Our ESG indicators
CDPQ discloses the results of its actions related to ESG factors through various documents: the Sustainable Investing Report (SIR), the Sustainable Development Report (SDR) and the Annual Report (AR).
| Indicator | Target or action | 2022 Disclosure | 2022 Source | 2021 Disclosure | |
|---|---|---|---|---|---|
| 1 | Value in billions of $ of low-carbon assets | $54 billion in low-carbon assets by 2025 | $47 B (including $12 B in Québec) |
SIR Section E SDR Orientation 1 |
$39 B |
| 2 | Value in billions of $ of Paris Agreement aligned assets | Support for assets with a strategy aligned with the Paris Agreement | $84 B ($47 B CBI and $37 B SBTi) |
SIR Section E | N/A |
| 3 | Portfolio’s carbon intensity in tCO2e/M$ invested and as a percentage | 60% reduction by 2030 from 79 tCO2e/M$ invested in 2017 | 37 tCO2e/M$ 53% reduction compared to 2017 |
SIR Section E SDR Orientation 1 |
41 tCO2e/M$ 49% reduction compared to 2017 |
| 4 | GHG reduction target aligned with the objectives of the Paris Agreement limiting warming to 1.5°C | 2030 target for intensity reduction aligned with the Paris Agreement | 60% reduction in carbon intensity by 2030 Net-zero portfolio by 2050 |
SIR Section E SDR Orientation 1 |
60% reduction in carbon intensity by 2030 Net-zero portfolio by 2050 |
| 5 | Engagements with portfolio companies to encourage them to set targets aligned with the 1.5°C objective | Member of the Climate Action 100+ initiative and commitment to our portfolio companies | 10% of our discussions with portfolio companies tackled climate change | SIR Section G | 10% of our discussions with portfolio companies tackled climate change |
| 6 | Fossil fuel targets in line with the science | Exit from oil production by the end of 2022 Exit from thermal coal production by 2040 |
Exit from oil production under active management essentially completed Exit from coal mining under active management completed |
SIR Section E Climate Strategy |
Exit from oil production by the end of 2022 |
| 7 | Work toward zero waste in our main business office | Achieve a waste reclamation rate of 60% for Édifice Jacques-Parizeau by 2025 | 71% | SDR Orientation 3 | 61% |
| 8 | Redistribute or recycle outdated IT equipment from our main business office | Redistribute or recycle 100% of outdated computer equipment | All CDPQ’s IT equipment was re-used internally in 2022. The redistribution rate is therefore 100%. | SDR Orientation 3 | In 2021, 100% of the obsolete IT equipment was redistributed to two social reintegration organizations specializing in equipment recycling: Insertech Angus and Entreprise-École RECYPRO d’Argenteuil. |
| 9 | Reduce our main business office’s carbon footprint | Reduce emissions at Édifice Jacques-Parizeau by 55% by 2030 compared to 2017 | 18% reduction since 2017. The remaining emissions are offset annually to achieve carbon neutrality. The building has also received, for a third consecutive year, the Canada Green Building Council’s Zero Carbon Building Standard – Performance. This certification recognizes an energy-efficient building that produces, or procures, sufficient carbon-free renewable energy to offset the annual emissions associated with its operation. |
SDR Orientation 3 | N/A |
| 10 | Share of women on the Board of Directors | 40% share of women on the Board of Directors | 46% | SIR Section S | 46% |
| 11 | Share of women on the Executive Committee | 40% share of women on the Executive Committee by 2025 | 39% | SIR Section S SDR orientation 2 |
39% |
| 12 | Share of women at CDPQ | 47% share of women in the organization by 2025 | 45% | SIR Section S | N/A |
| 13 | Share of women in investment positions | 34% share of women in investment positions at CDPQ by 2025 | 27% | SIR Section S | 25% |
| 14 | Employees in Québec who identify as a member of one of the following three groups: visible minorities, ethnic minorities or Indigenous peoples | 26% of employees in Québec who identify as a member of one of the following three groups: visible minorities, ethnic minorities and Indigenous peoples by 2025 | 24% | SIR Section S SDR Orientation 2 |
24% |
| 15 | Percentage of public companies in active management in our portfolio with at least 30% women on their Boards of Directors | Ambition to achieve 100% | 52% | SIR Section S SDR Orientation 2 |
45% |
| 16 | Share of women in CDPQ’s nominee director positions | 30% share of women in CDPQ’s nominee director positions by 2023 | 29% | SIR Section S SDR Orientation 2 |
29% |
| 17 | Commitment to diversity, inclusion and the absence of discrimination | Policy on workplace equity, diversity and inclusion in force Annual action plan for persons with disabilities Statement on equal access to employment |
Policy updated in October 2022 Policy updated in May 2022 100% of team leaders received training on inclusive leadership 122 persons from various teams are members of the EDI Ambassadors Network |
Policy – Workplace Equity, Diversity and Inclusion Annual Action Plan for Persons with Disabilities 2021–2022 CDPQ Statement on Equal Access to Employment |
Policy in force adopted in April 2021 Current plan adopted in April 2021 |
| 18 | Existence of information on coaching employees and current mentoring programs | Mentoring program | 170 people were mentored internally (of which 51% were women and 21% were colleagues representing ethnocultural diversity) | SIR Section S | Nearly 150 people participated in the mentoring program |
