CDPQ's 2021 Sustainable Investing Report
Caisse de dépôt et placement du Québec (CDPQ) today released its Sustainable Investing Report for the year ended December 31, 2021.
The report sets out CDPQ’s tangible results obtained during the past year. Here are some highlights:
Environment
- In September 2021, CDPQ announced its new and ambitious climate strategy to achieve its net-zero objective by 2050 and strengthen its leadership in climate matters. This strategy is based on four pillars:
- Hold $54 billion in low-carbon assets by 2050
- Achieve a 60% reduction in the carbon intensity of the total portfolio by 2030 compared to 2017
- Create a $10-billion transition envelope to decarbonize the heaviest-emitting sectors
- Complete our exit from oil production by the end of 2022
- $39 billion in low-carbon investments, up 120% from 2017 ($18 billion)
- Total portfolio carbon intensity down 49% from our 2017 starting point, putting us on track to reach our 2030 target
Social
- Adoption of a new Workplace Equity, Diversity and Inclusion Policy to guide our actions and initiatives
- Women represent 39% of our Executive Committee and 25% of our investment positions
- A leap from 22% in 2020 to 29% in 2021 in female representation among our nominee directors on the Boards of our portfolio companies, nearly reaching our target of 30% by 2023
- Over 1,600 files were analyzed in line with taxation best practices
Governance
- Discussions on ESG issues were held with 194 companies
- 398 technology risk analyses were performed
“Despite mounting crises, we have remained focused on our long-term objectives. We continued investing constructive capital and creating sustainable value for our depositors and the communities where we are present locally and internationally. I’m proud of the work our teams have carried out once again this year. With their daily efforts on ESG matters, we have taken impactful steps to the benefit of Quebecers,” said Charles Emond, President and Chief Executive Officer of CDPQ.
The 2021 Sustainable Investing Report is available online.
ABOUT CDPQ
At Caisse de dépôt et placement du Québec (CDPQ), we invest constructively to generate sustainable returns over the long term. As a global investment group managing funds for public retirement and insurance plans, we work alongside our partners to build enterprises that drive performance and progress. We are active in the major financial markets, private equity, infrastructure, real estate and private debt. As at December 31, 2021, CDPQ’s net assets totalled CAD 420 billion. For more information, visit cdpq.com, follow us on Twitter or consult our Facebook or LinkedIn pages.
Alright, CDPQ's 2021 Sustainable Investing Report is available online and I urge everyone to read it carefully.
Take the time to read CEO Charles Emond's message right off the top:
This is an excellent report which puts equal emphasis on E,S and G!
CDPQ is considered a leader in sustainable investing and consistently ranks high in global surveys.
For example, my comment on Canada's most responsible asset allocators went over the Responsible Asset Allocator Initiative (RAAI) where CDPQ, AIMCo and BCI made the leaders list among global investors.
CDPQ takes its commitment to ESG very seriously and it shows in its initiatives to tackle "E", "S" and "G" issues both within the organization and outside it.
Environment
Let's begin with the environment. In September 2021, CDPQ announced its new and ambitious climate strategy to achieve its net-zero objective by 2050 and strengthen its leadership in climate matters.
This strategy is based on four pillars:
- Hold $54 billion in low-carbon assets by 2050
- Achieve a 60% reduction in the carbon intensity of the total portfolio by 2030 compared to 2017
- Create a $10-billion transition envelope to decarbonize the heaviest-emitting sectors
- Complete an exit from oil production by the end of 2022
I covered CDPQ's climate strategy strategy here and thought it was ambitious but set great goals. However, I wasn't thrilled about "Pillar 4" because the divestment crowd would have a field day with it and I thought it unnecessarily detracted attention from the first three pillars which is where the focus will be.
Well, in a little over a year, CDPQ is well on its way to achieving its ambitious targets:
- $39 billion in low-carbon investments, up 120% from 2017 ($18 billion)
- Total portfolio carbon intensity down 49% from our 2017 starting point, putting us on track to reach our 2030 target
On low-carbon investments, the 2021 Sustainable Investing Report states this on page 17:
This makes sense since real estate contributes up to 40% of global greenhouse gas emissions. Read my recent comment on real estate's $1.1 trillion obsolescence hurdle to get more details.
In mobility, CDPQ's REM is the largest public transit project undertaken in Québec in the last fifty years and it's 100% electric and automated.
In renewable energy, CDPQ is a leader investing in wind and solar projects all over the world.
