PSP Investments to Analyze Environmental Impact of its Natural Resources Portfolio
The Public Sector Pension Investment Board is engaging WSP Global Inc. to develop a consistent methodology for analyzing the environmental impact of its natural resources assets.
The consultancy firm will conduct a detailed climate analysis of the portfolio, which includes more than three million hectares of land across more than 400 properties based in six countries. Its operations on these properties include the cultivation and processing of timber, tree nuts, fruit, grain, cotton and meat.
WSP’s primary objective will be to establish a portfolio-wide baseline of PSP Investments’ greenhouse gas emissions using farm-level data, according to a press release, which noted this information will be used to develop a decarbonization roadmap that PSP Investments will provide to investee businesses.
The second objective will be to determine the sequestration capabilities of the natural resources. WSP aims to determine how much carbon is extracted from the atmosphere and stored in vegetation and soil. To do this, the consultancy firm will need to devise new methodologies to consistently quantify and report biogenic carbon dioxide removals and storage, as no widely accepted approach exists.
In the release, Marc Drouin, senior managing director and global head of natural resources at PSP Investments, noted the investment organization is among the world’s largest owners of agricultural and timber assets and is eager to understand agricultural and timberland spaces can play in greenhouse gas mitigation efforts.
“Farmland and forestry assets carry significant potential to support global climate mitigation and adaptation efforts, including through their carbon sequestration potential. This ground-breaking project with WSP will give us the detailed, farm-by-farm information we need to help our platforms map out a path to global net zero.”
PSP Investments put out a press release last week that it will partner up with WSP to launch a comprehensive climate analysis of over 3 million hectares of timberland and farmland:
July 11, 2022, Montréal - The Public Sector Pension Investment Board (PSP Investments), one of Canada’s largest pension investment managers, has partnered with world-leading engineering and climate consultancy group WSP to conduct a detailed climate analysis of its Global Natural Resources (“NR”) portfolio.
The analysis, which will be conducted alongside PSP Investments’ local operating partners, covers more than 3 million hectares of farmland and timberland on more than 400 individual properties, across six countries. It will span a wide variety of crops including timber, tree nuts, vineyards, fruit, grain, cotton and animal protein.
Key objectives
The first objective of the analysis is to establish a portfolio-wide baseline of PSP Investments’ NR greenhouse gas emissions (Scope 1 and 2) using farm-level data. This information will support the development and implementation of a decarbonization roadmap to reduce greenhouse gas emissions and establish science-based transition plans for portfolio companies.
The second objective will be to determine the sequestration capabilities of PSP Investments’ NR assets in different carbon pools (e.g., biomass carbon and soil organic carbon). This work will leverage academic studies, third-party expert knowledge, and on-the-ground experience of local management teams, to develop robust methodologies and determine appropriate data sources to consistently quantify and report biogenic carbon dioxide removals and storage.
The WSP climate analysis will seamlessly integrate into PSP Investments’ participation in a pilot program, the Farmland Management Standard, led by Leading Harvest, a non-profit organization focuses on sustainable agriculture. The Farmland Management Standard, a third-party assurance program, aims to standardize sustainability measurement and reporting across agriculture and food production.
Marc Drouin, Senior Managing Director and Global Head of Natural Resources at PSP Investments, said: “As a long-term investor and one of the leading global investors in agriculture and timber, we are highly committed to the continuous improvement of our sustainable farming practices around the world. Farmland and forestry assets carry significant potential to support global climate mitigation and adaptation efforts, including through their carbon sequestration potential. This ground-breaking project with WSP will give us the detailed, farm-by-farm information we need to help our platforms map out a path to global net-zero.”
Mel de Jager, Vice President, Climate Change, Resilience & Sustainability at WSP, said: “For WSP, the opportunity to work with a global organization like PSP Investments, which operates across such a broad range of crops, timber species and geographies, is unique and exciting. Through this work, not only will we be able to help PSP Investments and its partners fully understand the footprint of their greenhouse gas emissions, but we will have a real opportunity to advance knowledge of carbon sequestration on agricultural lands”.
Committed to sustainability
The analysis follows the launch of PSP Investments’ inaugural Climate Strategy and builds on its longstanding commitment to reduce greenhouse gas emissions through best-in-class, sustainable farming and timber management practices.
About PSP Investments
The Public Sector Pension Investment Board (PSP Investments) is one of Canada’s largest pension investment managers with $230.5 billion of net assets under management as of March 31, 2022. It manages a diversified global portfolio composed of investments in capital markets, private equity, real estate, infrastructure, natural resources and credit investments. Established in 1999, PSP Investments manages and invests amounts transferred to it by the Government of Canada for the pension plans of the federal Public Service, the Canadian Forces, the Royal Canadian Mounted Police and the Reserve Force. Headquartered in Ottawa, PSP Investments has its principal business office in Montréal and offices in New York, London and Hong Kong. For more information, visit investpsp.com or follow us on Twitter and LinkedIn.
