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CDPQ maintains path to green its $402B portfolio

Quebec pension fund trailblazes with oil divestment

Caisse de dépôt et placement du Québec marked 2022 with reductions in its portfolio's carbon intensity, more green investment and almost divesting itself from oil. (Courtesy Caisse de dépôt et placement du Québec)

Caisse de dépôt et placement du Québec (CDPQ)’s 2022 sustainable investing efforts featured green investment growth, reduced portfolio carbon intensity and a near-exit from oil that makes it a stand-out figure in the field.

The Quebec City-based pension fund is one of Canada’s largest institutional investors with $402 billion in assets as of Q4 2022.

In its 2022 Sustainable Investing Report, CDPQ summarized how it managed to achieve some key climate milestones.

Bertrand Millot, CDPQ’s head of sustainable investment, discussed with SustainableBiz the contours of its sustainability strategy and where it aiming to reach.

“The planet needs more sustainability. We need to improve ourselves on the climate. It’s a battle of every moment," he said. "We need to continue to push and continue to sharpen our tools and continue to have a constructive debate while being ambitious.

"We’ll be done when the planet is net-zero, and unfortunately that’s not tomorrow.”

CDPQ’s green achievements in 2022

CDPQ raised the valuation of its low-carbon assets to $47 billion in 2022, an $8 billion increase from $39 billion in 2021. The fund reports it is on track to its goal of having $54 billion in low-carbon assets by 2025.

Millot said it was achieved by investing in green energy, green buildings and sustainable transportation.

Investments in 2022 included Bouthillette Parizeau, a Montreal-based engineering firm centred around sustainability; Hy2gen, a German hydrogen fuel company; and Akiem, a locomotive leasing services headquartered in France with a mostly electric fleet.

Out of its $402 billion in net assets, around $300 billion is classified as low-carbon or in a low-intensity sector.

The taxonomy CDPQ uses for its green investments is the Climate Bonds Initiative, which Millot said is “extremely rigorous” and different from its Canadian peers.

To help transition its portfolio, CDPQ developed a $10-billion ‘transition envelope’ designed to decarbonize heavy-emitting assets, such as investing in AES Indiana to accelerate its coal phase-out to renewables in 2023.

It engaged with its portfolio companies to reduce their emissions, which is epitomized by the AES Indiana investment.

CPPQ pushed public companies to report, measure and set climate targets.

Divesting from fossil fuels

CDPQ says it is unique among Canadian pension plans for its fossil fuel divestment strategy.

It has almost fully exited from the oil sector (production and refinement), holding only $0.2 billion in assets under active management in 2022. It had previously held $8.5 billion in oil assets in a $298.5-billion portfolio in 2017. 

There is only “one small investment left which is illiquid and difficult to sell,” Millot said, but CDPQ intends to divest from it this year.

Oil assets are now eclipsed by $18 billion in renewable energy assets as of 2022.

Millot attributed CDQP’s decision to divest from oil production and refinement as its fiduciary and climate duty.

“We are very seriously concerned, from a risk point of view, about the prospects for the oil industry going forward,” he said.

To support his point, Millot said the International Energy Agency is discussing the prospects of peak oil, most industrialized countries have set targets to electrify cars, the European Union is drawing up plans for sustainable aviation fuel adoption, and the oil sector has been an underperformer for the past 15 years.

“There is risk going forward; we don’t necessarily want to be there or contribute to the increase in oil production that we witness at the moment.”

CDPQ also started divesting from coal in 2017 and has no exposure to coal today, though it holds natural gas investments because of its role as a transition fuel.

CDPQ’s current emissions

The CDPQ portfolio’s carbon intensity stood at 37 tonnes of carbon dioxide equivalent per million dollars (tCO2e/M$) in 2022. It registered a drop from 41 tCO2e/M$ in 2021 and 79 tCO2e/M$ in 2017.

The 53 per cent decrease in portfolio carbon intensity from 2017 to 2022 is part of CDPQ’s goal of reaching 32 tCO2e/M$ by 2030.

Millot said CDPQ has not set a target for its absolute emissions because, “Having an intermediary target in absolute terms is very tricky for finance.”

The transition envelope could increase its absolute emissions when they are being raised “for the right reason.” Millot illustrated this problem through a hypothetical: CDPQ could invest in a cement plant to decarbonize it, but this would raise its absolute emissions.

Continuing course and biodiversity

CDPQ will continue toward its goal of a net-zero portfolio by 2050 by: investing in green and transition assets, engaging with corporate boards, leading international initiatives and ensuring it invests in climate-aligned companies.

There is also a desire to work on physical and transition risk assessments in CDPQ’s portfolio due to its infrastructure and real estate investments that will require a “good understanding of risks that future weather might create.”

Another hill to climb is biodiversity. CDPQ made several biodiversity commitments at COP15 and Millot said the fund is developing a strategy and undertaking more analysis to articulate a strategy for a complex topic like biodiversity.

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