Australian super funds flex political muscle with UK reform push on net zero investment

A group of Australian industry funds has teamed up with British pension funds to push for vital reforms to make it easier to invest in the UK’s net zero transition.

Shotwick Solar Park in Wales. The Labour government is seeking to turbocharge green energy development in the coming years to make Britain a clean energy ‘superpower’. Picture: Getty Images

Investment-chasing industry super funds are stamping their political clout on the global stage, with a cohort pushing the British government for reforms to make it easier to invest in the UK’s net zero transition.

A handful of funds led by IFM Investors – including Aware Super, Cbus, Hostplus and HESTA – along with UK pension funds, are calling on Keir Starmer’s government to deliver a series of reforms, including changing fiscal accounting rules on public sector net debt, in part to incentivise long-term public investment.

It comes as the new UK government looks to make good on its pledge to deliver a zero-carbon electricity system by 2030. While the Labour government says it will work with the private sector to ramp up wind and solar developments in the coming six years, super funds argue a suite of reforms are needed to unlock investment in renewables.

“Mobilising pension fund investment has the potential to create genuine society-wide benefits, but quite rightly, pension funds have a fiduciary duty and must only invest in their members’ best interests,” IFM Investors executive director Gregg McClymont said of the reform push.

“This world-first collaboration between some of the UK and Australia’s largest funds maps out how the government can accelerate the energy transition and deliver strong returns for working peoples’ retirement savings.”

The reforms put forward by the super funds and their British counterparts include improving physical and regulatory integration between the UK and EU energy markets, streamlining the permit process for repowering onshore wind sites, and setting out commercial objectives for the planned state-owned energy company, Great British Energy.

Royd Moor wind farm in the north of England. Picture: AFP

But the centrepiece of the reform push is the fiscal accounting rules on public sector net debt.

Currently in the UK, illiquid financial assets, such as fixed infrastructure assets and public equity investments, are not accounted for as an asset in the calculation of public sector net debt, even though debt issued to finance these investments is accounted for as a liability.

“In our view, this does not make economic sense and may be a barrier to the National Wealth Fund and Great British Energy successfully fulfilling their mandates,” the super funds said.

“Instead, we believe the government should adapt the rules for calculating public sector net debt to account for investment in productive assets by national investment vehicles. This would create fiscal headroom, incentivise long-term public investment and help Great British Energy and the National Wealth Fund crowd in pension capital at scale.”

Mr McClymont backed up this view, stating: “There are a number of steps to unlocking this investment. But a prerequisite 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.”

As the British government looks for private investment to help it achieve its clean energy goals, super funds are increasingly hunting offshore for investment deals.

IFM last year signed a Memorandum of Understanding with the UK government to invest £10bn into infrastructure projects by 2027, while Aware Super, one of the nation’s largest super funds with $125bn in assets, established a London office in 2023 so it could better tap into opportunities in the UK and Europe. The fund has already pledged to pump $10bn into UK and European markets in the coming years.

“As a large global institutional investor, Aware Super can offer economies, including the UK and Australia, a valuable source of long-term and sophisticated capital to help meet Net Zero Emission targets,” Aware chief executive Deanne Stewart said.

Originally published as Australian super funds flex political muscle with UK reform push on net zero investment