ESG Litigation Insight – Lessons from the NESPF v Hermes Renewable Infrastructure Claim

The North East Scotland Pension Fund (“NESPF”) v Hermes Renewable Infrastructure (“Hermes”) claim brought by Aberdeen City Council (the “Council”) as administering authority of the NESPF, against the Manager and General Partner (“GP”) of the Hermes Infrastructure Fund II (the “Fund”) offers an important reminder of the governance and oversight challenges that can arise in renewable energy investments.

The claim was issued in August 2025 and although the proceedings are  still ongoing, the litigation highlights three themes that LGPS administering authorities/trustees of private sector pension schemes and investment managers should be aware of.  More broadly, the claim provides a reminder that investments with renewable or ESG-aligned characteristics still require the same level of risk assessment and governance as any other infrastructure asset and that ‘green’ does not equate to low‑risk.

 1. Understanding the risk profile of renewable assets  

In 2019, NESPF invested approximately £90mn into the Fund’s “Ventus portfolio”, a suite of five Swedish onshore wind farms. This was treated as a ‘Core Portfolio’ investment, intended for conservative, lower-volatility, long duration and prudently leveraged assets. The Council alleges that, in reality, the investment carried a materially higher and asymmetric risk profile that was inconsistent with that classification. In particular, because of: 

• Asymmetric Power Purchase Agreement (“PPA”) exposure - four of the five wind farms operated under baseload PPAs with fixed hourly delivery obligations. Any under‑generation required buying power at spot-market prices, typically when prices were high and wind was low.
• Market concentration risk - all assets were located in Sweden’s SE1/SE2 price zones, where high levels of renewable generation and relatively low local demand contributed to increased price volatility.
• Inadequate risk modelling - it is alleged the Manager failed adequately to model key interactions between wind variability, price volatility, leverage and the PPA structures. 

NESPF subsequently made further injections totalling £13.9mn between 2021 and 2025 in an attempt to stabilise the investment and avoid default. The pleadings allege that, notwithstanding those steps, the Ventus portfolio reduced significantly in value, with the Council seeking recovery of losses said to reflect that reduction since the 2019 investment.

Takeaway: Any electricity generating assets have the potential to be volatile because of the way electricity can be traded and contracted including renewable energy ones. Where such assets are presented as low-risk or “core” investments, this case underlines the importance of proper modelling, granular scenario analysis and careful alignment between portfolio classification and the asset’s true economic characteristics.

 2. Oversight & governance 

The claim highlights the challenges administering authorities/trustees face when overseeing externally managed mandates. According to the pleadings, several governance tools are said to have not operate effectively in practice. 

This is particularly relevant for LGPS funds, where day-to-day investment decision-making is frequently delegated to external managers or pooled vehicles.  The allegations emphasise the need for:

• Clear and enforceable portfolio classification criteria;
• High quality management information, including timely escalation of performance concerns; and
• Defined intervention routes for when asset performance deteriorates or market conditions shift.  

Takeaway: Administering authorities/trustees should regularly test whether governance and escalation mechanisms are not only well designed on paper, but are capable of being exercised effectively in practice when investments underperform.

3. Derivative claims & structural conflicts 

A notable feature of the claim is that it has been brought derivatively. Because the GP is an indirect subsidiary of the Manager, the Council argues that the GP is conflicted and therefore unable to bring proceedings against the Manager, even though the claims technically belong to the GP under the fund structure.

This means NESPF is seeking to pursue the claims on the GP’s behalf. This highlights how governance rights can become difficult to enforce where the GP and Manager sit within the same corporate group, and where escalation ultimately depends on parties alleged to be conflicted.

Takeaway: When selecting fund vehicles, administering authorities/trustees should pay close attention to the GP/Manager relationship, conflict‑management provisions and the steps available if the manager’s own conduct becomes the subject of concern. 

Looking ahead 

The NESPF v Hermes litigation forms part of a broader trend of increased scrutiny of ESG‑labelled and renewable‑energy investments, particularly where returns depend on sophisticated contractual structures and markets with inherent volatility.  The claim underscores the growing focus on governance, risk classification and decision-making processes in ESG-context investments. As funds continue to pursue climate‑aligned investment strategies, regulators, stakeholders and administering authorities/trustees are likely to place growing emphasis on:

• the discipline of portfolio classification;
• the quality of scenario testing and risk analysis;
• the operational robustness of renewable assets; and
• the effectiveness of governance and escalation mechanisms.

Burges Salmon continues to advise public- and private-sector clients on ESG risk, renewables, infrastructure disputes and pensions governance. For further information, please contact Gary Delderfield, Suzanne Padmore, Trilby James or Caius Mills.

Thanks to Yadhavi Analinkumar, trainee solicitor in Dispute Resolution, who helped to write this article.