About WSP
As one of the world’s leading professional services firms, WSP exists to future-proof our cities and environment. We provide strategic advisory, engineering, and design services to clients in the transportation, infrastructure, environment, building, power, energy, water, mining, and resources sectors. Our 55,000 trusted professionals are united by the common purpose of creating positive, long-lasting impacts on the communities we serve through a culture of innovation, integrity, and inclusion. Sustainability and science permeate our work. WSP derived about half of its $10.3B (CAD) 2021 revenues from clean sources. The Corporation’s shares are listed on the Toronto Stock Exchange (TSX: WSP). To find out more, visit wsp.com/en-CA
This environmental impact of its natural resources portfolio is an important development at PSP, building on its inaugural Climate Strategy which I covered with Neil Cunningham, its CEO, here.
Recall some of the key points:
As part of its new Climate Strategy, PSP Investments has also released its bespoke Green Asset Taxonomy which it uses to quantify GHG emissions exposure across its investment portfolio to set a baseline and to monitor the progress of emissions reduction over time.
PSP Investments will aim to:
- Increase investments in Green Assets to C$70 billion by 2026 from a C$40.3 billion baseline in 2021.
- Increase investments in Transition Assets to C$7.5 billion by 2026 from a C$5.1 billion baseline in 2021 and ensure that assets representing 50% of PSP Investments’ carbon footprint will have commitments to implement mature, science-based transition plans by 2026.
- Reduce holdings in Carbon Intensive Assets that lack transition plans by 50% by 2026 from a $7.8 billion baseline in 2021.
- Promote the adoption of science-based transition plans.
- Enhance GHG data coverage across the portfolio by aiming to obtain GHG data for 80% of its in-scope portfolio by 2026.
I also covered PSP's Fiscal 2022 results with Neil and we discussed the Natural Resources portfolio and how it has grown over time:
Neil then made a comment on Natural Resources:
That to me is a huge success in that we built the asset class without having the ability to buy scale. Timber was different, you may remember we did our first investment there on Vancouver island and that was really the genesis of the asset class. But branching into agriculture, we built it one farm at a time by building up strategic partnerships and managing them at a certain level but giving them the leeway to expand their businesses in various areas. We built an $11.5 business which is now roughly 2/3 agriculture, and we built it partner by partner, farm by farm into a really interesting asset class. One of the problems with that asset class is actually benchmarking it which is an indication that it's highly useful for us because if you can't benchmark it, it's an indication that it's not correlated to other things. It's one of the reasons we like it so much and of course, as you say, it has inflation protection naturally built into it.I told Neil that I honestly don't know many other large Canadian pensions who have done as much in agriculture as what PSP has done (OTPP a bit but nowhere near as much).Neil concurred and told me it wasn't easy to build that asset class:
Because it's not an asset class which is as established as others, you can't just call an investment banker to say I need exposure to this asset class. It was a lot of people making a lot of trips to places where that portfolio is located. A lot of it is in Australia, Western US and Western Canada. That's a lot of time on planes, building relationships becoming known in the market. Now it's at a point where the growth is almost organic in the sense if you have an existing platform (partnerships), literally you can buy the farm next door. It's a proprietary form of organic expansion now that the footprint is there. You know the expression it's a long hard road to being an overnight success, right? The team members put a lot of sweat equity into building this out and it's paying up.
It is also worth looking at Fiscal 2022's Annual Report to get more details on PSP's Natural Resources portfolio:
I note the long-term performance of this asset class:
Over five years, Natural Resources generated $3.1 billion in portfolio income and achieved a rate of return of 8.5% compared to a benchmark return of 7.6%. The positive results are reflective of the long-term investment horizon, strong operating performance and accretive asset valuations of the timberland assets and agriculture investments.
Also, 53% of the assets in this portfolio are in Oceania, mostly Australia where PSP has quietly built a sizable agriculture portfolio over the last few years:
But it is Australia that has captured most interest and investment dollars from PSP. According to the 2019 annual report, 57.6 per cent of PSP’s allocation to natural resources is in Australia, compared with 33.3 per cent in North America and 7.6 per cent in Latin America.
The key reasons are familiarity with Australia’s legal system and the similarity of the two economies.
In a previous interview with this journalist, Drouin said: “PSP’s strategy is predicated on only deploying capital in jurisdictions that provide opportunities for scale, that have a significant number of potential operating partners, and have stable rule of law.
“Australia meets all these criteria,” he said then.
The pull of agriculture is obvious growth in demand for high-quality food, like beef, dairy and tree nuts, as consumers around the world clamour for produce from countries with a ‘clean and green’ image. Australia fits the bill.
