The world is navigating disruption on a massive scale, playing out on virtually every front. A dynamic geopolitical environment continues to increase complexity for global investors. The COVID-19 health crisis has upended daily life. Technological advancements, such as artificial intelligence, quantum computing and blockchain present both unprecedented opportunities and potentially destabilizing challenges. And over all of this, looms the impacts of climate change, and the growing realization that the window for transitioning to a decarbonized world is quickly closing.
The scale of these challenges is daunting, and solutions will require the involvement of all actors—governments, civil society, and private sector companies—including capital providers. Long-term investors, like CPP Investments, can play a critical role in this process. The scale and reach of our portfolio and our global investing ecosystem puts us in a unique position to develop insights and apply them to investments that can fund new technologies and approaches to help address these complex, disruptive forces—while earning returns for our beneficiaries.
Climate change is one of the most pressing of these issues. It demands nothing less than a whole economy transition. We know this is complex terrain. Solutions will play out over years and require significant funding—making them well-suited to large, long-term investors like CPP Investments. Here are a few examples where we believe the Fund can make a difference:
Decarbonizing essential sectors: Power, real estate and agriculture are core to our economy, but they can also generate high emissions. We see opportunities to fund innovative solutions for decarbonizing these important sectors by supporting select high-emitting companies with an interplay of leadership, accountability, innovation, and patient capital as they profitably transition over the mid- to long-term.
Improving abatement-capacity disclosure: Increasingly companies are communicating their ambitions to achieve net zero emissions, announcements that can impact valuations and access to capital. We recently proposed a reporting framework to provide boards and investors with consistent, standardized data on the feasibility of these transition plans, which could help boards develop confidence in their companies’ plans and ensure access to patient capital with which to fund them.
Strengthening carbon markets: We recently entered a partnership with Conservation International, a globally recognized NGO whose mission is to conserve biodiversity. Together, we created a fund to invest in projects that will protect endangered forests, which are important carbon sinks, absorbing more carbon from the atmosphere than they release. The project will generate high-quality, verifiable carbon credits that the partnership will sell to generate returns for investors and to support Indigenous communities as they develop new, more sustainable jobs. To scale this approach, we encourage more rigorous standards in the world’s nascent carbon markets, where these credits will trade.
The enormous challenges ahead demand that all stakeholders work together to unleash the skills, resources and capital at the scale required. To spur this effort, we are launching the CPP Investments Insights Institute to share our knowledge and engage with fellow investors, CEOs, policy makers and others on ways to overcome obstacles as we mobilize capital to take on broad, global challenges. We believe that a better understanding of the profound effects these disruptive forces will have on the investing landscape, and how we can best adapt, will enable us to create enduring value for current and future generations.
Even as we continue our focus on climate change, we will also explore other areas, including technology disruption. As new technologies evolve it is essential for long-term investors to recognize both their potential benefits, as well as the risks, including cyber security, loss of privacy and greater social isolation.
We believe that by funding innovation, long-term investors can help find (and scale) solutions to the world’s most complex challenges. It will take all of us working together to usher in the changes most needed now. This is not only a good investment strategy— it is critical to our future.
This is an excellent comment which raises many important points.
First, John Graham doesn't mince his words, starting with this stark warning: "The window for transitioning to a decarbonized world is quickly closing."
There is an explicit acknowledgement that if we don't act soon and stop dithering, we are going to miss our window to take meaningful action to decarbonize our world.
And he follows up by stating: "The scale of these challenges is daunting, and solutions will require the involvement of all actors—governments, civil society, and private sector companies—including capital providers."
Notice here, even though he's saying capital providers will play an important role, he's explicitly stating that the challenges are daunting and all stakeholders need to be part of the collective effort to decarbonize this world.
It's important to recognize that CPP Investments and all of Canada's large pensions cannot address these challenges alone, they can do their part investing in more green investments, the transition economy and new technologies that will accelerate the transition, but that's not going to solve the daunting challenges we face when it comes to climate change.
We need a coordinated effort and all the key players including governments and businesses need to be part of the discussion to address these challenges.
And that's far from easy which is why CPP Investments is starting an initiative to promote an ongoing discussion:
The enormous challenges ahead demand that all stakeholders work together to unleash the skills, resources and capital at the scale required. To spur this effort, we are launching the CPP Investments Insights Institute to share our knowledge and engage with fellow investors, CEOs, policy makers and others on ways to overcome obstacles as we mobilize capital to take on broad, global challenges. We believe that a better understanding of the profound effects these disruptive forces will have on the investing landscape, and how we can best adapt, will enable us to create enduring value for current and future generations.
Again, CPP Investments Insights Institute won't solve all the challenges but it is a step in the right direction and they are doing their part to actively engage all stakeholders on ways to overcome obstacles as they mobilize capital to take on broad, global challenges.
Now more than ever, we need a collaborative approach to find best practices when it comes to responsible investing across public and private markets.
In this regard, everyone should welcome this initiative but truth be told, I wish it was all of Canada's large pensions that started this initiative together, but I realize CPP Investments being the largest fund is doing it on its own and inviting other stakeholders (not just pension funds) to share insights and ways to address these daunting challenges.
Where should we start? John Graham is spot on when he states:
Decarbonizing essential sectors: Power, real estate and agriculture are core to our economy, but they can also generate high emissions. We see opportunities to fund innovative solutions for decarbonizing these important sectors by supporting select high-emitting companies with an interplay of leadership, accountability, innovation, and patient capital as they profitably transition over the mid- to long-term.
And here capital providers are playing a critical role, not just pensions but private equity giants like Blackstone, Brookfield, TPG and many other large and smaller funds.
I think the most important thing to remember is that if we truly want to decarbonize and get this world on the right path, we need a pragmatic and inclusive approach which brings all stakeholders together, including the fossil fuel industry.
Transitioning to a new renewable energy economy won't happen overnight, it will take decades, and while I welcome incremental gains, I realize they are incremental in the grand scheme of things.
Moreover, as we are reminded of every day in the news, the world is a dangerous place, there are despots ruling their respective countries with an iron fist and we need to be cognizant of this too as we forge a path forward toward net zero.
Lastly, and I am quite confident in stating this, while tackling the E in ESG is daunting, tackling the S part will be even more daunting and that too will require collective efforts of all key stakeholders.
There are serious secular trends like rising and unsustainable inequality which should worry all of us because if society breaks down and splinters, talking about the environment will be a moot point.
This is why we need to be promoting an inclusive economy and retrain our workers so they can be part of the "great transition" or whatever label you want to put on it.
That is a massive challenge which will absolutely require our collective efforts.
I don't want to sound cynical but I do want to bring to your attention all these issues because I feel like the conversation on ESG is disjointed and divisive at times, lacking cohesiveness, pragmatism and unity to get things moving in the right direction.
Hopefully, CPP Investments Insights Institute will do its part to promote more insights that will lead to better policies and more cohesion when it comes to tackling these important challenges of our time.
I'd better stop there, I've rambled on long enough.
Let me just end by congratulating John Graham and Suyi Kim, Global Head of Private Equity at CPP Investments, for being recognized by Catalyst Inc. and acknowledging empathy as an important leadership skill that everyone is capable of learning:
I will publicly state empathy is the most critical leadership skill and those who don't have it will never be great leaders.
Albert Schweitzer said it best: “The purpose of human life is to serve, to show compassion and the will to help others.”
And in order to help others, you need to walk in their shoes, understand and appreciate their struggles, perspectives and uniqueness.
Below, according to a new United Nations report on the impacts of climate change shows a worrying assessment of how rising temperatures will impact everyday life.