| 19 | Support for professional development and career management | Strategy in place to attract, retain and develop employees | 122 people from various teams are members of the EDI Ambassadors Network 170 people were mentored internally 100% of team leaders received training on inclusive leadership |
SIR Section S Your career at CDPQ |
Our teams were offered development activities this year |
| 20 | Presence of channels through which employees can raise issues | Fraud and corruption prevention and detection policy Hotline for employees to report a breach of ethics or a law being broken |
Policy in force adopted in October 2020 Policy in force adopted in April 2021 |
Policy – Fraud and Corruption Prevention and Detection Policy Against Harassment and Other Types of Misconduct |
Policy in force adopted in October 2020 |
| 21 | Number of workplace accidents | Support for overall occupational health and safety | No accidents | Global Health and Safety team | No accidents |
| 22 | Public commitment to respect personal data and a general policy on personal data | Information Management and Security Policy | Policy updated in June 2022 | Information and Technology Asset Security Policy | Policy in force adopted in 2015 |
| 23 | Presence of a commitment for the payment of a fair share of income taxes | Commitment to exercise leadership in international taxation and disclosure of income taxes paid by country | Commitment on international taxation and disclosure of income taxes paid by country published in 2020 | International Taxation Commitment SIR Section S |
Commitment on international taxation and disclosure of income taxes paid by country published in 2020 |
| 24 | Number of pre-investment notices on tax practices | Pre-investment tax practices analysis of transactions | 136 pre-investment notices on tax practices, of which 7 were unfavourable | SIR Section S | N/A |
| 25 | Number of investment files analyzed to ensure compliance with a minimum tax rate | Analysis of our assets under active management to ensure compliance with a minimum consolidated tax rate of 15% | more than 1,800 investment files | SIR Section S | more than 1,600 investment files |
| 26 | Existence of policy against corruption and bribery and analysis of the related risks | Fraud and Corruption Prevention and Detection Policy in place | Policy in force adopted in October 2020 | Policy – Fraud and Corruption Prevention and Detection | Policy in force adopted in October 2020 |
| 27 | Commitment related to corporate professional ethics directives | Code of Ethics and Professional Conduct for Officers and Employees in force Code of Ethics and Professional Conduct for Directors in force |
Code of ethics updated in 2019 Code of ethics updated in 2021 |
Code of Ethics and Professional Conduct for Officers and Employees Code of Ethics and Professional Conduct for Directors |
Code of ethics updated in 2019 Code of ethics updated in 2021 |
| 28 | Measures implemented to promote ethical behaviour in the organization | Ethics training for employees Annual commitment by employees to respect the organization’s ethical standards Two mandatory training sessions for new recruits, one of which is on prevention and detection of corruption One-to-one meeting with each new incoming manager to discuss various aspects of the Code |
All employees agreed to respect the Code of Ethics and Professional Conduct | AR Compliance section Code of Ethics and Professional Conduct for Officers and Employees |
All employees agreed to respect the Code of Ethics and Professional Conduct |
| 29 | Deployment and promotion of the master plan for the REM art program | Competition to select three artists who will create works integrated into the REM’s architecture | The artists who will create the first three works in REM stations were announced in August 2022 | SDR Orientation 3 | Public announcement of the UniR program |
| 30 | Communication of human rights expectations | Statement released on equal access to employment | Inclusive culture, free from any discrimination, and formal adherence to the principles of diversity and equal access to employment | CDPQ statement on equal access to employment | Inclusive culture, free from any discrimination, and formal adherence to the principles of diversity and equal access to employment |
| 31 | Presence of verifications and internal audits of diversity indicators | EDGE Certification, a globally recognized corporate certification standard for gender equality in the workplace | EDGE+ certification renewed | SIR Section S | Steps taken to renew our EDGE certification |
| 32 | Number of Quebec companies supported on the integration of ESG factors | Support to our portfolio companies in Québec on different ESG matters | 9 companies | SIR Section G | N/A |
| 33 | Number of discussions held with companies on ESG factors | Discussions with our portfolio companies on various ESG issues | 303 discussions | SIR Section G | 248 discussions |
| 34 | Number of companies with which there were discussions of ESG factors | Discussions with our portfolio companies on various ESG issues | 175 companies 63 external managers |
SIR Section G | 194 companies 51 external managers |