PSP Investments’ natural resources team sees many positive long-term secular trends underpinning strong supply-demand fundamentals for the core crops that it invests in.
It also sees investments in agriculture as aligned with PSP’s core mandate, which is to earn an inflation-adjusted return target without undue risk of loss. Agricultural commodities tend to be significant contributors to inflation.
Returns from agriculture investments tend to be less correlated with those of other PSP asset classes, and therefore provide significant additional portfolio construction benefits, said Drouin.
In the 2018-19 financial year, natural resources returned 11.1 per cent and, over the previous five years, the annualised return was 12 per cent.
PSP Investments, which invests on behalf of the Canadian public service, armed forces , the Royal Canadian Mounted Police and the Reserve Force, aims to have more than C$250 billion in assets under management by 2028.
It is likely that its allocation to natural resources, including agriculture, will rise commensurate with its growth over the coming decade.
I am providing you with the proper context to understand why PSP's Natural Resources portfolio is unique (has a lot more agriculture exposure than its peers) and why this environmental assessment of this portfolio by WSP is an important step as PSP bolsters its climate strategy.
Again, the key objectives are:
The first objective of the analysis is to establish a portfolio-wide baseline of PSP Investments’ NR greenhouse gas emissions (Scope 1 and 2) using farm-level data. This information will support the development and implementation of a decarbonization roadmap to reduce greenhouse gas emissions and establish science-based transition plans for portfolio companies.
The second objective will be to determine the sequestration capabilities of PSP Investments’ NR assets in different carbon pools (e.g., biomass carbon and soil organic carbon). This work will leverage academic studies, third-party expert knowledge, and on-the-ground experience of local management teams, to develop robust methodologies and determine appropriate data sources to consistently quantify and report biogenic carbon dioxide removals and storage.
The WSP climate analysis will seamlessly integrate into PSP Investments’ participation in a pilot program, the Farmland Management Standard, led by Leading Harvest, a non-profit organization focuses on sustainable agriculture. The Farmland Management Standard, a third-party assurance program, aims to standardize sustainability measurement and reporting across agriculture and food production.
Both objectives are important and so is the seamless integration into PSP Investments’ participation in a pilot program, the Farmland Management Standard, led by Leading Harvest.
Importantly, WSP's climate analysis will not only benefit PSP, it will benefit industry and other long-term asset owners looking to assess the carbon intensity of their investments in natural resources.
And again, the analysis follows the launch of PSP Investments’ inaugural Climate Strategy and builds on its longstanding commitment to reduce greenhouse gas emissions through best-in-class, sustainable farming and timber management practices.
As Marc Drouin, Senior Managing Director and Global Head of Natural Resources at PSP Investments, said: “As a long-term investor and one of the leading global investors in agriculture and timber, we are highly committed to the continuous improvement of our sustainable farming practices around the world. Farmland and forestry assets carry significant potential to support global climate mitigation and adaptation efforts, including through their carbon sequestration potential. This ground-breaking project with WSP will give us the detailed, farm-by-farm information we need to help our platforms map out a path to global net-zero.”
In other related news, in late June, Citri&Co and PSP Investments sealed a long-term strategic alliance in fresh produce in Europe:
- PSP Investments to acquire high-quality European agricultural properties, starting with Citri&Co citrus orchards in Spain
- Citri&Co to operate and manage the assets, with the partnership enabling the company's capability to produce and commercialize high-quality fresh fruit and further strengthening its production footprint
London, UK [June 20, 2022] - Citri&Co, a leading European vertically integrated fresh fruit company and a Miura Partners portfolio company, and the Public Sector Pension Investment Board (PSP Investments), one of Canada’s largest pension investment managers, have formed a long-term strategic alliance to acquire and manage agricultural land.
Under the terms of the partnership, PSP Investments will acquire farmland, primarily comprised of citrus fields in Spain; while Citri&Co will operate and manage the farmland, leveraging its decades of experience and technical expertise. Consistent with its vertically integrated, “field-to-table” model, Citri&Co will continue the packing, distribution and sale of all produce grown on the properties.
Both parties, together with Miura Partners, will continue to seek opportunities for the acquisition, development and management of agricultural land, which will strengthen Citri&Co's position as a year-round supplier of fresh fruit.
PSP Investments is a leading global investor in agriculture and timber. With approximately
C$16 billion of assets under management in its agriculture and timber portfolio globally, the organization has developed a number of similar alliances with like-minded partners in geographies around the world.Marc Drouin, Senior Managing Director, Real Assets and Global Head of Natural Resources Investments at PSP Investments, said, “Citri&Co represents an ideal partner for PSP Investments in the European fresh produce sector, particularly given Spain’s status as the leading global producer and exporter of citrus fruit. Backed by Miura Partners, Citri&Co’s top-tier management team has grown the company significantly. This new partnership with Citri&Co is aligned with our strategy of adding high-quality, sustainable agricultural assets with long-term growth potential to our portfolio.”
