, whose backers say it has the potential to generate double-digit returns, according to a statement on Monday.
“Place-based, nature-based infrastructure” is “a key component of strategic investment, delivering both resilience and returns,” said Darran Ward, head of alternatives at West Yorkshire Pension Fund.
The money will be invested in the Nature-based Infrastructure Fund, which is being set up by Rebalance Earth, a London-based investment manager.
Eoin Murray, chief investment officer at Rebalance and former head of investment at Federated Hermes, will help oversee the fund, which will invest in the restoration of damaged ecosystems like peatlands, wetlands and rivers.
Globally, nature is disappearing at an alarming rate. Over the past 50 years, wildlife populations have shrunk by almost three-quarters, prompting some scientists to warn that the world’s sixth mass extinction event is underway. Ecosystems, meanwhile, are suffering the impacts of increasingly extreme weather.
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Against that backdrop, companies are under growing pressure from investors, regulators and customers to address the risks that the biodiversity crisis poses to their business models. For example, companies that rely on fish are finding that without replenishing the ecosystems on which fish depend, their businesses suffer.
The fund is structured so that companies pay Rebalance Earth a fee — similar to rent — for the ecosystems it invests in restoring, such as oyster reefs, Rob Gardner, CEO of Rebalance Earth and a former investment director at St James’s Place, said in an interview.
The difference between what those companies pay and the cost of restoration is expected to generate an internal rate of return of 8% to 12% over 15 years, he said. The projects also are expected to produce carbon and biodiversity credits, which are tradeable instruments based on a unit of ecosystem improvement or CO2 reduction that companies buy to offset the damage they do to the environment.
“Companies are effectively paying for avoided loss,” Gardner said. WYPF’s investment shows that nature is “a critical, income-generating infrastructure asset.”