| 35 | Number of votes on proposals | Participation in votes on proposals | 54,337 votes | SIR Section G | 57,008 votes |
| 36 | Number of shareholder meetings at which we voted | Vote at the shareholder meetings of our portfolio companies | 5,537 meetings | SIR Section G | 5,762 meetings |
| 37 | Executive compensation system linked to achieving ESG targets | Variable compensation conditional to achieving climate targets | Since 2018, CDPQ has directly linked variable compensation for all its personnel to the achievement of climate targets | AR SIR Appendix 4 |
Since 2018, CDPQ has directly linked variable compensation for all its personnel to the achievement of climate targets |
| 38 | Number of ESG analyses performed | All potential transactions in active management are subject to an ESG analysis | 759 analyses | SIR Section G | 505 analyses |
| 39 | Technology risk assessments of our portfolio companies | Technology risk assessments are incorporated into all our investment decisions, and we monitor our total portfolio | 325 technology risk analyses | SIR Section G | 398 technology risk analyses, including close to 172 analyses of transactions |
| 40 | Presence of a lobbying policy | Policy Governing the Exercise of Voting Rights of Public Companies, which includes lobbying | Our policy on the principles governing the exercise of voting rights of public companies includes a section on lobbying | Policy Governing the Exercise of Voting Rights of Public Companies | Our policy on the principles governing the exercise of voting rights of public companies includes a section on lobbying |
| 41 | Presence of clear policies on the engagement made with portfolio companies on ESG issues | Policy on Sustainable Investing that includes a framework for engagement with portfolio companies | Policy on Sustainable Investing updated in August 2022 | Policy – Sustainable Investing | Policy on sustainable investing updated in 2021 |
Calculation of the intensity of CDPQ’s portfolio
Calculation
LT Capital: Long-term capital used by a company to finance its production assets (fair market value of equity + long-term debt).
Emissions: Direct (Scope 1) and indirect (Scope 2) greenhouse gas (GHG) emissions converted into equivalent tons of CO2 (tCO2e), as defined by the GHG Protocol.
Calculation perimeter:
Includes a net value of investments1 of $394 billion as at December 31, 2022, or 100% of corporate securities, including those of non-consolidated subsidiaries, in the form of shares, corporate and Crown corporation debt, securities held through market indexes or exchange traded funds (ETFs), externally managed investments, and securities lending and borrowing (Chart 14).
Excludes a net value of investments2 of $179 billion, as at December 31, 2022, in government bonds, cash, warrants, certificates of deposit, derivative financial instruments, and securities purchased under reverse repurchase agreements (Figure 15).
Absolute portfolio footprint (in MtCO2) within the calculation perimeter (in $B)
The investments considered in the footprint calculation are held in the following specialized portfolios: Equity Markets, Fixed Income, Private Equity, Infrastructure, Real Estate, and certain investments in shares held in Asset Allocation.
Transition envelope
Investments in the transition envelope are excluded from the calculation of the intensity of the total portfolio. The carbon intensity of these assets is calculated using the same methodology as that used for the portfolio, but it is independently monitored and disclosed, as well as externally verified. These assets are aligned with our objective to be net zero by 2050, and their decarbonization plans are certified by independent experts.
CDPQ calculates its carbon footprint on the vast majority of its portfolio
Sources of data
A) Direct interests
CDPQ primarily uses the Trucost database to collect emissions data on individual emitters. Combined with LT capital data from the Compustat and Bloomberg databases, this forms the foundation of our calculations of individual issuers’ intensity and average sector intensity.3
Our approach is as follows:
| CDPQ methodology | |
|---|---|
| In order of priority: | |
| 1 | Direct intensity calculated for the issuer |
| 2 | Direct intensity calculated for the parent of the issuer |
| 3 | Average sector intensity |
| Ivanhoé Cambridge methodology | |
|---|---|
| In order of priority: | |
| 1 | Direct intensity calculated for the property by Ivanhoé Cambridge |
| 2 | Average intensity of Ivanhoé Cambridge’s portfolio |
Please note that in certain instances, CDPQ uses judgment to override the intensity assigned through the typical methodology if more accurate or relevant data is available. For example, this may be the intensity disclosed by the issuer, the intensity of comparable issuers with same GHG profile, the average intensity of a sector that more accurately represents the issuer, or the intensity estimated using another reliable source.
B) Indirect interests
Where data is available, the intensity of funds is calculated according to the typical methodology applicable to direct holdings. Where data is not available, CDPQ uses the intensity of the fund disclosed by the manager or the average intensity of the sector or asset class appropriate to the nature of the fund.
