How infrastructure investors are enabling the transition to net zero in London
London is at a turning point when it comes to maintaining its leading position as one of the most attractive cities in the world. It has been through Brexit, Covid, and the Russian-Ukraine war resulting in the increased costs of living with which we are all familiar, as well as putting pressure on Government finances. Maintaining strong and steady investment in its infrastructure is therefore critical if the capital is to remain dynamic and buoyant, and able to achieve it net zero targets.
In this context, investment capital is key to support London in its global ambitions and climate change targets. As a specialist insurer of defined benefit pension schemes, Pension Insurance Corporation (‘PIC’)’s purpose is to pay the pensions of our 300,000+ policyholders now and in the future. One of the outcomes of this is that we are reinvesting pensioners’ money into the UK’s economy, and London’s in particular. Our liabilities are very long dated so it makes sense for investors like us to support the economy on a long-term basis and avoid short term decision making. This translates into focusing on the credit quality of the assets we invest in and making sure they are sustainably supporting the transition to net zero adequately.
Here are few examples of how PIC has supported London’s infrastructure upgrade.
£102 million of debt financing to support the delivery of new rolling stock to Corelink Rail Infrastructure Limited
Transportation is another critical area of infrastructure that needs upgrading and decarbonising. Financing new trains that relieve overcrowding results in a better experience for London’s commuters as well as reducing CO2 emissions. A double win. Our debt financing to Corelink is a good example of how we can take part in these improvements. The investment included two new electric fleets to be built by Alstom and covering London commuter services, long distance routes connecting Birmingham to other major centre and regional services in the West Midlands. Transactions in this sector have generally been slower this year due to increasing costs in the industry at a time when government stakeholders are increasingly focusing on decreasing costs.
£100 million investment in Thames Tideway Tunnel, a 25-kilometre tunnel underneath the River Thames in London
Upgrading the city’s sewerage system is urgently needed to protect the River Thames from pollution. and we, along with other long-term investors, were very pleased to fund The Thames Tideway Tunnel. Seeing it get so close to operational use after so many years has been a real delight. This project is unique in that the Government supported the project through its long and complex eight-year construction phase which enabled private investors to join in this success story. Unfortunately, this is a model that has not been repeated although it would make a lot of sense not only for other large pieces of conventional infrastructure but also to support unproven technologies in renewables as well as nuclear power that will enable us to speed up the transition to net zero.
£129 million invested to fund the development of a 676-bed student residence in Southwark, London, for the London School of Economics and Political Science (‘LSE’)
Another area that we have been supported for many years is UK Higher Education with £2.9 billion invested in the sector. Most recently, we funded a student accommodation project located on Glengall Road, Southwark, providing additional housing primarily for postgraduate students of the LSE. This transaction will support the University’s aim of attracting the best students by ensuring it can provide accommodation at affordable rents.
PIC has invested in many other infrastructure projects across the city. We are committed to the infrastructure sector in London, and the UK more broadly, and are ready to play our part. Like all the long-term investors in our sector we share the need for greater long-term policy certainty on the path to net zero in order to be able to deploy our investments in the most secure way for the benefit of our pensioners, now and for the duration of their policies. By investing this way, we also play a role in a cycle of intergenerational transfer, using these assets to invest in and help regenerate many of the local communities in which they were earned.