Jaime Alvarez-Dominguez of the Bristol Pension PartnershipNet Zero Investor | 10 July 2025

By Mona Dohle

When Microsoft announced a 10-year carbon removal deal with US forestry credits firm Aurora, some people in Bristol were paying close attention. The city in the South West of the UK is, at least for now, home to the Brunel Pension Partnership. The £35.9bn local government pension pool has been an early investor in Aurora through one of its infrastructure funds.

The future of the pool is uncertain, as the UK government pushes to consolidate LGPS assets, potentially dissolving Brunel or merging it into another pool in the coming months. But for now, Alvarez-Dominguez and the wider investment team are, in his words, “channelling the spirit of Freddie Mercury—the show must go on.”

The carbon credit deal with Microsoft highlights Brunel’s early role in backing the UK’s energy transition. Much of this has come through infrastructure strategies designed with a significant allocation to renewables, reflecting strong demand from partner funds.

“We have three vintages of fund of funds that are 50% invested in third-party funds and the remainder is invested either in co-investments or secondaries,” Alvarez-Dominguez explains. “In the first cycle, a single vintage, our partner funds wanted to see at least 60% invested in renewables. In cycle two, we split this into two different vintages—one general and one purely focused on renewables.”

Concentration risks

But over time, Brunel’s infrastructure team became concerned about concentration risk due to the scale of exposure to renewables. The market had grown more crowded, and they questioned whether partner funds would still benefit from an optimal risk-return balance.

“It’s not like ten years ago where you had a government guarantee for your revenue. In recent years it was difficult to find the right deals at the right returns. Everybody was piling into renewables,” Alvarez-Dominguez warns.

“The returns were too low and even if I was going into construction-ready assets, I was getting the returns I would have expected from operating assets.” Among other concerns, the team saw assets with 10-year PPA agreements being priced similarly to 20-year deals: “It’s not the same thing,” he points out.

There were also questions whether the investments really made a difference. “The impact is lower than you think because when you put your first wind farm in the UK, you were taking out coal. Now there is no coal, and the grid is overall much more decarbonised, so your additional impact for every pound you invest is lower,” he explains. “We were saying no to a lot of deals. Some of the funds were starting to have some issues, particularly when there were cost increases on the supply chain associated with COVID.”

Turning to transition assets

But this did not mean abandoning the energy transition. Rather, Brunel began speaking to partner funds about broadening the remit. “By cycle three we told them: it’s not only difficult to find good renewables, but you also have a lot of exposure,” Alvarez-Dominguez says. Expanding into transition assets ties into his wider experience. Alvarez-Dominguez is one of the founders of Xlinks, an infrastructure firm which specialises in subsea intercontinental cables transporting clean energy and has also co-founded Faro Energy, a Brazilian solar energy firm.

In the third vintage, the fund adopted a wider view of transition assets, investing in battery storage, electrification of transport, district heating, energy efficiency, and—crucially—natural capital. One of its key co-investments was in Bluesource Sustainable Forest Company, now known as Aurora.

At the time, investing in the voluntary carbon market was a risky move. Market volumes had fallen by more than 50% and average prices had been declining since 2022, according to Ecosystem Marketplace.

Still, Alvarez-Dominguez is confident that natural capital has a place in traditional infrastructure portfolios. A key consideration is the intrinsic land value of the asset. “Part of the plan to invest in Aurora was the idea that the investment was backed by 600,000 hectares of mixed hardwood with more than 120 species of trees,” he notes. The aim was to reduce harvesting by 50% and generate additional revenue through carbon credits. If the credits didn’t materialise, Aurora would fall back on sustainable forest management.

Brunel also invested on first-time agriculture fund, Clear Frontier Meadowlark I, which was also backed by the Lukas Walton family office. This includes long-term land leases to family farmers willing to transition to organic, with payments structured to “cover the J-curve of the transition,” he explains.

Ultimately, the numbers still need to stack up. Brunel targets returns above 8% from natural capital assets, which in practice has excluded most UK forestry, he notes.

It remains to be seen what the Microsoft deal means for Brunel in hard financial terms. But Alvarez-Dominguez remains optimistic about the broader outlook for carbon markets.

“We’ve always believed in the need of the carbon market as a way to finance the most efficient way of carbon capture that we have now—that is through natural capital.”

While he acknowledges that recent greenwashing scandals were “a disaster” for the market, he sees encouraging signs of recovery—driven in part by demand from large corporates with net zero targets.

There are still lessons to be learned. Alvarez-Dominguez stresses the importance of strong standards, credible certification, and alignment with science-based targets. Carbon credits, he insists, should only be used for residual emissions—not as a substitute for genuine reductions.

Although the future of Brunel is unclear, Alvarez-Dominguez is already thinking about the next chapter. “We were planning a new mandate separate from infrastructure for natural capital,” he says, suggesting there may yet be a new role for nature in the pension portfolios of tomorrow.