Major institutional investors have committed US$7-billion to Brookfield Asset Management ’s new Global Transition Fund, making it the largest pool of private money aimed at accelerating the shift to a net-zero carbon economy.
Capital in the fund could hit its limit of US$12.5-billion before the year is out, Brookfield said Tuesday, showing how institutional investors such as pension funds have expanded their focus to include seeking big technological solutions to climate change along with stable financial returns.
The majority of the fund’s initial investment comes from two sources: the Ontario Teachers’ Pension Plan Board and Temasek, the Singaporean sovereign wealth fund. Two other Canadian pension plans, PSP Investments and Investment Management Corporation of Ontario, are also “meaningful” initial investors, Brookfield said. It did not specify the amount of capital contributed by each investor, or by Brookfield itself.
The Global Transition Fund is co-managed by Connor Teskey, chief executive officer of Brookfield Renewables, and Mark Carney, who served as governor of the Bank of Canada and then as governor of the Bank of England before his term in the latter role ended last year.
The fund will search for investments in enterprises that promise to reduce greenhouse gas emissions, decrease energy consumption and boost low-carbon energy capacity. Teachers and Temasek will also make direct investments alongside Brookfield’s fund. All three firms have pledged to achieve net-zero carbon emissions by 2050.
The fund will top out at US$5-billion more than initially planned, an indication of the surging demand for sustainable investments as the COVID-19 pandemic has put the spotlight on society’s vulnerabilities, especially climate change. Brookfield isn’t alone. TPG, the U.S. private equity firm, announced Tuesday its initial climate-focused fund, chaired by former U.S. Treasury secretary Hank Paulson, raised US$5.4-billion. Teachers is among investors in that fund as well.
“We expect others to come into this area. We need others to come into this area. The world needs to decarbonize. We need huge scale of capital, relative to the need,” Mr. Carney said in an interview. “These are big, big numbers, and bigger numbers than we expected. But it’s also consistent with the fact that the world is starting to move, and the scale of the need is so great.”
Mr. Carney signed on with Brookfield last year, and is now vice-chair and head of transition investing. Apart from his duties at Brookfield, he is the United Nations Special Envoy on Climate Action and Finance. In that role, he is leading a number of initiatives ahead of November’s UN climate summit in Glasgow. He recently ruled out running as a Liberal candidate in the next federal election, saying he must keep his commitments on the climate finance front at a crucial time.
This is Brookfield’s first impact fund – a type of fund intended to use investor money to make large strides toward environmental sustainability. The company already operates one of the world’s largest portfolios of renewable energy assets. Brookfield has said its impact investing could eventually hit US$100-billion, as the world seeks solutions to climate change.
“We’ve seen the shift in terms of countries that have net-zero commitments, companies that have net-zero plans. That’s accelerated over the course of the last 18 months,” Mr. Carney said. “So all of that brings together a much bigger opportunity set for the fund and, by extension, those who are participating in it, an alignment between the social objective – decarbonization, addressing climate change ... and the commercial return objective of the fund.”
Mr. Carney has said that the transition to net-zero, in which carbon emissions are simultaneously reduced and offset with cleaner alternatives, will require more than investments in existing renewable energy projects and technology. Energy companies, utilities, tech firms and industrial companies, he has said, will require trillions of dollars in capital to transform their operations to slash carbon emissions in hopes of helping to prevent the most devastating effects of climate change.
Mr. Teskey said a top focus for the fund will be finding opportunities to help industries cut the carbon intensity of the power they consume to produce raw materials and manufactured products, something Brookfield has years of experience with as a major renewable electricity producer.
“That has put us in the pole position, having already taken that step, with so many different customers and so many different businesses around the world, that we now can partner with to help them with the future steps of the decarbonization journey,” he said.
Teachers, one of Canada’s largest investors, set its net-zero goal in January. The pension fund has promised to boost investments in climate-friendly assets, to help corporations it invests in cut emissions and increase the resilience of the fund’s assets against climate risks. Teachers and Brookfield have been criticized by some environmental groups for maintaining investments in fossil fuel industries while pledging action on climate.
“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,” Ziad Hindo, chief investment officer for Teachers, said in a statement.
Jeffrey Jones writes about sustainable finance and the ESG sector for The Globe and Mail. Email him at email@example.com.