Canada Pension Plan Investment Board will concentrate on helping high-carbon companies it deems critical to the economy cut their emissions, rather than divest its holdings, as a key part of its efforts to deal with climate change.
In what it is calling a new investment approach, CPP, which manages $542-billion of assets on behalf of Canadians, said it will target companies in “hard-to-abate” industries, including agriculture, chemicals, cement, conventional power, oil and gas, steel and heavy transportation. Success in reducing their emissions will be essential to reaching Canada’s targets of net-zero emissions by 2050, the public pension plan said in a statement to be released today.
As part of the strategy, it may buy and hold companies with large carbon footprints if it believes it can build long-term value by accelerating emissions reductions, it said.
“High-emitting companies that successfully navigate the economy-wide evolution to a low-carbon future will preserve and deliver embedded value for patient long-term investors like CPP Investments,” Deb Orida, the fund’s chief sustainability officer and global head of real assets, said in the statement. Ms. Orida was not immediately available for comment.
The strategy will not only go a long way to helping meet climate goals, but will help sustain economic growth and stability through a decades-long transition to cleaner energy, CPPIB said. Indeed, despite ambitions for mass adoption of electric vehicles and renewable energy, the transition is expected to take years.
CPP outlined its approach amid a debate among institutional investors and environmental advocates on whether to plow capital into sectors with high carbon emissions or jettison them. Some Canadian pension plans and financial institutions seek to sell holdings in oil and gas to cut their climate risk, citing their intentions to avoid funding any increase in fossil fuel production.
The Caisse de dépôt et placement du Québec, for instance, said in September it was setting up a $10-billion fund to decarbonize high-emitting industries, but also announced it will sell its remaining oil-producing assets, worth about $4-billion, by the end of next year. Last week, Montreal-based Laurentian Bank of Canada said it will no longer directly finance the exploration, production or development of coal, oil and gas.
Unlike some pension funds, CPP has yet to announce a plan to achieve net-zero emissions in its own operations and those in which it has financial interest. However, it points out that it is one of the world’s largest investors in green energy, with assets around the world worth $65-billion.
The pension plan said most initiatives aimed at combatting the climate crisis fail to address sectors that have high emissions but are still crucial to society. Those will require both capital and collaboration with executives, investors and other interested parties.
“We believe breakthrough technologies are on the horizon that will scale to support the future decarbonization of these companies,” CPP said in an investment brief. The approach complements its investments in early-stage companies developing new technology for a range of industries, it said.
It said it will use a range of sustainable-financing vehicles for its investments aimed at decarbonizing high-emissions companies, including transition bonds.
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