Evaluation of the quality of the data used to calculate CDPQ’s global footprint
Methodology developed by CDPQ and inspired by the Partnership for Carbon Accounting Financials (PCAF)| DATA QUALITY |
DEFINITION | DATA TYPE | Share of the absolute footprint (%) |
|---|---|---|---|
| 1 |
|
Disclosed | 44% |
| 2 |
|
Disclosed | 10% |
| 3 |
|
Disclosed/estimated | 22% |
| 4 |
|
Estimates | 19% |
| 5 |
|
Estimates | 5% |
1. CDPQ gross asset value, net of short positions (net negative positions are excluded).
2. CDPQ gross asset value, net of short positions (net negative positions are excluded).
3. CDPQ uses the most recently available emissions data from Trucost. For data quality purposes, CDPQ sets an internal threshold to determine when the most recent emissions data in the Trucost database are considered too outdated to use in our calculations of individual issuers’ intensity and average sector intensity. Where available, CDPQ uses LT capital data as at December 31, 2022. Where LT capital data is not available as at December 31, 2022, CDPQ uses the most recently available data.
Independent practitioner’s assurance report
To the Management of the Caisse de dépôt et placement du Québec
Scope
We have been engaged by Caisse de dépôt et placement du Québec (the “Company” or “CDPQ”) to perform a limited assurance engagement, as defined by Canadian Standards on Assurance Engagements, hereafter referred to as the engagement, to report on the carbon intensity of CDPQ’s portfolio excluding the transition envelope, the carbon intensity of the transition envelope and the associated data quality table detailed in the accompanying Schedule (collectively, the “Subject Matter”) for the year ended December 31, 2022 contained in CDPQ’s 2022 Stewardship Investment Report (the “Report”).
Other than as described in the preceding paragraph, which sets out the scope of our engagement, we did not perform assurance procedures on the remaining information included in the Report, and accordingly, we do not express a conclusion on this information.
Criteria applied by CDPQ
In preparing the Subject Matter, CDPQ applied the internally developed criteria described in the section "Environment: 03 - Our actions to accelerate the transition" and in Appendix 2 of the Report (the “Criteria”). The Criteria were specifically designed for the preparation of the Report. As a result, the subject matter information may not be suitable for another purpose.
CDPQ’s responsibilities
CDPQ’s management is responsible for selecting the Criteria, and for presenting the Subject Matter in accordance with that Criteria, in all material respects. This responsibility includes establishing and maintaining internal controls, maintaining adequate records and making estimates that are relevant to the preparation of the Subject Matter, such that it is free from material misstatement, whether due to fraud or error.
EY’s responsibilities
Our responsibility is to express a conclusion on the presentation of the Subject Matter based on the evidence we have obtained.
We conducted our engagement in accordance with the Canadian Standard on Assurance Engagements (“CSAE”) 3410, Assurance Engagements on Greenhouse Gas Statements (“CSAE 3410”). This standard requires that we plan and perform our engagement to obtain limited assurance about whether, in all material respects, the Subject Matter is presented in accordance with the Criteria, and to issue a report. The nature, timing, and extent of the procedures selected depend on our judgment, including an assessment of the risk of material misstatement, whether due to fraud or error.
We believe that the evidence obtained is sufficient and appropriate to provide a basis for our limited assurance conclusion.
Our independence and quality control
We have complied with the relevant rules of professional conduct / code of ethics applicable to the practice of public accounting and related to assurance engagements, issued by various professional accounting bodies, which are founded on fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behaviour.
EY also applies Canadian Standard on Quality Control 1, Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance Engagements, and accordingly maintains a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements.
Description of procedures performed
Procedures performed in a limited assurance engagement vary in nature and timing from, and are less in extent than for, a reasonable assurance engagement. Consequently, the level of assurance obtained in a limited assurance engagement is substantially lower than the assurance that would have been obtained had a reasonable assurance engagement been performed. Our procedures were designed to obtain a limited level of assurance on which to base our conclusion and do not provide all the evidence that would be required to provide a reasonable level of assurance.
Although we considered the effectiveness of management’s internal controls when determining the nature and extent of our procedures, our assurance engagement was not designed to provide assurance on internal controls. Our procedures did not include testing controls or performing procedures relating to checking aggregation or calculation of data within IT systems. A limited assurance engagement consists of making enquiries, primarily of persons responsible for preparing the Subject Matter and related information and applying analytical and other appropriate procedures.
Our procedures included:
- Conducting interviews with relevant personnel to obtain an understanding of the reporting processes and internal controls;
- Inquiries of relevant personnel who are responsible for the Subject Matter including, where relevant, observing and inspecting systems and processes for data aggregation and reporting in accordance with the Criteria;
- Assessing the accuracy of data, through analytical procedures and limited reperformance of calculations, where applicable; and
- Reviewing presentation and disclosure of the Subject Matter in the Report.
We also performed such other procedures as we considered necessary in the circumstances.
Inherent limitations
The Greenhouse Gas (“GHG”) quantification process is subject to scientific uncertainty, which arises because of incomplete scientific knowledge about the measurement of GHGs. Additionally, GHG procedures are subject to estimation (or measurement) uncertainty resulting from the measurement and calculation processes used to quantify emissions within the bounds of existing scientific knowledge.
