In early May, we sat down with Cushon, a UK master trust, who recently became the founding investor in Schroders Capital Climate+ LTAF, a Long-Term Asset Fund (LTAF), designed to help UK pension fund investors support the net zero transition. Julius Pursaill, Scheme Strategist, Louise Howorth, Director of Brand & Communications and Stephen Watson, Director of Policy & Research joined us to share more about the Climate+ Fund and how Cushon is working to change the pensions landscape in the UK.
Tell us about Cushon and how it is different from other pension providers?
Most employees are completely disconnected from their pension scheme, and Cushon want to change that. Automatic enrolment in pension schemes is founded on a very effective principle of inertia, and there are two problems with this. Firstly, low engagement levels mean the employer is getting very bad value for money. They’re spending a lot in contributions but getting very little value from it as employees aren’t aware of how much money is being saved, or what it’s invested in on their behalf. The second problem is that the amount being saved is usually inadequate for retirement.
This is how Cushon’s approach can make a difference. We connect with employees using our easy-to-navigate app, removing barriers to engaging with your pension. Unlike virtually every other provider in the marketplace, we have a channel to engage with employees directly. Now, it’s very hard to sell the message about saving for a satisfactory retirement when you’re telling people to give something up today in return for retirement that could be as much as 30 years away. However, we can create value for employers in the here and now by showing people what their pension savings are doing in the real world. That might be a reforestation project or a wind farm – and in the future, we hope to be able to tailor these messages, so they are geographically relevant for the app user.
This customer focussed approach sets us apart from the rest of pensions industry. In workplace pensions, the customer is not the decision maker. We are using our research to find out what the customer wants, because that should influence investment decisions. Surveys of younger generations (millennials and Generation Z) consistently show that climate and environment are key concerns. Through our approach, we can better align people’s values with their pension savings.
We lead with messages about impact, and it then becomes easier to sell the message about increasing their contributions, so employees can have more positive impact on their financial future as well as the environment and society. Employees will get better outcomes because they’re better informed and better engaged. This increased awareness means the employer is getting really good value for their pension spend, and we hope that both the employer and employee can be proud of being part of the Cushon pension scheme.
Was this desire to help people save for a better a future part of the motivation for Cushon’s investment in the Schroders Climate+ Fund?
We think there is a fortuitous alignment between generating strong investment returns for our members and delivering climate and social impacts. It’s a happy alignment as we have certain investment beliefs about the way the market currently prices long term risk – we believe climate remains a significantly mispriced risk at the moment. We have therefore built an investment strategy with climate awareness as the foundation, rather than a strategy with ESG and climate considerations subsequently overlaid. One way we began to implement this strategy is shortlisting investment fund managers on climate and ESG credentials, and then assessing investment credentials – usually investment consultants do this the other way around. We think climate change is going to produce enormous market dislocation, and we want to make sure our members are on the right side of that, and potentially do very well from climate change. We implement this policy across our listed equity assets and our private impact assets.
Another way we are taking action is through our bond mandates. Our fund managers are targeting hard to transition sectors (such as construction) and identifying companies that have credible transition plans in place. At first, there was concern about the emissions in our portfolio jumping up, but this is what happens when you invest in the transition – over time, the emissions will come down, resulting in real world emissions reductions as opposed to just a clean investment portfolio.
We are committed to real world impact, and the work with Schroders came about as we wanted to work with an asset manager who was prepared to create a climate and social impact, multi-asset private markets portfolio. There was no existing vehicle like this, and we found a manager who shared our conviction that this was an exciting opportunity and had the skill set to put the necessary building blocks together, and that was Schroders. As we were the seed investor, we had considerable influence over the initial design, including terms of the target investment return after fees. We also agreed the allocation between different areas of climate and social impact with Schroders.
In terms of building up investment into natural capital, at the moment we are invested in forestry, but Schroders have ambitions to extend into regenerative and sustainable agriculture. In fact, as Schroders Greencoat is one our investment managers, we are able to go and visit one of their investment sites, the Glass House, in Bury St Edmunds. At the Glass House, they grow peppers and cucumbers (among other vegetables) using up to 70% less CO2.
Cushon is also invested in Ingham Greenhouses in Bury St Edmunds, where they also practice low carbon farming. They are Europe’s largest sustainably powered hydroponic greenhouses, capturing waste heat from the nearby Fornham Water Treatment Works. This is pioneering method of heating greenhouses, utilising ground source heat pumps and making use of heat that would usually go to waste. This reduces CO2 emissions by 75% and uses 10 times less water than conventional agriculture. At the greenhouses, they grown 100,000 peppers everyday using an area the size of 20 football pitches and they have created 400 new jobs.
Watch this video to find out more about Ingham Greenhouses.
We’re hoping to do member site visits in the future so they can also experience the tangible effects of their pension savings first hand. Other managers are also keen to share information about investments so people can learn more about where their money is going and what it is doing. There’s a real opportunity to bring people’s investments to life and for education around private markets, pensions, and climate action more generally.