Shia on London CIV’s new natural capital fund: ‘this is a product ahead of its time’
Vanessa Shia, head of private markets at London CIV, reveals the thinking behind the pool’s new natural capital fund
London CIV is going green. While forests and green fields might be the last thing that comes to mind when thinking of an investment fund headquartered a stone’s throw from the city’s South Bank, managing the assets of 32 London borough funds, nature has been at the forefront of the fund’s thinking over the past year. Vanessa Shia, head of private markets for London CIV, reveals why.
As a pool, £32.8bn London CIV has the most ambitious net zero target for the LGPS. In 2021, it pledged to become carbon neutral by 2040, ten years ahead of its peers. This ambition comes with interim targets: as of this year, it plans to reduce its carbon intensity by 35% against a 2020 benchmark, and by 2030, it hopes to cut its carbon footprint by 60%. These goals are rooted in the investment beliefs of its 32 partner funds, most of which have also set ambitious net zero targets, Shia explains: “This strategy helps fulfil that ambition by focusing on biodiversity and natural capital, complementing their renewable infrastructure allocations.”
Offering its partner funds a private markets vehicle that could help meet their net zero ambitions could play a vital role in helping the pool meet the government’s ambitious pooling targets. By March 2026, the scheme is expected to merge all assets, listed and unlisted, into a pool. The fund has made significant progress over the past year, increasing its share of pooled assets by 18%. However, a further £10bn is still to be pooled.
Early last year, the London CIV confirmed it was on the lookout for a manager specialising in nature-positive investment strategies. The fund has already attracted a £75m commitment from the pension fund for the London Borough of Barnet, which has a net zero by 2030 target. Over the next few months, London CIV hopes to raise between £400m and £500m in capital for the new strategy.
The pool’s partner funds have been instrumental in deciding on the setup, Shia explains: “Several partner funds were key participants in our seed investor group and helped shape the structure of this fund. Their feedback has been critical in ensuring this mandate meets their needs.”
The fund will be structured as an open-ended multi-manager vehicle, with the exact number of manager mandates still to be confirmed, depending on investor demand, Shia explains. For the time being, the fund has appointed two managers and is speaking to a third she can reveal.
Once launched, it will complement London CIV’s existing renewable infrastructure fund. “This is a product designed to be more solutions-oriented in nature, investing in strategies that balance biodiversity protection with net-zero goals.”
“We are focusing on investing to protect and enhance biodiversity, an additional way to achieve real-world impact. Protecting natural carbon sinks and ecosystems is essential to preserve our planet,” she explains.
With natural capital being a nascent asset class, diversification and flexibility to adapt will be key features of the fund, Shia says. “We’re structuring the fund with global diversification across regions and sectors because we believe firmly in spreading risk. Focusing too heavily on specific regions, like Latin America, might boost returns, but diversification is our priority.”
The team also applies a relatively cautious outlook to return targets. “The target return is 6–8% net, with a 2% cash yield, which aligns with what you’d expect from core forestry and agriculture strategies. While some managers in Latin America target higher returns, we prefer a conservative range.”
One big variable in return forecasts is the future of the carbon credits market, she acknowledges.
Indeed, current forecasts for the size of the voluntary carbon market vary significantly, with Bloomberg NEF predicting it could hit between $34bn and $1trn by 2050.
London CIV’s fund will have some exposure to carbon credits, but as part of a broadly diversified portfolio, she says. “The carbon credit market is still maturing. There’s nervousness around the verification and monetisation of credits, so while the structure and regulation are improving, it’s not yet a key driver for most managers.”
But that could soon change, she believes: “We see in the future some funds being launched where the main return driver will be carbon credits, but for now, they are an additional return driver rather than the primary focus.”
However, there are structural drivers which should favour the price of such credits in the long run, she believes: “We can’t get to net zero without carbon credits, but the market isn’t yet widespread in its inclusion in manager strategies. It’s evolving, and we expect more institutional interest by 2025.”
As investor understanding of natural capital evolves, flexibility will be crucial in determining the success of the fund, she argues. “This strategy is designed to be future-proof, creating opportunities for partner funds to access a market that will evolve significantly over time. We’re not just looking at what’s investable today, but what could be investable five or ten years down the line.”
In practice, this could result in a fund that balances “infrastructure-like qualities with flexibility to adapt as new natural capital solutions emerge.”
“We’re keeping an eye on other emerging opportunities that focus on carbon dioxide removal and other market-enabling strategies which will focus on innovations that could become investable in the future. Right now, those are not sufficiently mature for our strategy.”
“This is a product ahead of its time in many ways, as we’re designing it with the potential to incorporate these emerging opportunities when they become viable,” she concludes.