Non-financial information, such as the Subject Matter, is subject to more inherent limitations than financial information, given the more qualitative characteristics of the Subject Matter and the methods used for determining such information. The absence of a significant body of established practice on which to draw allows for the selection of different but acceptable evaluation techniques which can result in materially different evaluations and can impact comparability between entities over time.
Conclusion
Based on our procedures and the evidence obtained, nothing has come to our attention that causes us to believe that the Subject Matter for the year ended December 31, 2022, is not prepared, in all material respects, in accordance with the Criteria.
March 28, 2023
Montréal, Canada
Schedule
Our limited assurance engagement was performed on the following Subject Matter for the year ended December 31, 2022:
| Performance Indicator | Criteria | Reported Value |
|---|---|---|
| Carbon Intensity of CDPQ’s portfolio excluding the transition envelope | Internally developed Significant contextual information necessary to understand how the data has been compiled have been disclosed in the Report in Appendix 2. |
37 tCO2e/$M |
| Carbon Intensity of CDPQ’s transition envelope | Internally developed Significant contextual information necessary to understand how the data has been compiled have been disclosed in the Report in the section "Environment: 03 - Our actions to accelerate the transition". |
1,489 tCO2e/$M |
| Data quality table | Internally developed Significant contextual information necessary to understand how the data has been compiled have been disclosed in the Report in Appendix 2. |
Quality score 1: 44% Quality score 2: 10% Quality score 3: 22% Quality score 4: 19% Quality score 5: 5% |
Disclosure according to the Task Force on Climate-related Financial Disclosures (TCFD)
We follow the TCFD’s recommendations on financial disclosures related to climate issues and present our progress annually.
APPLICATION OF THE RECOMMENDATIONS BY CDPQ
- Since 2017, our Policy – Sustainable Investing requires that we include climate change considerations in our investment analysis and approval process, as well as in integrating risks related to ESG factors. The Sustainability team develops this policy, which is then approved by the Executive Committee, followed by the Board of Directors.
- In addition, to ensure oversight of our sustainable investing governance, the Executive Committee reports annually to the Board of Directors, based on sectoral strategic plans, risk mapping and the Climate Strategy.
- In 2018, the Human Resources Committee of the Board of Directors took a strong step by linking the variable compensation of all employees, including the members of the Executive Committee, to the achievement of climate targets. We are one of the first global institutional investors to adopt such a measure.
- The climate attributes (risks and opportunities) of investments are subject to the same governance as our other investment criteria. They are incorporated into the due diligence review of investments and into our portfolio monitoring. These issues are addressed in specific sections of the investment approval and reporting documents. Particular attention is paid to the physical risk incurred through real assets (infrastructure and buildings) as well as to transition risk.
- Working in collaboration with the entire organization, the Sustainability team closely monitors the annual climate targets of our specialized portfolios. These analyses are submitted to the various committees on which CDPQ executives sit, including the Investment-Risk Committee (IRC).
- In 2021, a transition risk analysis of the portfolio was carried out by the Sustainability team in collaboration with Risk Management for presentation to the IRC. This analytical framework is now used in the due diligence review of certain new investments.
- Close attention is paid to data quality. In 2021, a carbon certificate was added to our extra-financial data, which now benefits from controls similar to those applicable to financial data, including external verification.
- In 2022, we benchmarked our methodology against the calculation standard of the Partnership for Carbon Accounting Financials (PCAF), and in 2023, we will determine whether any adjustments need to be made. These efforts demonstrate the rigour of our carbon measurement methodologies and practices, which are subject to subsequent external verification.
- In 2020, we began an innovative partnership with two Canadian peers and The Climate Service to co-develop Climanomics, a tool used to better understand, measure and report on physical climate risks in financial terms. We continued to use this tool after the firm was acquired by S&P Global in 2022.
- Today, our teams analyze the different types of physical climate risks over the short, medium and long term. The risks are taken into consideration for each new investment in real assets (infrastructure and real estate) as well as for some of our portfolio assets (more details can be found in Section 5. Management of physical risks).
- Our teams also analyze climate change transition risks. They are subject to both qualitative and quantitative analysis, and include:
- Regulatory or political action (carbon pricing or subsidies)
- Technological innovations
- Market risks (changes in demand for certain products)
- Lawsuits
- Reputation risks
- An analysis is performed for each new investment opportunity, taking into account the materiality of the risk and the liquidity of the security. The analysis considers different time horizons, the company’s business model and exposure to transition risk factors.
- In 2021, an analysis was conducted on the entire portfolio, assessing the impacts of transition risks on our portfolio companies (more details can be found in Section 6. Management of transition risks).
