CDPQ Unveils its Climate Strategy 2021

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Today, CDPQ announced its new climate strategy:

Caisse de dépôt et placement du Québec (CDPQ), a global investment group, announced today its ambitious new plan to fight climate change. Since implementing the organization’s first climate strategy in 2017, CDPQ has surpassed its targets and is now looking to build on this experience to intensify its efforts in achieving a net-zero portfolio by 2050.

Leveraging the expertise its teams have acquired over the past several years, CDPQ is basing its new climate strategy on four vital and complementary pillars to meet the transition’s major challenges.

Two of these pillars build upon the organization’s accomplishments since 2017 while increasing its ambition:

  • 1. Hold $54 billion in green assets by 2025 to actively contribute to a more sustainable economy. 
  • 2. Achieve a 60% reduction in the carbon intensity of the total portfolio by 2030.

Two new pillars have been added to move CDPQ’s climate action into the next stage:

  • 3. Create a $10-billion transition envelope to decarbonize the main industrial carbon-emitting sectors. 
  • 4. Complete our exit from oil production by the end of 2022.

As a long-term investor, CDPQ designed this strategy with a distinctive approach that will deliver its depositors the return they need while helping meet the enormous challenges of climate change.

“The climate situation affects everyone, and we can no longer address it with the same methods used a few years ago,” said Charles Emond, President and CEO of CDPQ. “The urgent need to act demands that we do more, faster, and that we innovate. We have to make important decisions on issues such as oil production and decarbonizing sectors that are essential to our economies. With this new strategy, we are demonstrating our leadership as an investor and enter the next stage of climate investing. We believe this is in the interests of our depositors, our portfolio companies and the communities we invest in.”

“Four years after adopting our first climate strategy, we reached and even exceeded our targets. With our new strategy, CDPQ taking action on the climate on several fronts, engaging directly with companies, while investing even more in green assets. Our teams will continue to take concrete steps to accelerate the transition, in Québec and around the world,” added Kim Thomassin, Executive Vice-President and Head of Investments in Québec and Stewardship Investing at CDPQ.

As part of this new strategy, CDPQ is innovating by dedicating a $10-billion transition envelope to decarbonizing the real economy. Leveraging internationally recognized frameworks, CDPQ will support companies in the heaviest emitting sectors by helping them reduce the carbon intensity of their activities at the source.  

CDPQ will also complete its exit from oil production by the end of 2022. It will dispose of its remaining assets in the sector, which make up 1% of its portfolio, and therefore avoid contributing to the growth of the world’s oil supply. 

CDPQ’s new Climate Strategy is available on its website.

Take the time to download and read CDPQ's new climate strategy here. 

Below, I go over it beginning with a message from Charles Emond, CDPQ's President and CEO:

In 2017, we deployed our first climate strategy, positioning us as a leader in the fight against climate change. We set ambitious targets so we could take quick and structured action. Our objective: create a sustainable portfolio that meets the challenge we were facing then and still face now.

Since then, we have significantly exceeded our targets and have made a strong commitment: achieving a net-zero portfolio by 2050.

Despite this progress, there is still a lot to do. The August 2021 report by the Intergovernmental Panel on Climate Change (IPCC) continues to sound the alarm.

All climate signals clearly show that the danger for our economies and our communities is not just growing but accelerating. Governments, businesses, and investors must act now. The time has come to fulfill our commitments by taking action.

As a global investor, we have based our new climate strategy on four vital and complementary pillars to meet the great challenges of the transition toward a sustainable economy.

RAISING OUR CLIMATE AMBITIONS

In the coming months, we will continue investing our constructive capital to promote a green transition. In practical terms, we want to increase the supply of renewable energy as well as sustainable mobility and real estate, to contribute directly to the decarbonization of our economy.

To achieve this objective, we will triple the value of our low-carbon asset portfolio compared with 2017, reaching $54 billion by 2025.

We know that global greenhouse gas emissions can only be reduced significantly by acting directly at the source, which is why we have provided specialized tools—across the organization—to reduce the carbon intensity of our assets. This firmly places the fight against climate change at the heart of our approach and priorities. Our teams work with carbon budgets to limit the environmental impact of all our portfolios. In addition, variable compensation for all our employees is tied to the achievement of our climate targets.