The report gives examples of investments and reinvestments in CDPQ's low-carbon portfolio last year:
What else? In 2020, CDPQ created the Climate Innovation Fund, a $500 million envelope dedicated to two innovating sectors: energy transition and sustainable agri-food:
On Pillar 2, achieving a 60% reduction in the carbon intensity of the total portfolio by 2030 compared to 2017, the report goes into details on pages 21-22:
I note this part:
This exceptional 11% decrease from last year notably stems from a growing market and by our accelerated exit form oil production. That said, the change in our portfolio’s carbon intensity as we achieve our 60% reduction target by 2030 will not necessarily be linear. It could be influenced by various factors, including changing asset values and investment opportunities in sectors beneficial for the transition.On Pillar 3, creating a $10-billion transition envelope to decarbonize the heaviest-emitting sectors, I note the following:
And lastly, I note this on Pillar 4 of the climate change strategy which has received way too much media attention:
I note this part:
We believe that the risk/return outlook for oil producers and their climate impact are not aligned with our long-term objectives. That’s why we will stop contributing to the growth of global oil supply.
These assets will be sold in an orderly fashion with the goal of protecting returns for our depositors and building a more sustainable portfolio. Our capital will continue to be available to energy companies that wish to develop transition projects based on clean technologies.
Here, I want to just outline what I've said many times before, namely, exiting out of oil producers transfers the risk to another fund that doesn't care about ESG and there is a cost, especially in an inflationary environment where commodities tend to do well.
But I agree with CDPQ when it states the risk/return outlook for oil producers and their climate impact are not aligned with its long-term objectives.
It's also worth noting that for CDPQ and other large Canadian pensions which are not divesting out of oil & gas, traditional energy represents a small weighting in the overall portfolio (less than 5% for most big pensions).
All this to say, it's not the end of the world if CDPQ exits out of oil producers but I'm not a big fan of this because it gives ammunition to the divestment crowd which doesn't realize -- or doesn't want to realize -- that the world still needs fossil fuels for a very long time and there are costs and risks associated with blanket divestment as opposed to engagement (which admittedly isn't perfect with Big Oil).
Social & Governance
Much to my delight, starting on page 28, the report goes into detail on "contributing to a fairer society":
Where I believe CDPQ really stands out is on the "S" in ESG:
With social issues at the forefront of our concerns, we are resolved to help create stronger communities for the benefit of the greatest number of people.
We strive daily to create an inclusive work environment to promote the development of our team members and we encourage our portfolio companies and external managers to do the same. We are also committed to promoting fair taxation practices to maintain the financial balance of public institutions.
Leveraging equity, diversity and inclusion (EDI)
We all have an interest in building diverse and inclusive teams. EDI is a growth driver for companies and promotes:
- Broader perspectives on business opportunities
- Higher quality decisions
- Greater employee commitment
- Better risk overview
“Diversity of gender, as well as of experience, personality and opinion, is a truly valuable resource that makes our organizations stronger. I believe that encouraging women to pursue their ambitions remains a key to success.”
Kim Thomassin, Executive Vice-President and Head of Québec
Here are the four pillars CDPQ focuses on its social commitment:
And on gender and other diversity, it's taking the lead with women representing 39% of its Executive Committee, 25% of its investment positions and 24% of its employees identifying themselves in one of these groups: visible minority, ethnic minority and indigenous people:
Moreover, the organization isn't stopping there, taking steps to enhance diversity and inclusion:
I note the Action Plan for People With Disabilities has been enhanced but a lot more has to be done to attract and retain people from this group.
Importantly, people with disabilities still face unparalleled challenges finding and securing employment and a lot more targeted efforts need to be done to help this disadvantaged group.
I call upon CDPQ and all of Canada's large pensions to lead the way here.
In 2022, after we recognize that working from home can be done, there's simply no reason whatsoever not to hire people based on their abilities, not their disabilities.
It's a sad testament to ongoing workplace discrimination when the unemployment rate for people with disabilities remains unacceptably high.
Importantly, if we really want to build a fairer society, let's focus on helping those people who legitimately need it the most.
All I can say, is I am glad to see that at least CDPQ is mentioning people with disabilities but more needs to be done on that front.
Lastly, on governance, CDPQ by virtue of its dual mandate can do a lot more than others to help its portfolio companies adopt the best governance standards, which it is doing.
Let me wrap it up there. I urge everyone to take the time to read CDPQ's 2021 Sustainable Investing Report which is available online.
Below, a great clip on things people with disabilities wish you knew. Take the time to watch this.
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