- Short term: relatively low and specific risks in certain jurisdictions and companies, analyzed on a case-by-case basis
- Medium term (<5 years): risks of a technological, regulatory or market-related nature or pertaining to carbon pricing, potentially affecting the competitiveness of carbon-intensive companies
- Long term (>5 years): risks associated with high carbon intensity sectors for which lower carbon substitutes or disruptive technologies exist
- We remain abreast of methodologies used to quantitatively assess transition risk, and continue our work in this area
- There are many climate opportunities (more details can be found in Section 9. Seize opportunities). To ensure that they are taken into consideration, investment teams incorporate them into their annual strategic planning exercise. Internal discussion groups involving various portfolio managers are organized on the transition and related technologies. In this way, we continuously look for investment opportunities, both direct and through external partnerships.
- In 2017, CDPQ was one of the first major global institutional investors to adopt a climate strategy covering its entire portfolio. At that time, we set ambitious targets for acquiring low-carbon assets and reducing the carbon intensity of our portfolio.
- In 2018, the Human Resources Committee of the Board of Directors took a strong step by linking the variable compensation of all employees, including the members of the Executive Committee, to the achievement of climate targets. We are one of the first global institutional investors to adopt such a measure.
- To that end, many teams were mobilized, including:
- Technology (accessibility and analysis of climate data)
- Finance Group and Operations (data quality and reporting, green bond issuance)
- Talent and Performance (training, calculation of variable compensation)
- Risk Management (risk management, portfolio construction)
- Public Affairs (internal communications)
- All investment teams
- In 2019, we also decided to make an important commitment: to achieve a net-zero portfolio by 2050 by focusing on decarbonizing the real economy.
- Since that time, we have far exceeded our intermediate targets. We therefore announced a new strategy for 2021 based on four essential and complementary pillars to meet the major challenges inherent in the transition:
- Hold $54 billion in low-carbon assets by 2025
- Decrease the portfolio’s carbon intensity by 60% by 2030 compared to 2017
- Establish a $10-billion transition envelope to decarbonize the heaviest emitting sectors
- Complete our exit from oil production by the end of 2022
- In addition, we have refined our climate risk identification and management tools (see sections 5. Management of physical risks and 6. Management of transition risks).
- The climate issue is now an integral part of CDPQ’s business model (Figure 17):
- The investment teams review their strategy each year to capture more low-carbon and transition opportunities as a way to optimize risk management and decarbonization as they construct our portfolios
- The Sustainability team supports the investment teams in their climate ambitions, continuously reviewing their practices and refining their risk management tools
- Climate risks are integrated into the due diligence performed on each new investment and in portfolio monitoring, like all other risks
- Specific guidelines have been introduced to manage investments in fossil fuels and their value chains
- The support groups (Digital Technology, Finance Group, Compliance, Talent and Performance, Risk Management, Public Affairs, etc.) meet regularly to ensure that the operational risks related to the Climate Strategy are controlled and managed like all other risks
- Lastly, CDPQ actively participates in various investor groups in the area of climate change to keep abreast of new developments:
- We serve on the board of the Net-Zero Asset Owner Alliance, which we co-founded in 2019 to support the decarbonization of the real economy, and we take part in several of its working groups
- We also co-founded in 2018 and have since co-chaired the Investor Leadership Network (ILN), a group of 12 global institutional investors that aims to address climate change, among other things (for more details, see the Leadership section).
- We also participate in the work of Climate Action 100+, a group of investors whose main goal is to raise companies’ awareness on climate-related issues
Factoring climate change into our investment process
Pre-investment
- We analyze the physical risks for each new investment in real assets (infrastructure and real estate) as well as for some of our portfolio assets.
- These analyses use the Climanomics tool (see Section 3. Identification of risks and opportunities) to detect and assess such risks under various climate scenarios and over different time horizons.
- The issues detected are then analyzed using tools tailored to the specific context of the investment under consideration, which may include discussions with the target company.
- The potential costs generated by physical risks are then integrated into the financial analyses of the investment. In some cases, these analyses may lead to a decision not to invest.
Post-investment
- A similar approach is taken with respect to our portfolio assets. Once the issues have been identified, we enter into dialogue with the management of the companies concerned so that they account for these risks and take appropriate measures. In many cases, this means enhancing the climate resilience of assets, but also interacting with external stakeholders. This is because the physical risks may not only affect the asset but also certain critical inputs to our investment that are managed by third parties (e.g. access roads, key suppliers, public infrastructure).
- The Investor Leadership Network published a guide in 2021 to encourage portfolio managers to incorporate physical risks into investment decisions and to adopt best practices.
Analysis of transition risks
- We have developed qualitative tools to improve the way that transition risks are factored into our analyses. These scalable tools are aimed at guiding decision making according to regulatory, technological and socioeconomic developments around the world. They will also allow teams to ask the right questions when analyzing investment opportunities.
- In 2021, CDPQ conducted a complete review of its investment portfolio across all sectors and asset classes. The transition risks were analyzed based on a framework tailored to corporate business models, by developing scenarios based on realistic assumptions concerning the impacts of the energy transition.
