One of Canada’s biggest pension funds says it hasn’t been able to deploy the CAD 10 billion ($7.3 billion) it earmarked for energy transition investments, partly because it finds Asian governments’ long-term plans and support inadequate.
“Particularly in this part of the world, there are a lot of governments who are jumping and saying that, ‘We’ve got a lot of energy transition needs,’” said Wai Leng Leong, head of Asia-Pacific at Caisse de Depot et Placement du Quebec at the FT Future of Asset Management Asia event in Singapore Wednesday. “But when we say energy transition, we want complete accountability and that has to be there for 20, 30 years.”
It takes a long time to wind down polluting businesses and replace them with clean alternatives, she said, which requires “a lot of government support in engaging the local community.”
Transition finance — investments in heavy-emitters’ plans to reduce their greenhouse gas emissions and become more energy efficient — has become increasingly important in the fight to slow global warming. In Asia, reaching net zero by 2050 would require more than $20 trillion of investment.
Aside from the money targeting transition projects, CDPQ is experimenting with contingent investments in companies that don’t currently meet its ESG standards, Leong said.
That means providing fractional financing for a project, with more on offer if the firm meets targets for environmental, social and governance metrics. Some metrics CDPQ looks at include carbon intensity, diversity and inclusion, and tax compliance.
Unfortunately, the video clip featuring Wai Leng Leong, Head of APC at CDPQ, is not available so I cannot fully understand the proper context of what she is speaking about.
I recently covered CDPQ's 2023 Sustainable Investing Report and noted this on transition finance:
Importantly, CDPQ now holds $5 billion in transition assets so I don't really understand the title of this Bloomberg article which has been published elsewhere and seems alarmist.
Fair enough, Asia is a tough place to do business, not just for CDPQ but for other large Canadian pension funds disappointed with the deal flow and more the size of the deals coming out of there.
And perhaps governments there are slow to lend their long-term commitment to energy transition projects but I find it hard to believe CDPQ is struggling to deploy assets in the space, maybe in Asia but not elsewhere.
The other thing that is tricky is what exactly constitutes energy transition assets?
For CDPQ, the high emitting sectors they are targeting are in agriculture, electricity production, transportation and materials.
Yesterday, I covered how CPP Investments and Global Infrastructure Partners (GIP) are taking US utility ALLETE private in a US$6.2 billion deal to help it grow its ‘Sustainability-in-Action’ strategy to decarbonize its operations over the long run.
I consider this deal energy transition as well and we are talking billions being deployed.
All this to say CDPQ isn't struggling to deploy $7 billion for energy transition, there are opportunities all over the world and I'm sure it will capitalize on the right ones.
The problem with sustainable finance is the taxonomy differs from one fund to another and sometimes people get bogged down on filling a bucket instead of just focusing on the merits of a potential project.
Anyway, I am going to end it there, not much more to discuss but I do agree with Wai Leng Leong when she states: “...when we say energy transition, we want complete accountability and that has to be there for 20, 30 years.”
These are long-term projects and you need government backing over the long run as well as engaging the local community which she alludes to.
Is energy transition worth the hassle?
You bet, it's a win-win-win as long as there's alignment of interest and everyone is on the same page.
Below, Barbara Zvan, president and chief executive officer at UPP, joins BNN
Bloomberg to talk about the importance of having a net zero 2040
commitment. Zvan also discusses why private equity, debt and
infrastructure investments in Canada are some of the top holdings in
UPP's portfolio.
Listen to Barb's insights on how they are deploying assets into sustainable investing projects and he thoughts on sharing a proper taxonomy for transition finance that is standardized across all countries.
Barb also appeared with Jim Leech and Keith Ambachtsheer on The Agenda with Steve Paikin to discuss why don't Canadian pension funds invest more in Canada. Not available on YouTube yet but you should watch this interesting discussion here. Listen to her comments on sustainable finance at the end.