solar City

Climate Change: Invested in making better decisions

February 13, 2020

We’re evolving our approach from theoretical understanding to practical implementation to deliver value-building growth

By CPP Investments staff

Over the past decade, the Canada Pension Plan Investment Board (CPP Investments) has worked diligently to better understand the investment risks and opportunities presented by climate change. Cracking the code on an issue of this magnitude is a bit like trying to hit a moving target, which is why you need to be focused, deliberate and precise in your approach.

Not a week goes by without more ominous headlines appearing about the state of our planet. A significant majority of countries now have climate-related legislation in place, and 91 countries globally have passed at least one law targeted towards addressing climate change adaptation.

The role of investors in the energy transition

From changing weather patterns to shifts in population and regulation, the effects of climate change demand that investors reconceive how existing business models will function throughout the transition to a low-carbon economy.

As investors, we have a key role to play in the energy transition. We see massive opportunities in renewable energy, electric vehicles, the entire global energy value chain and infrastructure. There is also a growing global opportunity around Carbon Capture, Utilization and Storage. As we learn more about the complexity of addressing climate change, the importance of physically taking carbon emissions out of the atmosphere is becoming increasingly critical. We believe the industry and its related policy will continue to evolve over the coming decades, resulting in more robust carbon markets globally, which will create unique and sustainable investment opportunities for private capital and institutions like us.

Our long-term focus and significant capital base enable us to instigate growth in the sustainable investment market and produce innovative financing solutions. Investors can accelerate the energy transition by looking beyond the short-term nature of capital markets, and directing capital toward climate change innovations, ready for implementation and hungry for capital.

As the first issuer of a green bond among global pension funds, CPP Investments has been at the forefront of utilizing financing vehicles that address climate change. Our current work in developing energy scenarios and reference cases to guide portfolio allocation decisions is gaining momentum, and will ensure we are equally attuned to the transition’s risks and opportunities.

“We are evolving the organization from theoretical understanding to practical implementation,” says Deborah Orida, Senior Managing Director and Global Head of Active Equities, as well as Executive Sponsor of the Climate Change Program (CCP). “Our strategy on climate change requires tight integration across CPP Investments, working together to make sure we identify all the risks and opportunities that could impact investment decisions.”

Intensifying our Climate Change Program

To understand those risks and opportunities, disclosure is crucial. That’s why we’re using our ownership position to encourage stronger climate change disclosure by companies across our portfolio. In May 2016, we became a member of the Task Force on Climate-related Financial Disclosures, and we’re committed to full compliance with TCFD by the end of fiscal year 2021.

As one of only two global pension fund managers represented on the Task Force, we are working with fellow asset owners and managers to encourage companies to adopt the Task Force’s recommendations.

In 2017, we created a stand-alone Power and Renewables group, which, in less than four years, increased its equity and debt exposure in renewable energy companies from C$30 million to C$6.82 billion of committed capital. We were involved in both the largest M&A transaction and VC investment in the solar energy sector in 2019: the purchase of San Francisco-based Pattern Energy, and investment in India-based wind and solar project developer ReNew Power.

“We’ve embarked on an ambitious journey to become a global leader among asset owners in the transition to a post-carbon world,” says Orida. “We’ll do this by enhancing capital allocation, deepening our investment acumen and strengthening transparency through external communications.”

Incorporating change management, collaboration and knowledge sharing, our Climate Change Program is a cross-departmental, multi-year initiative that includes top-down and bottom-up assessment of the risks and opportunities of climate change. This work consists of understanding the potential climate change impacts for the countries we invest in, and stress-testing the portfolio for potential scenarios related to climate change.

Where we go from here

Our 2019 Sustainable Investing Report marked significant strides in our own disclosure, by applying a sophisticated in-house methodology to measure our carbon footprint for both public and private investments. Identifying, assessing and monitoring our portfolio’s carbon footprint helps ensure the resilience of the Fund and is an important step towards meeting the TCFD recommendations.

By rigorously assessing physical, transition and adaptation risks, the integration of climate change considerations into the investment process will forever alter the investment landscape.