- We assess these impacts according to four focus areas:
- Sectors in which the transition will have a negative impact on product demand
- Sectors in which products will need to be adapted during the transition
- Emitting industrial sectors with established demand for their products but for which decarbonization is complex
- New needs arising from the emergence of industries of strategic value for the future
- Three time horizons were considered:
- Short term (<5 years)
- Medium term (5–12 years)
- Long term (>12 years)
- The level of exposure was rated on a 6-step scale, ranging from very favourable to critical.
- In the short term, the exposure to transition risk was found to be low, with 5% of the portfolio considered as to be monitored and on which further analysis will be performed, while 8% of the portfolio was favourably exposed to transition risk.
- In the medium and long term, the percentage of assets with negative exposure to transition risk increases. However, over such a horizon, we expect that our portfolio companies will have initiated risk mitigation measures, and that we will be able to reposition the portfolio to limit our exposure.
- Since this analysis was conducted, our exit from the oil production and refining sector has reduced the transition risk of our portfolio.
- Reviews of our portfolio will be carried out from time to time depending on our new investments and their exposure to transition risks.
Management of transition risks
- We are working with certain private companies with operations in heavy emitting sectors to determine how they can decarbonize their operations and make greater use of cleaner energies.
- In the area of power generation, this involves transitioning to renewable energy and closing or converting assets that use fossil fuels
- In transportation, this means electrifying vehicle fleets or transitioning to lower-emitting fuels when electrification is not possible
- Our transition envelope, from which we made our first investments in 2022, targets investments in high-intensity assets with a concrete and ambitious decarbonization strategy that is aligned with the Paris Agreement. External consultants are given mandates to certify the decarbonization trajectories of these companies. This demonstrates how CDPQ deploys its constructive capital to reduce the transition risk of these companies and help decarbonize the planet, while generating attractive returns.
- Our engagement and shareholder voting activities with public companies, particularly in association with Climate Action 100+, are aimed at demanding the implementation of concrete plans and the adoption of decarbonization targets aligned with the Paris Agreement.
- We have set ambitious low-carbon investment targets, aiming to reach $54 billion by 2025, which is more than three times the amount of such assets we held in 2017.
- We continue our efforts to decarbonize our portfolio. In 2022, we reduced our carbon intensity by 53% compared to 2017. This means that we are now positioned to achieve our new target of a 60% reduction by 2030, which is aligned with our ambition to have a net-zero portfolio by 2050.
- In addition, $37 billion of our assets under management are in companies with a decarbonization target aligned with the Paris Agreement and certified by the Science Based Targets initiative (SBTi).
- By the end of 2022, we essentially completed our exit from the oil production sector. This has contributed to the progress made decarbonizing the portfolio and reducing transition risk.
- As a member of the Net-Zero Asset Owner Alliance, we are determined to working together on defining best practices, influencing our portfolio companies and further driving the financing of existing climate solutions in order to meet our target of decarbonizing the real economy. We are also committed to achieving a net-zero portfolio by 2050 (for more details, see the Leadership Section).
- In 2021, we reviewed our climate targets and published a new strategy, including a target to reduce the carbon intensity of our portfolio by 60% by 2030 compared to 2017.
- In 2023, we will begin work to better assess companies’ expected emissions and transition risk management trajectories. In addition, we will examine climate risks by country (and in some cases, by major region). This information will be useful for investments and portfolio construction.
- Through our shareholder vote, we support shareholder proposals aimed at promoting better disclosure of climate-related risks and opportunities, in accordance with TCFD recommendations.
- Moreover, we speak with corporate executives to better understand their climate change strategies and encourage them to adopt best practices. In some cases, CDPQ pools its efforts with peers to maximize its influence on companies.
- As part of various initiatives, including Climate Action 100+, we work with other investors to influence the practices of the heaviest emitters and raise awareness among investors and companies on best practices for addressing climate issues.
- In 2022, we voted against the re-election of certain board members of 10 companies to underscore their lack of ambition on decarbonization. They are individuals with responsibility for sustainability and climate-related issues on their boards.
- We also continued our efforts, begun in 2020, to raise Berkshire Hathaway’s awareness on ESG issues. At the 2022 annual meeting, we filed, in partnership with Brunel Pension Partnership Limited, represented by EOS at Federated Hermes, the California Public Employees’ Retirement System (CalPERS), and the State of New Jersey Common Pension Fund, a new shareholder proposal requesting that the company set GHG emission reduction targets for the entire conglomerate and disclose their climate risks, based on the TCFD framework.
- CDPQ has developed various tools to seize the many investment opportunities related to climate:
- An ambitious low-carbon investment target ($54 billion by 2025) that is aligned with the Climate Bonds Initiative (for more details, see the Environment Section).
- The Sustainable Land Management mandate, formed within the Infrastructure portfolio, which plans to deploy up to $2 billion by 2025 by acquiring forest and agricultural land on several continents. Our investments in this sector are made over the long term, in compliance with rigorous ESG criteria and the highest standards of sustainable development. This mandate helps diversify our low-carbon investments.
