Four leading state-owned investors have thrown their weight behind the Brookfield Global Transition Fund to invest in clean energy and bolster the Paris climate commitment of net zero by 2050.
Canadian public pension fund OTPP and Singaporean state investor Temasek came on board as founding partners, committing “significant capital” in the fund as well as planning to invest alongside it. Two other Canadian PPFs – PSP Investments and IMCO – have also committed as “meaningful” investors in the fund, which has an initial close of US$7 billion, with a hard cap of US$12.5 billion.
The huge financial commitments indicate the weight Canadian PPFs, as well as Temasek, are giving to energy transition in the drive towards net zero. The fund will invest in scaling up renewables and transforming carbon-intensive businesses.
The Paris Agreement is guiding investment decisions with the “Maple 8” funds representing C$1.6 trillion of assets issuing a joint statement in November 2020 committing to environment goals, including implementing common standards and disclosures to assess investments. Following this agreement, in January the 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.
Of the Brookfield fund, Ziad Hindo, Chief Investment Officer of Ontario Teachers’ said, “This investment is an example of how we can use our scale, engagement and influence to help accelerate the transition to a low-carbon economy and create a sustainable climate future.”
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.
Temasek has been slightly more ambitious and pledged to halve the net carbon emissions of its portfolio compared with 2010 levels by 2030, and reach net-zero by 2050. It’s ramped up the amount of money it allocates to impact investment and environmental, social and governance funds.
Steve Howard, Chief Sustainability Officer of Temasek said, “The global transition to net-zero emissions presents unique opportunities for investors seeking to deliver sustainable value over the long term. The partnership with Brookfield complements our strategy to invest in climate-aligned initiatives which we believe will be instrumental in accelerating carbon abatement and helping deliver on the Paris Agreement.”
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. At a strategic level, renewable energy chimes well with SOIs’ long-term investment horizons and ESG commitments, as well as providing a stable return on investment. Global SWF believes there are now the perfect conditions for rapid growth in low carbon energy production with the US set to become the focus of attention.
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.