Power Sustainable has obtained an $806 million capital commitment from subsidiaries of Great-West Lifeco for an investment fund under the direction of the firm's Power Sustainable Infrastructure Credit (PSIC) unit.
"We believe that infrastructure credit is well-positioned to deliver favorable risk-adjusted returns with substantial downside protection," Tom Murray, PSIC managing partner, said in a statement accompanying the Sept. 7 announcement.
Power Sustainable, a wholly-owned subsidiary of Montreal-based Power Corporation of Canada (POW-T), operates the PSIC unit as a strategic investment fund. It targets sustainable infrastructure credit assets in the fields of energy and decarbonization, transportation and logistics, utilities, as well as the digital, social and recycling sectors.
"We are delighted to enter this long-term partnership with Power Sustainable," Raman Srivastava, global chief investment officer for Great-West Lifeco, said.
Great-West Lifeco is 68 per cent owned by Power Financial Corp, the wholly-owned financial arm of Power Corp.
Power Sustainable: A pure-play sustainable alternative asset manager
Power Sustainable defines itself as a "pure-play sustainable alternative asset manager" focused on industries in the process of decarbonizing while at the same time seeking to deliver "attractive, market-based returns" on capital assets that will benefit the environment and society as a whole.
The announcement of the capital infusion also gave occasion for Olivier Desmarais, chairman and CEO of Power Sustainable, to reiterate his firm's commitment to sustainability
"Bespoke lending for infrastructure has a pivotal role in building a strong, low-carbon economy. There is a generational opportunity – and need – for private capital to finance infrastructure that advances decarbonization and positive social outcomes," Desmarais said.
It was back in March that Desmarais, whose family maintains a controlling stake in Power Corp, first revealed his company would be entering into sustainable infrastructure investing via its PSIC division.
"It is with great enthusiasm that we announce our expansion into sustainable infrastructure credit," Desmarais declared. "This is a strategic initiative for Power Sustainable that expands our ability to deploy capital at scale and will have a meaningful impact on advancing climate solutions and contribute to lasting change."
Murray heads up PSIC sustainable investment unit
Murray joined Power Sustainable in March to head up the PSIC investment arm after having previously overseen infrastructure investments at I Squared Capital and Apollo Global Management. His hiring coincided with the official launch of the sustainable infrastructure fund that will be charged with investing billions of dollars into companies leading the transition to net-zero.
"Our vision is to be a world leader in financing sustainable infrastructure projects while providing attractive risk-adjusted returns to our partners," Murray said in comments to SustainableBiz.
"We believe there is a huge opportunity for institutions to play a leading role in financing the drive toward a decarbonized society and PSIC has put together an experienced team of investment professionals to prosecute this opportunity set."
With $806 million in fresh capital at its disposal, PSIC will be able to exert major influence in enabling Canadian and international companies to accelerate their collective efforts to lower their carbon footprint.
The challenge facing PSIC will be to demonstrate sustainable infrastructure investments can generate the kinds of ROI that will attract additional capital from institutional investors operating under increasingly rigorous ESG mandates. Murray will be looking to validate the kind of green infrastructure strategy Power Sustainable is embarking upon.
"Our strategy is focused on delivering attractive risk-adjusted returns with a focus on capital preservation. What that means in practice is bilaterally engaging with issuers to source transactions and structuring lender protections to mitigate downside exposure. The transactions we invest into are complex and require a detailed understanding of the businesses we underwrite," Murray, whose team will be based out of Miami, said.
"We take a long-term investment approach, and look to hold our loans to maturity, so it’s important to focus on both on short-term risk factors like construction risk, but also longer-term factors that create issues for loan repayment. This might require understanding the risk of technology obsolescence, power price exposure or other factors like regulatory risks.
"We don’t believe in simply 'buying the market,' so our underwriting approach is incredibly detailed and time consuming."
"Transparency is the first step towards avoiding greenwashing"
When asked to specify how PSIC will be able to avoid the dangers of greenwashing, one of the primary pitfalls of sustainable investing that has come under increasing scrutiny, Murray explains he will be particularly vigilant with respect to "due diligence" studies that will identify the most promising projects in the sustainability sector.
"Our perspective is that transparency is the first step towards avoiding greenwashing . . . We focus exclusively on investing in projects that deliver on decarbonization, sustainable cities and communities, and/or energy and resource efficiency," Murray said.
"This approach provides us exposure to infrastructure projects with positive environmental and social benefits. In addition, we conduct extensive due diligence on each asset in order to understand its environmental footprint as well as its governance processes, and socially-oriented practices," he said. "Moreover, we think it is important to understand how our investments contribute to the avoidance of emissions, sometimes called Scope 4."
Murray also revealed Power Sustainable is in the process of issuing its inaugural sustainability report.
According to Murray, the "underlying macroeconomic megatrends" bode well for the infrastructure credit market that is being driven in large part by a growing global effort to lower carbon emissions.
"This requires a significant transition from traditional energy sources but also impacts other sectors like transportation and manufacturing. The upgrading and repair of existing infrastructure in developed markets has been underfunded historically. These trends provide a boon for infrastructure credit opportunities."
Power Sustainable hopes to set a high bar for other major investment groups to follow, Murray said, citing a "tremendous need for flexible, creative capital to support entrepreneurs and companies focused on building and optimizing next-generation infrastructure assets globally."
PSIC sees promising investment opportunities in EV sector
One early target is the electric vehicle (EV) sector. The burgeoning industry offers ample potential to generate future revenue streams on capital investments. Moreover, PSIC has identified charging networks as occupying a pivotal role in EV adoption and which offer "strong infrastructure-like characteristics" and "attractive risk-adjusted returns".
Murray cautions however the adoption of EVs will be a gradual process. He points out the adoption of renewable fuels will be critical to "lowering the carbon intensity of the sector" and this aspect of the transition to a sustainable economy "seldom gets the headlines" it deserves.
"There is an important and growing need for investment in (this) space and we are very positive on the opportunity (provided by) a diverse set of sub-sectors which range from renewable natural gas derived from cow manure to renewable diesel derived from used cooking oil and inedible animal fats," he said.
"These renewable fuels can be utilized as a drop-in fuel for existing vehicles creating an immediate impact . . . Growing emphasis on battery recycling, driven by waste reduction imperatives, (also) presents a promising area of growth."