According to Carlos Blanc, CEO at Citri&Co, “Our strategic partnership with PSP Investments will reinforce our value proposition allowing us to focus on what we do best: to be a 12-month, high-quality fresh fruit supplier, ensuring the best standards across the supply chain, from the field to the table. In addition, we are 100% aligned with PSP Investments’ fundamental values as they cherish the land acquired under their sustainability principles.”
Jordi Alegre, Managing Partner at Miura Partners, explained that. “Together with PSP Investments we are launching Citri&Co to new heights, in terms of value proposition, to growers and retailers in Europe and worldwide as we seek new opportunities of sustainable growth.”
Committed to sustainability
PSP Investments and Citri&Co share a commitment to sustainable agricultural development. PSP Investments has committed to use its capital and influence to support the transition to global net zero by 2050, while Citri&Co has officially verified and audited its carbon neutrality in corporate activity and citrus production in Spain.
About Citri&Co
Citri&Co is a leading vertically integrated fresh fruit company in Europe, distributing conventional and organic citrus, melon and watermelon and stone fruit produced in Spain and Brazil. The group markets more than 700,000 tonnes of fruit per year to more than 30 countries and more than 200 customers, thanks to its long-term partnerships. It is also firmly committed to sustainable development through environmental protection, carbon emissions reduction and the integration of sustainability into its value chain.
About PSP Investments
The Public Sector Pension Investment Board (PSP Investments) is one of Canada’s largest pension investment managers with C$230.5 billion of net assets under management as of March 31, 2022. It manages a diversified global portfolio composed of investments in public financial markets, private equity, real estate, infrastructure, natural resources and credit investments. Established in 1999, PSP Investments manages and invests amounts transferred to it by the Government of Canada for the pension plans of the federal Public Service, the Canadian Forces, the Royal Canadian Mounted Police and the Reserve Force. Headquartered in Ottawa, PSP Investments has its principal business office in Montréal and offices in New York, London and Hong Kong.
About Miura Partners
Miura Partners is a leading middle-market private equity firm in Spain based in Barcelona with more than €1bn of Assets under Management. The firm is specialized in investing in mid-size family-owned & entrepreneurial businesses, providing attractive growth and innovation plans, and with a clear focus on sustainability. Since 2008 Miura Partners has invested in more than 40 companies, with transactions worth more than €1.5bn.
This is a great long-term deal where PSP Investments will manage the acquisition of Spanish citrus orchards while Citri & Co. will operate and manage the farmland, packing, distribution and sale of crops.
On that note, take the time to watch this 2020 interview where Marc Drouin, Senior Managing Director and Global Head of Natural Resources of PSP Investments discusses how they've been investing in agriculture internationally since 2014 and his views Australia as a dependable investment area for quality produce and reputation. The interview is only available here.
There's a reason why Mr. Drouin was named among the most influential people in Australia's cropping industry. Over the years, he and his team have quietly built one of the most diverse and best Natural Resources portfolios in the institutional investment industry, and PSP's clients will benefit from their hard work over the long run.
Below, back in March, Scott Waldron, associate professor at the University of Queensland's School of Agriculture and Food Sciences; Michaela Boehme, research manager and lead analyst at China Policy; and Patrick Hutchinson, chief executive officer at the Australian Meat Industry Council, discussed the future of agriculture and trade between Australia and China in light of the ongoing dispute between the two countries.
The participants examined the implications of China’s import restrictions on Australia’s food exporters, how it affects China’s own food policy, and lessons learned moving forward. Dr. Courtney J. Fung, associate professor at Macquarie University's Department of Security Studies and Criminology, moderated the discussion. (54 min., 55 sec.).
Not surprisingly, the New York Times recently reported that four years after Australia’s ties with China entered a downward spiral, with Australia emerging as an energetic counterweight to Beijing’s growing might, the two countries have begun to explore whether they can patch things up.
Last week, China’s Foreign Minister Wang Yi told state media that Beijing is willing to reset its relationship with Australia after several years of tensions over national security and trade.
China and other Asian markets are going to continue importing a lot more agricultural products from Australia over the long run, so I'm not too worried about PSP's investments in agriculture in that country from that regard but geopolitical tensions do pose some risks to these investments.
All this to say, I’m very impressed with PSP Investments' Natural Resources portfolio and think they have done an outstanding job of expanding this portfolio over the last few years. WSP's analysis of the environmental impact of this portfolio will only further bolster PSP's reputation as an institutional leader in the natural resources space.
Comments
Post a Comment