Canadian public pension funds have been among the leaders in seeking to decarbonize their portfolio and Canada’s second biggest fund - Caisse de depot et placement du Québec (CDPQ) - is taking it a step further by pledging to divest C$3.9 billion (US$3.1 billion) of oil assets by end-2022.
CDPQ is also aiming to reduce carbon intensity of its portfolio by 60% by 2030 and claims it will be the first Canadian institutional investor to exit oil production assets.
SOIs are increasingly broadening their scope from exclusions and investments in externally managed funds to active, direct investment – and infrastructure portfolios are taking the bulk of climate-sensitive capital. The Montreal-based fund aims to invest C$54 billion of green assets by 2025 with C$10 billion dedicated to decarbonizing carbon-emitting sectors. Decarbonizing initiatives are typically in the electricity generation sector with a focus on moving from fossil fuels to renewables.
Kim Thomassin, Executive Vice-President and Head of Investments in Québec and Stewardship Investing at CDPQ, said, "Four years after adopting our first climate strategy, we reached and even exceeded our targets. With our new strategy, CDPQ is taking action on the climate on several fronts, engaging directly with companies, while investing even more in green assets. Our teams will continue to take concrete steps to accelerate the transition, in Québec and around the world.”
Canada’s “Maple 8” funds, representing C$1.6 trillion of assets, are increasingly aligning with Paris Agreement goals. In November 2020, they issued a joint statement in November committing to environment goals, including implementing common standards and disclosures to assess investments. Following this agreement, in January the Ontario Teachers’ Pension Plan Board (OTPP) announced its commitment to achieve net-zero greenhouse gas emissions by 2050. Its strategy is not just focused on exclusions, but also impact investment with a rise in capital allocation to climate-friendly investments and solutions and working with portfolio companies to achieve net zero emissions by 2050.
In April CDPQ's real estate subsidiary Ivanhoé Cambridge announced an ambitious program aimed at achieving net zero carbon for its international portfolio by 2040. CDPQ's 2020 Stewardship Investing Report, released that month, showed the Quebecois fund hds slashed the carbon intensity of its portfolio by 38% since 2017, well above the goal of 25% by 2025, with C$36 billion (US$28 billion) in low-carbon assets. The fund's success owes much to its attention to carbon auditing of all assets, not just focusing on the obvious exclusions.
CDPQ’s targets follow an announcement by Ontario Teachers’ Pension Plan Board (OTPP) this month of plans to cut emissions. It aims to reduce portfolio carbon emissions intensity by 45% by 2025 and two-thirds (67%) by 2030, compared to its 2019 baseline. These emission reduction targets cover all the Fund’s real assets, private natural resources, equity and corporate credit holdings across public and private markets, including external managers, it said.
OTPP aims to grow investments in clean energy and transition assets, encouraging portfolio companies to implement Paris-aligned net-zero plans, and issuing green bonds and investing the proceeds in climate solutions and sustainable companies.
By end-June, OTPP’s portfolio included more than C$30 billion in green investments such as renewable energy, energy storage, electrification, electricity transmission, energy efficiency and green real estate. In 2021, it has so far committed over C$5 billion to climate and transition solutions to date.
Another Canadian fund IMCO has pledged to reduce global net carbon dioxide emissions by 45% from 2010 levels by 2030, with a dramatic reduction of all greenhouse gas emissions essential for reaching net-zero emissions by 2050 or sooner.
In July, OTPP, PSP Investments and IMCO backed the initial US$7 billion close of the Brookfield Global Transition Fund to invest in clean energy and bolster the Paris climate commitment of net zero by 2050. The huge financial commitments indicate the weight Canadian PPFs are giving to energy transition in the drive towards net zero. The fund will invest in scaling up renewables and transforming carbon-intensive businesses.
Canadian public pension funds represented approximately 85% of the capital deployed by SOIs in US renewables over the past five years, although they also have a strong presence in US oil and gas infrastructure that they may decide to exit. The Biden administration’s US$2 trillion accelerated investment program to rebuild the economy, including an intense focus on renewables infrastructure, should set the US on course to meet the ambitious climate progress demanded by its re-commitment to the Paris Climate Accord. However, this could be at the expense of energy sector investments, such as mid-stream oil infrastructure, which still play a significant role in the portfolios of some SOIs.
