(Bloomberg) -- Pension funds are asking the UK government to revamp rules determining how public debt is measured, to encourage more investment in green industries.
Britain should come up with a new definition of public sector net debt, so that it for the first time takes into account the net worth of illiquid infrastructure investments, according to a statement published on Wednesday by IFM Investors, which represents a group of UK and Australian pension funds holding £1.7 trillion ($2.2 trillion) in combined assets.
There are many steps needed to unlock green investments, Gregg McClymont, executive director of IFM Investors, said in the statement. “But a pre-requisite is that the government should account for infrastructure assets more like a long-term investor, and less like a commercial bank holding equity as loan collateral to be sold in a fire sale.”
The pension funds behind the campaign are seizing on a number of initiatives put in place by the Labour government of Prime Minister Keir Starmer. These include seeking to utilize his administration’s newly created financing vehicles, Great British Energy and the National Wealth Fund.
For now, the ability of those facilities to ramp up green investments may be hampered by existing accounting rules, the group said. It recommended changes so that fixed infrastructure assets and public equity investments get treated like liquid financial assets in the calculation of public sector net debt.
Such a move “would create fiscal headroom, incentivize long-term public investment and help Great British Energy and the National Wealth Fund crowd in pension capital at scale,” according to the pension funds.
The group is also asking the UK government to fast-track the deployment of renewable energy, including through clearly-defined commercial objectives for Great British Energy. And pension funds want so-called contracts for difference to last longer than 15 years, to support longer-term deals and promote low-carbon electricity generation. Doing so would bring down the cost of capital, they said.
Finally, pension funds are urging the UK government to use the National Wealth Fund to support the commercial development of higher-risk undertakings in the clean-energy sector.
The proposed measures would help Britian meet its legally binding emissions reduction targets and help accelerate permitting of the repowering of wind farms, according to the funds signing up to the campaign. Signatories include the UK’s Universities Superannuation Scheme, the Border to Coast Pension Partnership and the National Employment Savings Trust. Australian signatories include Aware Super, CareSuper and Cbus Super.
The collaboration marks the first of its kind between Australian and UK pension funds and the UK pensions trade association, Pensions and Lifetime Savings Association. IFM Investors, which is owned by 17 Australian pension funds, said last year it intends to invest £10 billion over the next four years for large-scale infrastructure and energy transition projects.
Pension funds have a “legal duty to prioritize the interests of pension scheme members,” and therefore need “the right policy settings in place to facilitate their investment,” they wrote in the statement.
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