We are also raising our portfolio’s carbon intensity reduction target to 60% by 2030.

These actions will consolidate our position as a leader in the fight against climate change and allow us to continue the work we started in 2017.

BEYOND TARGETS

Today, we believe it is essential to go further and faster. The climate crisis demands that we do so. We must act concretely, on multiple fronts, and move to the next stage in climate investing.

That is why we are creating a $10-billion transition envelope to decarbonize the heaviest carbon-emitting sectors.

We want to engage with companies that hold strong convictions, facilitating specific and measurable plans to decarbonize their operations. We are targeting certain sectors that are essential to the transition, such as raw materials production, transportation and agriculture.

This commitment is essential to financing the reduction of global emissions and achieving a net-zero portfolio by 2050. We will support companies in developing sustainable solutions and adopting best practices to foster change throughout their sectors and, ultimately, across the real economy.

Faced with increasing climate risk, we must invest consistently, taking a long-term approach. We believe the future holds an opportunity to build an oil-free economy, supported by greener technological alternatives and increasingly stringent regulations on carbon emissions.

This is why we are committing to completing our exit from oil production by the end of 2022.

Our goal is to avoid contributing to the growth in the global oil supply. That means we will no longer invest in oil production, or in the construction of oil pipelines. Instead, we will focus on projects and investment platforms that are dedicated to the transition to a sustainable economy. This will in turn stimulate innovation in other energy sources and in reducing carbon emissions.

THE NEXT STAGE

We are building on our momentum by investing and making a commitment to accelerate the transition. Thanks to the work accomplished by our teams so far, we are now ready to put our renewed ambition to work, by meeting both the major challenges of the transition and the long-term needs of our depositors.

We will continue to collaborate and join forces with our international peers and our portfolio companies, taking concrete action to fight climate change. This new strategy will take us to the next stage of our climate action, pushing ahead and acting on multiple fronts, building stronger, more sustainable businesses and communities.

Let me pause right here and tell you what really struck me in the press release and Charles's message above, namely, the sense of urgency to do something now.

Case in point:

"All climate signals clearly show that the danger for our economies and our communities is not just growing but accelerating. Governments, businesses, and investors must act now. The time has come to fulfill our commitments by taking action."

By the way, I completely agree with him on this point, longtime readers of my blog know my cynical  thoughts on climate change, we are screwed and have been dragging our feet for decades now.

In this sense, I agree there is a sense of urgency to act now and large institutional investors can direct huge amounts of capital to accelerate the transition to net-zero. 

But Charles is cognizant that it will take the coordinated actions of governments, businesses and investors to really accelerate the transition to net-zero.

Let me continue with the climate strategy report to go over the progress so far:

In 2017, we deployed our first climate strategy, positioning us as a leader in the fight against climate change.

We set ambitious targets so we could take quick and structured action.

Since then, we have significantly exceeded our targets and have made a strong commitment: achieving a net-zero portfolio by 2050.

With this new climate strategy, we want to go further, faster, and innovate to meet the climate challenge.


The new climate strategy is based on four vital pillars:

Below, I include four slides explaining each pillar that Elena Gabrysz of CDPQ sent me but the exact same material is on the climate change strategy report:


Not surprisingly, the media harped on Pillar #4 and made a huge stink of it:

Of course, my left-wing liberal friends couldn't help but email me to remind me that I'm wrong about how pensions shouldn't divest from oil & gas, happy with CDPQ's new climate strategy.

My right-wing conservative friends also emailed me and one of them sounded downright irritated with CDPQ's decision to exit oil producing companies, texting me this:

Not sure how the global elite investors managed it but they have successfully convinced mainstream institutional investors to exit completely. 

They are buying all the assets for a song and dance. Carbon is not a supply issue, it’s a demand issue. 

There are no alternatives yet so just cutting off supply will push prices up for a basic necessity. I just can’t understand it. Not based on any logic. 

The vast majority of carbon is emitted by one country - China. No other country has gone as far as voluntarily exiting from developing their natural energy resources, only Canada. Everyone else is focused on demand. 

A carbon tax only works in jurisdictions where consumption is elastic. It’s not in Canada. People need to commute to work and heat their homes. 

The average family can’t afford to have their energy bills increase by 200% or 300%. You want to see a real revolution. 

Just wait, when people have to choose between having to heat their home or feed their family. Such a disconnect.

