Answers from Bertrand Millot, vice-president, head of stewardship investing, CDPQ
- Do you measure the carbon footprint of your infrastructure portfolio? And do you measure your footprint at the GP level?
We measure the carbon footprint of our infrastructure portfolio, along with all our other asset classes.
Our infrastructure portfolio is composed mostly of assets structured as private equity transactions where CDPQ holds substantial equity ownership (often 30%+) and enjoys governance rights (directorships). Our fixed-income and structured solutions businesses invest in infrastructure debt. All these assets are footprinted.
Each asset class has been allocated a carbon budget with reduction targets. These annual limits set a maximum volume of greenhouse gas emissions allowable for a given portfolio. They are established with the purpose of achieving the 2025 target of -25% intensity (carbon emissions per dollar invested), while still giving our teams the flexibility they need to seize strategic opportunities. The managers of our various portfolios are integrating these carbon budgets into their annual strategic plans and working to achieve the identified targets.
Compliance with carbon intensity budgets will also materially influence employee performance evaluations and their incentive remuneration.
Do we measure of our footprint at the GP level? We do not invest in infrastructure equity funds. Our investments are direct holdings (so the question of GP/LP is not applicable).
- Do you have any fossil-fuelled energy generation/transmission assets in your infrastructure portfolio? If so, what percentage of your portfolio do they represent?
We do have a small portion of fossil fuel generation in the portfolio. We use our influence as a large shareholder to promote energy efficiency, switching to greener fuels and/or developing renewable energy.
This exposure is managed within our declining carbon budgets. Furthermore, we have set targets to increase our low carbon investments, of which renewable energy is a large share.
While we are under pressure by some to divest from fossil fuel, we instead choose to exercise leadership in helping achieve a low-carbon economy through engagement with our portfolio companies. The Investor Leadership Network and our commitment to the Asset-owners Net-Zero Alliance are good examples of commitment to leadership that are aligned with our climate strategy. Divestment gets you a headline, but you haven’t really done anything to direct your organisation to be a positive contributor to the energy transition that the world must go through.
- Do you have any energy-transition assets in your portfolio? If so, what percentage of your portfolio do they comprise?
Yes, sustainable mobility, renewable power and efficient buildings account for 9% of CDPQ’s total portfolio. This includes solar, wind and hydro power facilities. We’ve put together a climate strategy to come up with a quantitative objective to increase our low carbon assets, including certified real estate, renewable energy assets, electric transport and other smaller projects, by +80% by 2020. These investments are not only considered as energy-transition assets, but as key elements to the shift to a low carbon economy. We further promote the shift from dirtier to cleaner fuels in our portfolios and have had some success in this area.
- Have you implemented or do you have plans to implement emissions-reduction targets across your infrastructure portfolio?
Yes, we measure and report the footprint of the overall portfolio (all asset classes, including infrastructure). We have a target to reduce our carbon intensity by 25% by 2025.
- Could you provide details on those targets, including how much CO2 you are offsetting and how you will go about doing it?
In 2017, we committed to reducing the carbon intensity of our global portfolio by 25% by 2025. With that, CDPQ became one of the first institutional investors globally to set a climate target for reducing greenhouse gas across asset classes. This target, which involves reducing our portfolio’s carbon footprint by 25% per dollar invested, will be reached through the acquisition of low-carbon assets, a reduction of our high carbon intensity assets and the improvement of the practices of our companies in our portfolio.
We are currently not offsetting our portfolio carbon emissions, but we are working on developing a suitable methodology to address this possibility, especially in waste-to-energy projects, which can be highly carbon-intensive, but have an overall positive impact on the environment.
- Do you seek to also influence the supply chain your portfolio companies work with?
Through our pre-investment due diligence process, we try to ensure that a company incorporates climate change into its supply chain risk management strategies. Post-investment, we also seek to influence our portfolio companies through engagement. If concerns arise, we proactively engage in dialogue with companies we’re invested in.
- Will you be relying on data gathering and/or technology to ‘green’ your portfolio?
Our portfolio’s carbon footprint measure is based on well-recognised standards, such as the Greenhouse Gas Protocol and the Climate Bonds Initiative. It relies on a trusted data provider, Trucost, for the annual carbon emissions data of portfolio companies.
As we tend to hold significant ownership of companies or projects through our investments in infrastructure, we have a close relationship with its management. This gives our internal experts access to data that helps to measure the carbon footprint of infrastructure investments without having to go through a data provider.
Portfolio managers include these carbon budgets in their annual strategic planning and ensure compliance with their targets. This practice ensures that CDPQ’s overall reduction target will be met in a structured manner, while giving our teams the flexibility necessary to act on good investment opportunities.
- Are you reducing emissions at the GP level, by, for example, rationing travel or offsetting it?
CDPQ measures the air travel emissions of its employees and offsets them.
- How resilient is your infrastructure portfolio to climate change?
- Do you have any assets that are particularly exposed to climate change?
We have been undertaking specific analysis of the long-term impact of physical climate risk on a few investment opportunities where such risk has the potential to be material. Across the portfolio we have used a qualitative approach to assess the most exposed sectors.
We are in the process of procuring a tool to better evaluate and quantify climate risk across the portfolio.
We intend to train directors on climate change-related risks and their potential financial impact. We also encourage our portfolio companies to disclose pursuant to the Task Force on Climate-related Financial Disclosures. We believe these actions will help us assess and take the necessary actions to reduce the exposure of our portfolio to climate change, by working closely with companies to mitigate risks.
- Does your portfolio require climate-adaptation measures and, if so, what is the projected capex spend?
We expect that many of our portfolio companies will need to take climate-adaptation measures. We will need to engage with them to ensure they are properly assessing the risks and integrating climate change considerations into their business strategy.
- Have you already spent capex making your portfolio more climate-resilient? And if so, how much?
o Also, will this spend impact the project returns of your infrastructure portfolio?
o Have you ever divested an asset due to climate-change considerations?
We have made decisions not to invest because of climate change considerations. Divestment is something that we prefer not to do, besides obvious areas such as coal. At CDPQ, our approach is to engage with companies and we will need to do more in that regard. We feel it is our responsibility to accompany and influence our portfolio companies.