Alberta’s public investment manager is not making a net-zero commitment, and selling off fossil-fuel producers is out of the question. Instead, it will concentrate on investing alongside portfolio companies to decarbonize, its chief executive officer says.
Alberta Investment Management Corp. will unveil a “transition finance” strategy in the coming months that will spell out its plans for investing in a lower-carbon economy on behalf of several pension plans and public accounts in the province. Unlike the case with some institutional investors, divestment from fossil fuels – still Alberta’s dominant industry – won’t be on the agenda.
For Edmonton-based AIMCo, concentrating on a specific net-zero goal would be a distraction from what’s needed to balance energy supply and emission reduction, CEO Evan Siddall said. He believes in the concept but said he can’t make the commitment on behalf of clients if he can’t see a clear path to get there.
“Use of energy is going up, and net zero doesn’t mean zero. The initial reaction of a lot of people in the investment world was to jump on a net-zero bandwagon that was divestment-driven. We think that is ill-advised for a bunch of reasons,” Mr. Siddall said in an interview.
“The world is going to need hydrocarbons. We need to make the ‘net’ big enough to be net zero. It’s not just about eliminating the gross, it’s also about increasing the net. If we don’t attend to the oil and gas industry and help them invest in that decarbonization, we will not get to net zero.”
Divestment of fossil-fuel companies robs them of the ability to make the capital investments needed to cut greenhouse gases and raises the risk that producers will be acquired by buyers with no interest in cleaning up operations or even by “unfriendly regimes,” he said.
Not all major Canadian pension managers share that view. Last year, the Caisse de dépôt et placement du Québec caused a stir when it said it would sell off its remaining oil-producing assets as part of its climate strategy. It also set up a $10-billion fund to decarbonize other high-emitting industrial sectors in which it has holdings. The Ontario Teachers’ Pension Plan and the Canada Pension Plan are employing various strategies for their net-zero ambitions.
But the Public Sector Pension Investment Board is taking an approach similar to AIMCo’s, avoiding a specific emission target and concentrating on decarbonization efforts at portfolio companies.
Environmental advocates have criticized many of Canada’s large pension plans for not setting targets to exclude fossil fuels from their portfolios, arguing that this exposes beneficiaries’ retirement funds to climate-related risks.
With oil and gas shortages causing economic upheaval in Europe and contributing to inflation in North America, the race to drain carbon from the global economy has become increasingly contentious. But Mr. Siddall, who is presiding over the opening of a new AIMCo office in Calgary this week, said transforming the oil and gas industry could be “the investment opportunity of our generation at a place, at a time when there are few of them.”
“So we want to really get our hands dirty. We have the benefit of being Albertan and not being driven to rush into this divestment kind of frenzy. Instead, we can help heavy emitters in the oil and gas business, invest in them and decarbonize,” Mr. Siddall said.
AIMCo, which is owned by the Alberta government, manages $168-billion of assets on behalf of 32 entities, including pension funds for municipal employees, first responders, judges, teachers, university professors and others, as well as government accounts such as the $19-billion Heritage Savings Trust Fund.
In late August, it reported a 4-per-cent investment loss for its second quarter, joining several of its peers in showing how big drops in equity and bond markets hurt results. Still, the results beat similar assets it uses as a benchmark, it said.
Mr. Siddall took the helm in July, 2021, after his tenure as the CEO of the Canada Mortgage and Housing Corp. His entry followed a period of upheaval at AIMCo sparked by a $2.1-billion investment loss at the start of the pandemic on volatility-linked instruments, when markets gyrated wildly. An internal review found that the organization suffered from a poor approach to risk management as well as insufficient oversight.
Today, he said, AIMCo is a transformed organization after what he called its “Tylenol moment,” with new leadership that emphasizes close consultation with its clients on investment strategies – a promise he made a year ago. That includes speaking to the heads of the pension plans “almost every week.”
“I have direct relationships with the CEOs of the clients. I present to their boards. [Chief fiduciary management officer] Amit Prakash runs that part of the organization, and in this respect I work for him. He tells me where I need to go and who I need to speak to,” he said.
AIMCo is considering opening new offices in New York and Singapore to bolster its expertise in those major financial centres. Asia and China, specifically, are of keen interest. Besides its headquarters and new Calgary site, it currently has offices in Toronto, London and Luxembourg. “This is something we’re looking at and we’ve not yet decided,” Mr. Siddall said. “It’s a complicated thing. You’ve got to find space. You’ve got to find people – the right people. We ideally will have senior people in each office.”
Mr. Siddall is clear that AIMCo remains committed to maintaining environmental, social and governance (ESG) standards as criticism of the field increases in some political and business spheres. The E portion is represented by the decarbonization strategy, and he sees diversity, equity and inclusion – part of the S category – as being key to the organization’s success.
“We’re a decision-making institution, right? That’s what we do. If people don’t feel comfortable speaking up and challenging decisions, we can’t make good decisions. And when people feel excluded, for whatever reason – their gender, their ethnicity, their education, their age – then we restrict our ability to make the best decisions.”