Skip to main content

CEO of ARC Financial Corp., Brian Boulanger in Calgary, Alberta, June 15, 2020.Todd Korol/The Globe and Mail

ARC Financial Corp., stalwart funder of Canada’s oil patch, is expanding its investment strategy to include companies gearing up for the transition to a net-zero economy.

The Calgary-based private-equity firm has secured the approval of its investors to seek out companies in a range of fields, from carbon capture, utilization and storage (CCUS) to biofuels, renewables and providers of construction and maintenance services for the sector.

These investments will be made by its ninth fund, which raised $780-million from institutions in Canada, the United States and Europe in 2019. Down the road, ARC aims to raise money for a new fund dedicated to climate-friendly energy investments.

The move by Canada’s largest energy-focused fund manager is the latest to address the need for green technologies as the country inches closer to a target of net-zero emissions by 2050. The sector keeps gaining momentum, even as conventional energy stages a rebound from its pandemic-induced collapse.

“As we looked at where the globe was going, where Canada was going, where industry was going, we felt that this was a natural reintroduction into the portfolio, offering investors great adjusted-risk rates of return relative to what we’re seeing in oil and gas,” said Brian Boulanger, ARC’s chief executive officer, in an interview.

“We really think our investors should be exposed to both oil and gas and energy transition, and hence why we went and asked them for mandate expansion and, unanimously, they gave it to us.”

For renewables and other companies focused on the energy transition, ARC is seeking investments in the $25-million to $150-million range, with technology already commercialized, he said.

ARC has raised more than $6-billion since it began making private-equity investments in 1997. In that time it has backed more than 180 companies, including Longshore Resources Ltd., STEP Energy Services Ltd., Seven Generations Energy Ltd. and the forerunner of ARC Resources. The latter two merged in a $2.7-billion deal this year.

Mr. Boulanger is adamant that ARC will not abandon oil and gas – it remains a supporter of the industry. However, it is also pushing companies in its portfolios to reduce their carbon dioxide emissions, he said.

“Long ago we made a commitment to our investors that, at the portfolio level, our carbon intensity would be below the North American average,” he said. “We continue to set very strict and absolute targets for our portfolio companies in that area.”

The renewed focus on low-carbon investments is not the fund manager’s first foray into non-fossil fuel energy. It was an early funder of BluEarth Renewables, selling that stake to its partner, the Ontario Teachers’ Pension Plan Board, in 2015.

ARC has long taken a broad analytic approach to energy in Canada, as well as global trends. Managing directors Peter Tertzakian and Jackie Forrest lead the firm’s research institute, whose work informs its investment decisions. The unit also has an outreach function, publishing reports and producing podcasts. Mr. Tertzakian is a member of the federal government’s recently formed net-zero advisory body.

The tweak to the firm’s investment mandate by no means makes it an outlier. Such moves have often been driven by investor calls to deal with the financial risks associated with climate change and policies to limit emissions.

In April, a smaller firm, JOG Capital, changed its focus to concentrate on matching hydrocarbon production with CCUS opportunities. It’s now called Carbon Infrastructure Partners. Meanwhile, some investment banks that have concentrated on oil and gas in Calgary have added low-carbon energy and cleantech to their mandates as demand has increased.

“We are well positioned to thrive,” Mr. Boulanger said. “When I look at energy transition, what does Canada have going for it? We’ve got, for example, all the deep bench strength of technical energy workers. We’ve got the established capital markets around it, the legal system, that whole ecosystem that supports energy. It doesn’t exclusively support oil and gas – it supports energy.”

Jeffrey Jones writes about sustainable finance and the ESG sector for The Globe and Mail. E-mail him at jeffjones@globeandmail.com.