Transitioning from conventional to eco-friendly farming: Insight into a UK pension fund's strategy to rejuvenate its environmental holdings
In a significant move towards sustainable farming, the South Yorkshire Pension Authority (SYPA) has partnered with Royal London Asset Management (RLAM) to form the RLAM natural capital fund. This collaboration aims to make SYPA's farmland, spanning 22,500 acres, future-proof and a source of long-term, sustainable returns.
The new management team, led by RLAM, is reviewing the farmland, evaluating options for alternative farming methods, renewable energy projects, and carbon offset generation. One of the options under consideration is vertical farming, a practice that involves growing crops in vertically and horizontally stacked layers. This method offers a main advantage of increased crop yield with a smaller unit area of land requirement.
Vertical farming is less disruptive to native plants and animals due to its limited land usage. Crops are resistant to weather disruptions in vertical farming because of their placement indoors. This makes vertical farming a practical choice for sustainable agriculture, especially in light of the UK government's biodiversity net gain rules, which obligate property developers to purchase strictly regulated biodiversity offsets to compensate for the impact of their developments.
The UK government is stimulating innovation in land management with landmark new laws. The Agri-environment schemes have promised £3.9bn over the next five years for farmers looking to improve their practices. The government has also promised significant funding for its Sustainable Farming Incentive (SFI) program: £798m this year, rising to £950m the year after, and £1.5bn per year for the subsequent three years.
Government funding plays a significant complementary role by providing wider financial support frameworks that back sustainable and impact-focused investments. While specific government funding directly tied to SYPA and Royal London Asset Management’s farming initiatives is not detailed, broader government-led funds and partnerships (e.g., the British Growth Partnership) enable pension funds to manage capital with a sustainable impact lens.
Forestry remains the most popular natural capital asset for pension funds, but more funds are integrating regenerative and sustainable agriculture practices. The investment team at SYPA decided to take a more active role in managing the farmland due to its potential. The aim is to channel capital into projects that deliver both financial returns and positive social or environmental outcomes, including sustainable agriculture initiatives.
The partnership approach emphasizes developing repeatable opportunities and building strong local relationships with tenants, authorities, and developers, which facilitates sustainable long-term projects such as those in farming. Graham, from the SYPA, stated that they see so much potential in the land and will look to make full use of all available public resources to aid their transition program.
In summary, the SYPA-Royal London partnership focuses on investing in social infrastructure, which can include sustainable farming projects, leveraging localized relationships to maximize impact returns alongside financial gains. Government funding underpins these efforts implicitly by facilitating capital management partnerships and sectoral investments that enable pension funds to invest sustainably, though direct grants or subsidies for farming transitions are not explicitly cited. This synergy between pension fund asset managers and government-backed capital frameworks helps accelerate the transition towards sustainable farming by ensuring that investments are both impactful and scalable over time.
- Recognizing the value of environmental science in driving sustainable practices, the SYPA is considering vertical farming, a practice in agricultural science, as an option for their farmland.
- In the context of climate-change, the SYPA, led by RLAM, is keen on exploring renewable energy projects alongside their farming initiatives, aiming to generate carbon offsets.
- To further support sustainable farming ventures, the UK government is offering generous funding through Agri-environment schemes and the Sustainable Farming Incentive (SFI) program, encouraging pension funds like SYPA to invest in this area, blending financial gains with social or environmental benefits.
