Nest and Cushon, two UK pension schemes with combined assets of more than £26bn, are in a joint search for asset management partners to develop new forestry investment strategies to address climate change pressures.

Both pension schemes believe that allocating money to forestry projects will offset environmentally damaging emissions from other investments and deliver attractive returns as the price of carbon rises to reflect the increasing costs of pollution by human activity.

The schemes have set aside an initial £600mn for a joint investment mandate and, by combining forces, aim to secure lower fees with third party managers. This kind of partnership approach has already been employed successfully by some of the largest pension funds in Australia.

Nest presently manages about £25bn on behalf of 10mn members, as the UK largest workplace pension scheme, and expects to invest some 2 per cent of its assets into forestry and other natural capital projects

“We want to explore how much money managers can actually put into work in timberland on an annual basis and how much it will cost,” said Mark Fawcett, chief investment officer at Nest.

Cushon, which expects to have assets of around £1.7bn by the end of this year, anticipates that it could grow its allocation to natural capital strategies up to 5 per cent of its assets over time, including controversial carbon credits. It has already agreed to act as a seed investor in a new Schroders multi-asset climate fund which is seeking regulatory approval for a launch by the end of the first quarter.

“Climate change represents a material risk to our members’ future returns. Pension providers have an opportunity to deliver sustainable investments thanks to natural capital, in both an environmental and a financial sense,” said Julius Pursaill, a strategist at Cushon.

Both pension schemes say they will avoid forestry projects where logging contributes to deforestation. Forests in tropical zones, such as the Amazon, offer high carbon sequestration potential, for example, but suffer from local political and fire risk, as well as the effects of climate change.

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