Investors need to hit the “sweet spot” where investment and support for objectives collide when aligning investments with net zero targets, ex-pension minister Guy Opperman has cautioned.
Speaking in an interview with XPS, Opperman discussed opportunities for investors when aligning with net zero, stating that there is “clearly” going to be money spent on environmental iniatives in the future.
“There are announcements on a regular basis on everything from carbon capture to nuclear to other particular projects,” he said.
However, he cautioned that there is some difficulty in working out where there is a return for pension funds.
“It is all very well saying you need to invest with due mindfulness of ESG, but it is much harder to say you are going to invest in a carbon capture project with a limited definition of a definite return,” he said.
“That’s where the sweet spot of investment and support for objectives will potentially collide.”
He added that, “without a shadow of a doubt”, there is a range of oppourtunities for investors, and that there is a range of asset classes and sectors attracting investment in the UK.
Incentivisation
Additionally, Opperman discussed what the government could do to incentivise investment in the UK, arguing that a carrot and stick approach would be most effective. He explained the government could use is mandation as a “proper big stick”.
However, he acknowledged that, while Rachel Reeves has talked about this previously, she now seems to be “edging away from it”.
On the other hand, Opperman suggested ways to develop a carrot for investors, adding: “The question is how do you take things like the Mansion House reforms and put rocket boosters underneath them.”
He argued this could be achieved through tax incentives, making it almost negligent of a pension scheme manager not to be investing in UK institutions, liquid capital, patient capital on an ongoing basis.
“You can do penalties on capital gains if you don’t invest and you can make tax free ribbons and wrappers around the pension freedoms so that, if I have invested in UK capital, I am in a position that I can get tax free entitlement to that, otherwise I get penalised,” he explained.
Opperman also spoke on how private investors can contribute towards UK growth, identifying both long term and short term investment opportunities.
“The big ticket, long term items are things like nuclear and clearly green finance will play a big part in that,” he explained.
Meanwhile he identified the alignment of housing policy as short term oppourtunities for investors to contribute.
Opperman also predicted there will be an increase in a particular type of housing development where there is a combination of a retirement village, a care home, and a residential on the same site.
tom.dunstan@ft.com
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