Such emotions on both sides of the political spectrum! 

To be fair, my friend is well informed and raises great points but I think way too much focus is on the fourth pillar of CDPQ's new climate strategy and not enough on pillars 1, 2, and in particular pillar 3 which caught my attention.

That brings me to my late afternoon Teams meeting with Kim Thomassin, Executive Vice-President and Head of Investments in Québec and Stewardship Investing, Bertrand Millot, Vice-President and Chief Stewardship Investing Officer and Philippe Batani, Vice-President Communications and Public Affairs.

I want to thank all three of them for taking 45 minutes to talk to me and also thank Elena Gabrysz for setting this up.

I honestly wish I recorded our session because there was a lot covered but I will focus on the important points.

Kim began by telling me when they first deployed their climate strategy in 2017, they were looking to reduce their carbon intensity by 25% by 2025.  Since then, the portfolio's carbon intensity has fallen 38%, exceeding the target of a 25% reduction by 2025. 

They will soon reduce it by 60% and are well on their way to achieving net-zero by 2050.

The focus of our discussion was really on the three first pillars of the new climate strategy. We obviously touched upon pillar 4 which is garnering all the media attention, but you will soon realize this is trivial and really not important in the grand scheme of CDPQ's portfolio.

In fact, Philippe Batani told me only 1% of CDPQ's total portfolio is in oil producing companies, so here's the important breakdown:

  • $4 billion in oil producing companies
  • $54 billion, $18 billion of which will be added in next four years will be invested in green assets
  • $10 billion in transition envelope to decarbonize the heaviest carbon-emitting sectors

This is why I think way too much focus is going to pillar 4, which isn't divesting in the classic sense because CDPQ will still have some legacy investments (older pipelines, not investing in new ones) and will still be engaging with these companies, especially as it relates to Pillar 3. 

It's that third pillar that I really wanted to understand and Bertrand Millot was there to clarify it.

Bertrand is exceptional, he really knows his stuff on a subject matter which isn't always as straightforward as you'd think.

He and his team led the initiatives to measure the carbon footprint across all the portfolios and they have done great work, to the point where OTPP and others are emulating them to measure the carbon intensity of their own portfolio (the best form of flattery).

Anyway, back to third pillar since the first two are really a continuation of the initial climate strategy.

This slide shows you what the goal is of this $10 billion in transition envelope to decarbonize the heaviest carbon-emitting sectors:

 


The way Bertrand explained it to me is that whether it's some forms of plastics (structural plastics for cars), copper, steel, lithium and green cement, the making of raw materials for the green economy is very carbon intensive.

They are also aiming to reduce carbon footprint in other sectors like heavy transportation (trucks, planes and ships and infrastructure related to it) and in agriculture:

Importantly, this envelope will not be a portfolio in and of itself, instead it will cross all portfolios across CDPQ, both public and private.

The way Bertrand explained it to me is that policy will be critical because companies have to be incentivized to reduce their carbon footprint.

He doesn't like the word "subsidies" but rather sees it as a "mechanism" to provide the right incentives to do the right thing. 

He explained the chemistry behind many processes and how carbon intensive they are but said there are new ways to tackle old problems and gave the example of a Swedish steelmaker HYBRIT that uses hydrogen instead of coal to make fossil-free steel. 

Still, there's ways to go:

It will be no picnic. In an earlier study, HYBRIT concluded that fossil-free steel, given current prices of electricity, coal and carbon dioxide emissions, would be 20-30% more expensive than steel made the usual way. Partly that is because the hydrogen production process will consume an enormous amount of Sweden's electricity, which may be virtually free of fossils but still costs roughly as much as in many other European countries. 

He gave other examples of aluminum makers in Quebec and how carbon intensive this process is.

Lastly, we talked about cement, the massive CO2 emitter you may not know about, and the need for green cement and how carbon intensive it is to make it.

Sit down one session with Bertrand and you'll walk away amazed with his knowledge.

One thing they all made crystal clear to me is that the third pillar does not involve venture capital investments.

That was already announced a few years ago in a $500 million portfolio to tackle green technologies.

