Climate change has triggered a transition toward a low carbon economy. Markets are already proposing solutions that are generating profitable investment opportunities. The transition is underway, and CDPQ intends to seize these opportunities, as an investor, to make a constructive contribution.
Investing in light of climate change
Climate change impacts the environment, society and the global economy, and these impacts will continue to be important.
The growing consensus on the risks associated with climate change was formalized in the 2015 Paris Agreement, which was signed by 195 countries. In the coming years, the actions that authorities and companies take to accelerate the transition toward a low carbon economy will change markets for companies and investors.
For some industries, this is a major challenge. For others, such as renewable energy, technology, infrastructure and electric transportation, this is already generating significant and profitable investment opportunities.
Our investment strategy sets out targets and tools for taking concrete and constructive action, as an investor, in the global challenge that the transition toward a low carbon economy represents. This is a first step for CDPQ, which will be better positioned to seize investment opportunities and contribute to the fight against climate change.
At a glance
A new investment strategy
Our investment strategy was developed based on an in-depth analysis of best practices among leading institutional investors around the world. One of the results of this analysis is CDPQ's conviction that our economies cannot achieve a sustainable transition by targeting one sector; instead, the climate must be taken into account as a factor in all sectors, and therefore in all of our asset classes.
We built this strategy based on clear principles: The targets and means adopted should be achievable, measurable and its results reportable on a regular basis. Our targets will support the Paris Agreement.
A rigorous process
To build a climate change strategy with both ambitious and achievable targets, we have conducted a thorough review of the financial industry to identify international best practices for a long-term investor in the fight against climate change. Our teams also conducted in-depth analyses of both markets and sectors.
To address climate change, our strategy will help us contribute to the transition toward a low carbon economy and seize the resulting profitable investment opportunities.
Four pillars for a lower carbon portfolio
Our strategy has four pillars:
1. Factoring in climate change in every investment decision
CDPQ commits to factoring climate into each of our investment decisions. This pillar of our strategy is focused on the efforts and expertise of our investment teams, who will look at various investment opportunities and determine which ones will:
- Contribute to achieving the targets set out by this strategy;
- Generate good returns for our clients.
Starting today, CDPQ will factor the climate into each of its investment decisions.
Climate therefore becomes fully factored into our investment process in the same way risk is.
This commitment is a significant challenge, because the value of our assets will grow considerably over the next eight years. For example, if assets were to grow 60% over the period this strategy covers, the climate would be factored into the $170 billion that would be added, helping us reach our targets for the overall portfolio.
2. Increasing our low carbon investments by 50% by 2020
CDPQ is already among the world’s largest investors in renewable energy, and we resolve to do even more. As global efforts to fight climate change intensify, CDPQ’s clients will benefit from the many new investment opportunities that will materialize in the coming years.
In 2020, CDPQ’s portfolio will include over $25 billion in low carbon assets.
By 2020, we will increase our low carbon investments by 50% over 2017, representing more than $8 billion in new investments.This strategy will enable us to:
- Contribute to the development of promising projects in many low carbon footprint sectors;
- Generate good returns for our clients.
3. Reducing our carbon intensity by 25% per dollar invested by 2025
In 2025, CDPQ will have reduced the carbon intensity of each dollar invested by 25%.
CDPQ commits to reducing the carbon intensity of our overall portfolio, namely our equity markets, private equity, real assets and fixed income portfolios, between 2017 and 2025. This will make CDPQ the first institutional investor in North America to set a climate target for reducing GHG emissions covering all its asset classes.
As part of this strategy, CDPQ will review the risk-return profile of its investments and, by 2015, reduce the portfolio’s higher carbon-intense content (e.g. activities related to coal).
CDPQ has based its carbon intensity reduction target on the best practices of members of the international financial community. CDPQ’s adoption of an intensity-based GHG emissions reduction target, meaning the target is in relation to the overall portfolio’s size, meets the orientations of the Task Force on Climate-related Financial Disclosures (TCFD) led by Michael Bloomberg, an initiative supported by CDPQ.
Setting carbon intensity budgets by portfolio
CDPQ will set carbon intensity budgets for our various investment portfolios and mandates. These annual budgets, which limit the GHG emissions allowed for a given portfolio, will be established to achieve the target set for 2025.
By allowing our teams the flexibility of selecting investments while respecting carbon budget limits, we strongly believe that our target will be achieved as efficiently as possible. As such, meeting carbon intensity budget targets will influence employee performance appraisal.false
4. Exercising stronger leadership
CDPQ will exercise stronger leadership by advancing the need to factor in climate change.
CDPQ will exercise more leadership in advancing the need to account for climate change. This is why we will take a more active role to mobilize various stakeholders to join the global effort.
To that end, we are focusing on the following:
- Engaging actively with companies in our portfolio
CDPQ commits to playing an important role for portfolio companies. This means:
Discussing climate risk with companies’ management and encouraging them to adopt a plan to reduce their GHG emissions; and
Supporting shareholder initiatives and proposals aimed at enhancing transparency on climate risk matters and carbon emissions.
- Applying best practices
In developing its position, CDPQ relied on an analysis of practices adopted by comparable funds around the world. We have used a sample of 18 funds totalling over $4.5 trillion to obtain a representative picture of the climate change measures most often adopted. This analysis showed that CDPQ appears to apply a high number of measures on several fronts, such as by establishing targets for reducing the intensity of the carbon footprint and for capital deployment.
- Improving how companies and assets in the portfolio perform on GHG emissions
As a shareholder, CDPQ will play a more active role in supporting portfolio companies in their transition toward a low carbon economy. This could include efforts such as supporting investments tied to modernizing industrial processes to achieve greater energy efficiency.
- Participating in initiatives targeting climate issue transparency
Climate change is a global issue and requires the active involvement of many from around the world. Addressing climate risk requires a shared understanding of the issues and a collective approach. This is why CDPQ is involved in several international initiatives on climate change, particularly in the financial sector. We strongly believe that information sharing and collaboration are necessary to develop credible standards that will positively influence markets. As such, we support the following organizations and declarations, and work actively to adopt their principles in our operations:
Adopting carbon pricing
CDPQ also supports the global adoption of carbon pricing mechanisms as a way to more transparently integrate all costs related to using a given energy source.false
- Targeting carbon neutrality
To support our position on climate change, CDPQ aims to become carbon neutral by offsetting our carbon emissions arising from our energy consumption and from employee business travel. To achieve this objective, we will fund projects to offset our GHG emissions.
CDPQ also commits to implementing the latest energy-efficiency measures in its buildings and adopting eco-friendly practices for managing material resources and waste materials. Currently, our main business office in Montréal is certified LEED EB Gold and BOMA BEST Platinum.
CDPQ will disclose information and data on our portfolio's GHG emissions when we publish our annual report.
This data will illustrate CDPQ’s progress toward its objective of reducing its portfolio emissions by 25% per dollar invested by 2025 compared with its benchmark year (2017).
Our measurement includes the following emissions for all asset classes we hold:
- Type 1: emissions directly produced by a company or asset; and
- Type 2: emissions produced indirectly, such as when a company consumes electricity to generate heat or steam.
The methodology used to measure the portfolio’s carbon footprint will be consistent with international best practices and validated by CDPQ’s auditors as part of their annual audit of our financial information.