The response from Brookfield

Brookfield provided detailed responses to our questions.

  1. Do you measure the carbon footprint of your infrastructure portfolio? And do you measure your footprint at the GP level?

Yes, we have taken steps to measure our carbon footprint in our infrastructure portfolio and at the GP level. Note Bruce made comments on this recently in our Q4 BAM letter noting that “Much attention is being paid these days to sustainability and carbon footprint. As many of you know, we have been very active in this area without much fanfare. The sheer scale of our renewables business and its avoided emissions eclipse our estimates of emissions across all our other businesses. On this basis, we believe Brookfield’s overall carbon profile today is very low, if not neutral or possibly even negative. We intend to further enhance that profile as we build out our vast development portfolio of renewables.”

We have initiatives underway to measure our carbon footprint and the impact of climate change in various parts of our business. This includes:

  • Steps to measure and reduce our greenhouse gas (GHG) emissions:  Many of our businesses have begun to measure and identify ways to reduce GHG emissions. In addition, we are aiming to lower our carbon footprint by implementing strategic energy efficiency measures.
  • Conducting climate change risk assessments: We monitor climate risks as part of our overall risk assessments.
  • Offering solutions that support the transition toward a low-carbon economy:  The transition toward a low-carbon economy is underway and likely to accelerate. We believe we are well positioned in this context, particularly with respect to our sizable renewable power portfolio which is among the largest globally.

In 2019, we initiated a process to align our efforts with the Task Force for Climate-related Financial Disclosures (TCFD), which is a globally recognized framework for assessing climate change risks and opportunities. Part of this framework includes understanding key climate metrics and targets for our portfolio, including GHG emissions.

  • At the GP level, Brookfield(BAM) completed a GHG emissions inventory exercise, covering scope 1 (covering direct emissions), scope 2 (purchased power), and scope 3 (indirect emissions, limited to air travel). The results are disclosed in the Brookfield 2018 ESG Report.
  • At the portfolio company level, a number of our businesses are measuring GHG emissions.  This includes our renewable power business, which has one of the lowest carbon footprints in the sector.  During the year, our renewable power generation helped to avoid approximately 27 million metric tons of CO2 emissions on a net basis. This is equivalent to all the carbon dioxide emissions generated by London, England each year. With our development pipeline in renewable power, we expect to create enough carbon free power to displace an additional 17 million metric tons of carbon dioxide per year. Additional details can be found in Brookfield Renewable ESG Report.
  • We have also launched a process of completing a top-down GHG emissions estimate across the balance of our portfolio. While a number of our portfolio companies conduct a GHG inventory on an individual basis, this top-down estimate will help us to better understand climate risks and opportunities across our asset base.
  1. Do you have any fossil-fuelled energy generation/transmission assets in your infrastructure portfolio? If so, what percentage of your portfolio do they represent?

From an energy generation standpoint, our portfolio is squarely on the side of carbon-free renewables. Substantially all our energy generation assets, which comprise ~40% of our portfolio, are renewable – primarily solar, wind, and hydro.

We are advantaged to have one of the largest renewable power portfolios globally with 19,000 MW of hydro, wind, storage, solar and distributed generation in 17 countries.

We also have a scale portfolio of infrastructure assets spanning the transport, utility, energy and data infrastructure sectors, making up the remaining 60% of the total portfolio.

A sub-segment of our energy portfolio is comprised of natural gas transmission and distribution assets (15% of total portfolio). Natural gas is the lowest-emitting carbon fuel and a contributor to the transition to a green economy as companies shift from heavier fossil fuels. Our investments in this sector are based [on] the attractive concession arrangements of these assets vs. a long-term view of their terminal value.

  1. Do you have energy-transition assets? If so, what percentage of your portfolio do they comprise?

Our portfolio today reflects our conviction in the acceleration towards a carbon-free economy. Almost half (~46%) of our portfolio plays a role in energy transition:

  • ~40% is in renewable power across solar, wind, hydro, storage, batteries. Importantly, we have a long heritage as an owner and operator of renewable power assets which informs a very hands on operational approach, and a well-established track record for running these businesses well.
  • ~6% is in assets that support energy efficiency, utilizing innovative technologies to provide sustainable energy to customers:
    • Enwave, our district energy business, provides heating and cooling at scale to large commercial buildings including renewable sources. E.g. our district energy system in Toronto uses the world’s largest deep lake-source cooling system, water from Lake Ontario, to provide cooling to customers. This is a clean, renewable and reliable cooling source, providing a 90% reduction in energy use as compared to a conventional source of cooling.
    • Enercare, our residential energy infrastructure business, provides essential home services, such as HVAC rentals and smart meters, to approximately 1.6 million customers in Canada and the U.S. Sub-meters provide a large benefit to multi-residential and commercial buildings in reducing energy consumption and on average results in ~30% electricity savings.
    • Quantum, our Brazil electricity transmission business, transmits electricity from primarily renewable energy sources (85%) across 5,200 km in the Northeast and South of Brazil.