Kim brought up the example of their partnership with S2G to invest in climate opportunities as part of that $500 million portfolio. That was announced last year:

Caisse de dépôt et placement du Québec (CDPQ), a global institutional investor, and S2G Ventures (S2G), a leading multi-stage investment firm, announced today the creation of a co-investment partnership where CDPQ will invest up to US$125 million over the next 3 years in ventures that aim to make the food and agriculture industry more sustainable and climate friendly.

The co-investment agreement between CDPQ and S2G results from CDPQ’s partnership with CREO Family Office Syndicate (CREO), a New York City-based not-for-profit organization that aims to galvanize capital into low carbon solutions. 

S2G was selected by CDPQ after a full market review of potential partners. By providing an opportunity to invest behind entrepreneurs that are developing concrete solutions to climate change, the agreement will further the two organizations’ shared core principles and objectives, including a long-term outlook and a commitment to sustainable investing.  

“We are excited about this partnership with CDPQ and the potential to invest behind leading entrepreneurs in the food system,” said Sanjeev Krishnan, Managing Director and CIO of S2G. “CDPQ shares our long-term vision of combating climate change, and brings to the table tremendous experience investing in leading companies worldwide.”

“By enabling investments in ventures and growth equity companies involved in the production, supply chain and consumption stages, this partnership will help reduce the agri-food industry’s carbon footprint,” said Kim Thomassin, Executive Vice-President and Head of Investments in Québec and Stewardship Investing at CDPQ. “S2G is a leading investment firm in this sector and we are delighted to partner with them to support cutting-edge entrepreneurs who will make the food and agriculture industry more sustainable.”

“This agreement is part of a larger innovation platform we have implemented to leverage opportunities with strategic partners such as CREO, Family Offices, long term investors and industrial groups, in order to direct more capital towards innovative investments in sustainability initiatives,” said Mario Therrien, Head of Investment Funds and External Management at CDPQ. 

Since 2017, CDPQ has committed to reducing its portfolio’s carbon footprint by 25% per dollar invested by 2025. By doing so, CDPQ became the first institutional investor in North America to set a greenhouse gas intensity reduction target covering all its asset classes. Climate is now factored into all its investment decisions, affording it an essential position to make its portfolio more sustainable.  As at December 31, 2019, CDPQ’s portfolio of low-carbon assets was US$34 billion, up 95% from 2017. 

S2G backs trailblazing entrepreneurs that are improving the overall health and sustainability of the food system. For the last six years S2G has invested behind the founders of successful food and agriculture companies from soil to shelf including Beyond Meat, sweetgreen, Apeel Sciences, Greenlight Biosciences, MycoTechnology and many others.

The aim of these investments, according to Bertrand, is to eventually scale them up and be able to use them across many industries.

What else did we talk about? Bertrand mentioned how their participation on the board of certain private companies allows them to gain information in certain areas which they can apply elsewhere.

He gave me the example of Inv Energy which is in the infrastructure portfolio and Green Mountain Tower which Energir owns (CDPQ owns Energir).

There is so much information flowing across all asset classes but in terms of CDPQ's responsible investing, it's critical to get the data right.

That responsibility falls under Alexandre Synnett, who was appointed Executive Vice-President and Chief Technology Officer last year and his team, but obviously it's a collaborative effort and Bertrand and his team are also critical to this process.

We ended our conversation on a positive note. 

I told them I certainly hope this transition to net-zero creates a better, more inclusive economy.

Kim, the perennial optimist, told me she thinks so and even though it might require training and re-training our workforce, she thinks we can achieve "a more just and inclusive economy" as we transition to net-zero.

Once again, I thank Kim, Bertrand and Philippe for taking the time to talk to me earlier today and if I need to edit or add anything, I just ask them to please email me.

Below, earlier today, CDPQ unveiled its Climate Strategy 2021. Charles Emond and Kim Thomassin spoke at a conference call (fast forward to minute 7). Take the time to watch this and listen carefully to their comments (they are translated in English).

Update: On Wednesday, CDPQ announced that Energize Ventures raised $330 million fund to invest in digital technologies accelerating the energy transition:

Energize Ventures, a leading global alternative investment manager that funds digital-first solutions accelerating the sustainable energy transition, today announced the closing of a second flagship fund with total capital commitments of $330 million. Building on the success of its first fund, Energize intends to invest in digital solutions with proven potential to optimize energy, critical infrastructure and sustainable industries. The firm will continue to provide financial, operational and commercial support to back the leading entrepreneurs in the energy transition.

