Pension fund investments in net-zero opportunities, including the renewables sector, are set to expand further in coming years, a top executive from a pension money manager said.
“Pension funds are actively looking for opportunities to participate towards decarbonisation/ net-zero targets,” said Sriram Iyer, CEO of India's HDFC Pension Management Company, told AsianInvestor.
“They are actively assessing opportunities in the green bonds being issued in India….and have also been making investments in sovereign green bonds issued by the government of India,” he said.
HDFC Pension Management is one of 10 pension fund managers that operate under the National Pension System, a voluntary defined contribution retirement savings scheme introduced by India's central government in 2008.
The company is a wholly-owned subsidiary of local insurer HDFC Life Insurance.
RELYING ON RENEWABLES
The pension manager is not the only one to believe in India’s potential in this arena, in particular the renewables sector; even international pension and sovereign wealth funds have emphasised the appeal of this sector.
Canada's Caisse de dépôt et placement du Québec (CDPQ) told AsianInvestor earlier this year that India is a strategic market for the pension fund because of its long-term growth potential, especially in sectors such as sustainable infrastructure, mobility and energy transition.
Similarly, Abu Dhabi Investment Authority (ADIA), also said it sees strong potential in India's renewable energy sector as the country's electricity demand is likely to grow more than in any other major economy in the coming decades.
These investments come as India charts ambitious plans to ramp up its renewables capacity.
The country has set a target of creating 500 gigawatts, or GW, of renewable energy capacity by 2030.
India had renewable energy capacity of 168.96 GW at the end of February 2023, with about 82 GW at various stages of implementation.
The government plans to add 50 GW of renewable energy capacity every year for the next five years to hit its 2030 target.
The country has also declared its goal to achieve net-zero carbon emissions by 2070.
“Numerous factors, such as period of strong economic growth and volatile fossil fuel prices that increased concerns about energy security have spurred more investments in the clean energy space in recent years. These investments need to be accelerated from current levels in order to meet the net-zero emission targets,” said Mumbai-based Iyer.
There is similar enthusiasm about energy transition -- another topic that asset owners globally are enthusiastic about -- as well as infrastructure investments.
Canada Pension Plan Investment Board (CPPIB) and Ontario Municipal Employees Retirement System (OMERS) are just some of the large global pension funds that have made investments in Indian infrastructure in recent years.
“The renewables, energy transition and infrastructure space will expand from present level and investment will further grow in these areas,” said Iyer, noting that investments in renewables, energy transition and infrastructure is a priority globally in the attempt to prevent global climate crises.
“As energy transition is a long-term process and requires research and development, now is the right time to increase investment in these sectors for smooth transition,” Iyer noted.
HDFC Pension Management’s participation in this space is via investing in equity and bonds of active companies.
“We directly or indirectly engage with management of these companies to understand the changing trends and stance of and preparedness of the management for the same. The investment is made after proper business analysis and based on return expectations.”
Investing in renewables aside, the pension manager applies an ESG lens across its investments, noted Iyer.
“Evaluating our investments on ESG parameters is part of our research framework and is one of the key considerations in our investment decision making,” he said.
When picking companies to invest in, the pension manager said as part of its research process, it assesses all the ESG initiatives undertaken by the company including the disclosures made by the management .
In addition, it considers external research and rating reports to understand the company’s current practices.
It also analyses what the company’s future course of action on the ESG front will be and whether those are in line with industry practices and peer groups, said Iyer.
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