The Public Sector Pension Investment Board (PSP Investments) reports it has exceeded its 2026 target for transition asset investment, a critical step as it seeks to ramp up efforts to meet its short- and long-term net-zero goals.
The Montreal-based pension fund is one of Canada’s largest with $243.7 billion of net assets under management as of Mar. 31, 2023, according to its 2023 Sustainable Investment Report.
In 2023, PSP raised the value of its transition asset portfolio to $7.5 billion from $6.6 billion in 2022.
Simultaneously, it gained a clearer picture of its portfolio emissions, continued to embed sustainability into its practices and progressed toward a green asset investment target of $70 billion by 2026.
“As a long-term investor, we believe that having a compelling and unifying sustainability vision – one that unites our employees across geographies, functions and roles – will help us deliver on our long-term investment mandate and total fund approach,” a PSP spokesperson wrote in an email exchange with SustainableBiz.
PSP’s climate goals
PSP's climate strategy aims to increase its exposure to green and transition assets, reduce exposure to carbon-intensive assets without credible transition plans and promote active ownership of transition planning.
By 2026, the pension fund expects to reduce its portfolio greenhouse gas emissions intensity by 20 to 25 per cent relative to a baseline of September 2021 through:
- Increasing investments in green assets to $70 billion;
- raising investments in transition assets to $7.5 billion;
- reducing holdings of carbon-intensive assets that lack transition plans by 50 per cent;
- ensuring assets representing 50 per cent of PSP’s carbon footprint have commitments to implement mature transition plans;
- directing at least 10 per cent of PSP's long-term debt financing toward sustainable bonds; and
- obtaining greenhouse gas data for 80 per cent of the in-scope portfolio of PSP’s carbon footprint.
Actions to date
PSP beat its target for transition asset investing because it has identified more eligible transition assets than originally anticipated since implementing its Green Asset Taxonomy.
“Our total fund data coverage for the Green Asset Taxonomy is steadily climbing as well: from 47 per cent in fiscal year 2022 to approximatively 54 per cent in fiscal year 2023," the report states. "We remain focused on achieving our goal of 80 per cent coverage by fiscal year 2026.”
That took the form of “significant methodological and process improvements,” including expanding the in-scope assets to include listed fixed-income investments, and reclassifying a large individual asset from carbon intensive to transition asset based on its newly established asset-level targets.
Other key contributors were:
- Engaging with partners and portfolio companies on developing sustainability strategies;
- climate transition and adaptation plans through active engagement;
- proxy voting; and
- encouraging the adoption of the Task Force on Climate-Related Financial Disclosures.
For example, a large port operator in the U.K. announced its commitment to reaching net-zero in its operations by 2042 because of PSP’s engagement.
Using the Partnership for Carbon Accounting Financials carbon footprint metric, PSP's absolute financed emissions decreased by 13 per cent relative to 2022, from 10,446 kilotonnes of carbon dioxide equivalent (ktonnes CO2e) in 2022 to 9,104 ktonnes CO2e in 2023, according to it Climate-Related Financial Disclosures.
PSP faces a tougher task ahead in raising its green asset investments to $70 billion by 2026; it stood at $48.9 billion as of fiscal year 2023. In 2022, PSP had $46.5 billion in green assets.
When asked about plans to meet this target, the pension fund referenced identifying additional exposure to green and transition assets since implementing its Green Asset Taxonomy; and that its fund coverage under the Green Asset Taxonomy is climbing.
More data transparency
To acquire a clearer picture of its portfolio emissions, PSP made progress on better emissions coverage. Fifty-four per cent of its carbon footprint was covered with company-reported greenhouse gas emissions data.
PSP broadened its access to sustainability-related data in private markets through efforts like rolling out an inaugural total fund sustainability-related data collection process covering key performance indicators in ESG. It also created sustainability-related due diligence tools to help investment professionals integrate sustainability-related considerations into the investment process.
From its private markets’ investments, it increased its reported Scope 1 and 2 data coverage by 12 per cent from fiscal year 2022.
Its Scope 3 data was excluded from its calculation because “the comparability, coverage, transparency and reliability of Scope 3 data is generally insufficient in the marketplace.” PSP does intend to include more Scope 3 data as it becomes more available and reliable.
The weighted average carbon intensity of its portfolio decreased by approximately 11 per cent in 2023, PSP reports.
PSP’s sustainable investing future
PSP said its focus for the upcoming year is to introduce sector-specific guidance on transition planning company-wide, which it calls the PSP Investments Transition Playbooks.
Enhancing material sustainability factors in its investment process will also be examined.
To promote sustainability within its investment team, PSP began rolling out its hub-and-spoke model for integrating sustainability-related factors, tools, resources and training. It also updated its sustainable investment policy and corporate governance and proxy voting principles to further embed sustainability into its investment and active ownership activities.