- A $10-billion transition envelope to decarbonize heavy emitters. The envelope targets critical transition sectors such as power generation, materials, transportation and agriculture, and will reduce GHGs in the real economy (for more details, see the Environment Section).
- As part of our investment process, we analyze the role that each component of the energy value chain plays in the transition.
- In order to achieve our carbon intensity reduction target, we have had carbon budgets in place for each portfolio since 2017. All our portfolio managers are required to incorporate them into their investment decisions, on equal footing with their performance objectives.
- Since 2020, as a member of the Net-Zero Asset Owner Alliance, CDPQ has made a strong commitment regarding coal:
- No new thermal coal projects
- Progressive elimination of most of our assets fuelled by thermal coal in industrialized countries by 2030
- An almost complete elimination of our assets in this sector, worldwide, by 2040
- Furthermore, we also exclude investments in thermal coal mines.
- In 2021, we also joined the Powering Past Coal Alliance (PPCA), an organization consisting of national and subnational governments, businesses and organizations working to advance the transition from coal to renewable energies.
- Through our Climate Strategy, we have also committed to exiting oil production by the end of 2022. This exercise targets:
- All our direct investments in internal management, debt and equity
- Any new external management agreement
- Work to raise awareness among our current external managers
- As at December 31, 2022, we had only $0.2 billion in assets under active management in this sector.
- Our main indicators are the carbon intensity (in tCO2e/M$) of a company or portfolio, under the methodology recognized by the Net-Zero Asset Owner Alliance, as well as the volume of low-carbon investments (in $B) under the Climate Bonds Initiative.
- In 2018, CDPQ put in place an IT system that connects its internal databases to the databases of external climate data suppliers in order to estimate, in real time, the carbon intensity of our various portfolios and measure changes. Particular attention has been paid to the quality of the data and its governance, in order to mitigate the operational risks associated with this disclosure.
- CDPQ also took part in the work led by the Net-Zero Asset Owner Alliance to explore solutions to enhance for forward-looking climate metrics. In 2023, we intend to develop a tool that will better assess companies’ climate trajectories, based on existing external work.
- CDPQ uses the carbon intensity metric for a company or portfolio, in accordance with the methodology recognized by the Net-Zero Asset Owner Alliance. We consider this metric to be credible, rigorous, easy to understand, derived from a transparent methodology, and useful for decision-making, as it allows us to compare companies and measure our progress, regardless of portfolio size.
- In 2022, CDPQ conducted a detailed analysis of the Scope 3 GHG emissions data of our portfolio companies. The data represent supply chain emissions and are tied to use of the company’s products. Our analysis revealed inconsistencies in the quality and coverage of the data disclosed by our companies and data providers. This limits our ability to calculate this data at the portfolio level.
- Despite the fact that Scope 3 emissions are more difficult for a company to control and more complex for it to calculate, we continue to encourage our portfolio companies to disclose these emissions. When the data is of good quality, it can be used in a risk assessment, more specifically in files associated with fossil fuels.
- The businesses selected for the transition envelope are evaluated by our teams and reviewed by independent external experts in order to validate the rigour of their respective decarbonization plans and ensure alignment with the Paris Agreement. The selected companies must meet specific criteria defined by the CBI or the SBTi, have a proven robust decarbonization strategy, have an implementation plan, and disclose their progress both internally and externally.
- The financial exposure and carbon emissions of the companies held in the transition envelope are rigorously monitored to ensure that they meet the required criteria and follow their transition paths.
- In 2022, we benchmarked our methodology against the calculation standard of the Partnership for Carbon Accounting Financials (PCAF), and in 2023, we will assess any adjustments to be made. These efforts demonstrate the rigour of our carbon measurement methodologies and practices, which are subject to subsequent external verification.
- CDPQ's portfolio intensity is calculated on a perimeter of $394 billion, or 100% of our corporate exposure.
- In 2022, the carbon intensity of CDPQ’s portfolio was 37 tCO2e/M$, down 42 tCO2e/M$ from 2017 (for more details, see the Environment Section).
- CDPQ also set a new target of a 60% reduction in carbon intensity by 2030 compared to the 2017 in its Climate Strategy.
- We disclose the carbon intensity of our total portfolio annually. We also provide information on the contributions made by various sectors to our overall carbon footprint, in addition to their weights in CDPQ’s total portfolio, in billions of dollars.
- The methodology used to measure our intensity is available in Appendix 2 and has been certified by CDPQ’s external auditors (see Appendix 3).
- Our carbon intensity reduction targets are broken down by portfolio based on asset class, time horizon and investment universe.
- In 2022, we reduced the carbon intensity of our total portfolio by 53% compared to 2017 and increased our low-carbon investments by $29 billion compared to 2017, for a total of $47 billion.