These are examples of businesses we own and operate that utilize innovative technologies to provide sustainable energy to customers.

  1. Have you implemented or do you have plans to implement emissions-reduction targets across your infrastructure portfolio?
  • Could you provide details on those targets, including how much CO2 you are offsetting and how you will go about doing it?
  • Do you seek to also influence the supply chain your portfolio companies work with?
  • Will you be relying on data gathering and/or technology to ‘green’ your portfolio?
  • Are you reducing emissions at the GP level, by, for example, rationing travel or offsetting it? 

We support the transition to a low carbon economy and understand the importance of actively measuring our GHG emissions and ways to reduce these emissions as part of that.

Following completion of a GHG inventory at the GP (BAM) level in 2019, we are working on identifying measures to reduce our emissions, including greater consideration to air travel, and have also significantly invested in communications technology across the broader Brookfield franchise so as to increase our ability to manage meetings and other gatherings via remote participation, thus reducing travel requirements.

Our renewable power business has conducted a GHG emissions assessment and we are now focused on conducting a GHG estimate across our infrastructure portfolio to enhance our understanding of climate change risks and opportunities. Once this exercise is complete and as we continue our efforts to align to TCFD principles, we will determine if any targets should be set at the GP level for our portfolio companies. In the meantime, emissions reduction is a theme of focus across our portfolio.

Consistent with our asset management philosophy, ESG risks and opportunities are actively managed by the portfolio companies with guidance from our in-house teams. Our portfolio companies are accountable and responsible for aligning to Brookfield’s philosophy on climate change and ensuring appropriate steps are being taken to support a transition to a green economy.

On data and technology, we regularly seek to leverage innovation to create value in our businesses – this includes implementing port automation, smart meter technology, and other innovation that contributes environmental benefits including reduced energy usage and emissions.

  1. How resilient is your infrastructure portfolio to climate change?
  • Do you have any assets that are particularly exposed to climate change?
  • Does your portfolio require climate-adaptation measures. If so, what is the projected capex spend? 
  • Have you already spent capex making your portfolio more climate-resilient? And if so, how much? Also, will this spend impact the project returns of your infrastructure portfolio?
  • Have you ever divested an asset due to climate-change considerations?

As a long-term oriented investor, we focus on acquiring and investing in resilient assets with strong long-term prospects.

We have a diversified portfolio of investments across renewables, energy, utilities, transport and data infrastructure. Our portfolio is well-aligned to the broader trend towards carbon reduction and we are confident that we are favourably positioned in the current context and into the future.

We are taking proactive steps to ensure our portfolio is resilient to climate change impacts. Through aligning to the TFCD, we are conducting a climate “heat map” of our portfolio to further consider exposures and determine if and where [additional] mitigating procedures should be implemented. Consistent with our broader risk management strategies, climate specific risks and opportunities will be incorporated in our business plans.

We do not expect a material impact on project returns as a result of investments to support climate resilience. First, climate considerations are incorporated into our diligence and subsequently our underwriting model (including terminal values where appropriate). Second, we believe that if additional capex would be required to improve the resilience of our portfolio to physical climate risks that this would have an industry-wide impact on all companies within or outside our portfolio.

From a divestment perspective, a decision to monetize will be based on a number of factors. In considering investments, we incorporate ESG principles including climate considerations into our process from due diligence, to acquisition, and through the course of our ownership of the asset. We have turned down prospective investments where they have failed to meet our ESG principles.

  1. Could climate change adversely impact the valuation of your infrastructure portfolio?

We believe our portfolio is favourably-positioned in the context of global climate risks from a valuation perspective in both the near and longer-term. We are advantaged to have a very diversified portfolio of investments across renewable power, energy, utilities, transport and data infrastructure with strong expertise to monitor and adapt to climate risks.

  1. Have you adopted a strategy for future assets you will be investing in? For example, investing less in fossil fuel-based assets and more or only in clean energy?

We have already evolved to increase our investment in line with broader trends, including towards renewables (and data infrastructure as another example). Our renewables portfolio is now among the largest and most diversified by both geography and sector. As we go forward, we will continue to invest across our core sectors of renewables, data infrastructure, utilities, transportation, and energy (with a focus on natural gas). As demand and needs shift within these sectors, our investment strategy will adapt as it always had in line with broader trends and opportunities.