We’re evolving our approach from theoretical understanding to practical implementation to deliver value-building growth

By CPP Investments staff

Over the past decade, the Canada Pension Plan Investment Board (CPP Investments) has worked diligently to better understand the investment risks and opportunities presented by climate change. Cracking the code on an issue of this magnitude is a bit like trying to hit a moving target, which is why you need to be focused, deliberate and precise in your approach.

Not a week goes by without more ominous headlines appearing about the state of our planet. A significant majority of countries now have climate-related legislation in place, and 91 countries globally have passed at least one law targeted towards addressing climate change adaptation.

The role of investors in the energy transition

From changing weather patterns to shifts in population and regulation, the effects of climate change demand that investors reconceive how existing business models will function throughout the transition to a low-carbon economy.

As investors, we have a key role to play in the energy transition. We see massive opportunities in renewable energy, electric vehicles, the entire global energy value chain and infrastructure. There is also a growing global opportunity around Carbon Capture, Utilization and Storage. As we learn more about the complexity of addressing climate change, the importance of physically taking carbon emissions out of the atmosphere is becoming increasingly critical. We believe the industry and its related policy will continue to evolve over the coming decades, resulting in more robust carbon markets globally, which will create unique and sustainable investment opportunities for private capital and institutions like us.

Our long-term focus and significant capital base enable us to instigate growth in the sustainable investment market and produce innovative financing solutions. Investors can accelerate the energy transition by looking beyond the short-term nature of capital markets, and directing capital toward climate change innovations, ready for implementation and hungry for capital.

As the first issuer of a green bond among global pension funds, CPP Investments has been at the forefront of utilizing financing vehicles that address climate change. Our current work in developing energy scenarios and reference cases to guide portfolio allocation decisions is gaining momentum, and will ensure we are equally attuned to the transition’s risks and opportunities.

"We are evolving the organization from theoretical understanding to practical implementation," says Deborah Orida, Senior Managing Director and Global Head of Active Equities, as well as Executive Sponsor of the Climate Change Program (CCP). "Our strategy on climate change requires tight integration across CPP Investments, working together to make sure we identify all the risks and opportunities that could impact investment decisions."

Intensifying our Climate Change Program

To understand those risks and opportunities, disclosure is crucial. That’s why we’re using our ownership position to encourage stronger climate change disclosure by companies across our portfolio. In May 2016, we became a member of the Task Force on Climate-related Financial Disclosures, and we’re committed to full compliance with TCFD by the end of fiscal year 2021.

As one of only two global pension fund managers represented on the Task Force, we are working with fellow asset owners and managers to encourage companies to adopt the Task Force’s recommendations.

In 2017, we created a stand-alone Power and Renewables group, which, in less than four years, increased its equity and debt exposure in renewable energy companies from C$30 million to C$6.82 billion of committed capital. We were involved in both the largest M&A transaction and VC investment in the solar energy sector in 2019: the purchase of San Francisco-based Pattern Energy, and investment in India-based wind and solar project developer ReNew Power.

"We’ve embarked on an ambitious journey to become a global leader among asset owners in the transition to a post-carbon world," says Orida. "We’ll do this by enhancing capital allocation, deepening our investment acumen and strengthening transparency through external communications."

Incorporating change management, collaboration and knowledge sharing, our Climate Change Program is a cross-departmental, multi-year initiative that includes top-down and bottom-up assessment of the risks and opportunities of climate change. This work consists of understanding the potential climate change impacts for the countries we invest in, and stress-testing the portfolio for potential scenarios related to climate change.

Where we go from here

Our 2019 Sustainable Investing Report marked significant strides in our own disclosure, by applying a sophisticated in-house methodology to measure our carbon footprint for both public and private investments. Identifying, assessing and monitoring our portfolio’s carbon footprint helps ensure the resilience of the Fund and is an important step towards meeting the TCFD recommendations.

By rigorously assessing physical, transition and adaptation risks, the integration of climate change considerations into the investment process will forever alter the investment landscape.