Today, the need for digital technologies enabling the sustainability revolution is at a record high. Investing in these technologies requires domain expertise to succeed, and the market is reliant on investors like Energize to signal and capitalize the expected winners at this pivotal intersection.

“Since we first launched Energize five years ago, we have seen the energy and industrial sectors undergo a massive digital transformation. The transition towards a more renewable and sustainable future is outpacing all expectations, and market participants are digitizing operations to address this new, emerging scale,” said John Tough, managing partner of Energize Ventures. “As we continue into the next decade, we are grateful for the opportunity to partner with entrepreneurs and invest in the next-generation technologies that will shape a more sustainable tomorrow.”

In its debut fund, Energize deployed $165 million into 14 software-based companies serving energy and critical infrastructure sectors. With roughly 70 percent of its $330 million coming from institutional investors or family offices, Energize’s second fund will access a broader pool of capital to continue to identify and support entrepreneurs accelerating the energy transition. Similarly to Fund I, the focus of Fund II is scaling and commercializing cutting-edge technologies and software across renewable energy, mobility, cybersecurity, battery storage, critical infrastructure and climate resiliency.

Today, Energize manages more than $700 million of committed capital from a diversified set of institutional, ESG-focused, strategic and family office investors. Alongside anchor investor Invenergy and returning Limited Partners such as CDPQ, SE Ventures (the corporate venture arm of Schneider Electric), GE Renewable Energy, and Hannon Armstrong, Fund II includes Credit Suisse, Xcel Energy, American Electric Power and Equinor Ventures, among other limited partners.

“In our ongoing pursuit to help cultivate a more sustainable future, CDPQ wants to play an active role in directing more capital towards solutions that enable the energy transition,” said Emmanuel Jaclot, Executive Vice-President and Head of Infrastructure at CDPQ, one of Energize’s leading global institutional investors. “The team at Energize has demonstrated the ability to identify leading energy and infrastructure software investments across the North American and European markets, and we continue to be impressed by their hands-on commitment to the commercialization of critical sustainable technologies.”

“We are at an inflection point in the global transition to sustainable energy,” said Michael Polsky, CEO at Invenergy, a leading global developer and operator of sustainable energy solutions and the anchor LP in both of Energize’s funds. “The industry is changing at the pace of technology and asset owners and operators are looking to digital solutions that can support scalability and innovation. Invenergy provides real world insights to guide Energize in making the best investments, while also having a front-row seat to the new technologies coming to market in our industry – many of which we adopt as a customer.”

“Xcel Energy is proud to be investing in Energize to help support a venture capital ecosystem that encourages sustainability and the clean energy transition. This is an exciting time in the energy industry, and we welcome the opportunity to encourage innovation that will transform our industry and help deliver our promise of a 100 percent clean energy future,” said Brian Van Abel, Chief Financial Officer at Xcel Energy.

Led by a team of energy transition veterans with decades of experience spanning power and renewables, oil and gas, software, climate policy, engineering and corporate sustainability, Energize has an established research-based approach to investments, identifying and funding solutions to address the most immediate challenges the industry faces today. To date, Energize has deployed capital from Fund II into three investments, including Munich-based predictive battery analytics software TWAICE; Finite State, a pioneer of IoT device intelligence out of Columbus, Ohio; and Urbint, which leverages AI to protect critical infrastructure and is headquartered in New York.

About Energize Ventures

Energize Ventures is a leading global alternative investment manager focused on accelerating digital transformation in energy and sustainable industry. Founded in 2016, Energize now holds more than $700 million in assets under management and has funded 17 companies to-date. Energize is backed by institutional and strategic LPs including CDPQ, Credit Suisse, Invenergy, SE Ventures (corporate venture arm of Schneider Electric), GE Renewable Energy, Xcel Energy, and more. With an unmatched depth and breadth of industry and operational expertise, Energize works in partnership with its portfolio companies to realize their full potential from early commercialization to growth scaling and into the public markets. For more information on Energize Ventures, please visit www.energize.vc.

This is another exciting investment in a fund leading the charge on investing in digital solutions with proven potential to optimize energy, critical infrastructure and sustainable industries. CDPQ and other limited partners invested in this fund will reap the long-term gains as the world transitions to net-zero.

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