With C$327 billion ($245 billion) of net assets, of which C$43 billion is invested in private equity (through funds and direct investments), the voice of Caisse de dépôt et placement du Québec speaks loudly within the industry. We asked Bertrand Millot about the pension fund’s climate-related priorities and how it communicates them to external private equity managers.
As a multi-asset manager, what’s your response to climate change?
Climate risk is real. Even if you have a fluorescent green portfolio you will still incur climate risk. We have a four-pillar policy. First, we take climate into consideration in all investment decisions. Second, our objective is to increase our green investments by 80 percent by 2020. We started in 2017.
Third is to reduce the carbon intensity of our portfolio by 25 percent by 2025. The fourth pillar is to engage with companies, our peers and industry generally about climate change. These objectives apply to all asset classes across the organization, whether they are internally or externally managed, and bonuses are linked to them.
How do you communicate these priorities to GPs?
We talk about them in initial discussions. For new relationships, we rate GPs on operational risk using a point system and a large share of that overall mark is based on environmental, social and governance topics and their implementation. Climate is referred to in a number of questions: whether GPs take climate into consideration; whether they carbon footprint their portfolio; what kind of engagement they undertake with companies; how they appraise climate risk.
In new relationships, we would like – although it’s not always possible for funds to give us – emissions data in the format we use internally. That makes our life easier. In some cases, we’ve imposed it. GPs that could potentially invest in high emissions sectors would have an impact on the team’s internal carbon budget.
With existing funds it’s a little bit more difficult as the terms of engagement are agreed. Some are on their own climate journey, which is good; some, not so much, which is not. We try to engage and push them. Part of that is education.
Does each investment team have an emissions quota?
Yes. The objectives are split across investment teams and private equity has a carbon budget that they must not exceed. As a result, they have a vested interest in making sure external managers don’t blow up that budget. Steel, cement, power, oil and gas – we are very, very careful if that’s within the GP’s remit. We have a very detailed conversation with the GP about the business model and what the GP can do about it.
What influence can you have over GPs and their approach to climate-related issues?
We try to sensitize them to the importance of it and educate those that don’t realize the importance. We lead by example and increasingly we are going to take a more demanding approach. At the UN COP25 in December, we announced we’re going to be net-zero carbon by 2050. In that context it’s inevitable that at some point all the money we manage will have to be strictly climate compliant. And that will apply to external managers. For GPs that don’t do anything on climate, I’m not sure we’ll be investing with them in the future.
Have you ever not invested with a GP due to climate related concerns?
Earlier this year we told a GP we’re not going to invest unless you give us carbon numbers the way we want them. Period. The GP was surprised at first and then said, “great, explain it to us because you’re the first ones to ask but you won’t be the last and it’s an opportunity for us to learn and put that to our competitive advantage.” We thought, bingo. We spent quite a bit of time explaining how our methodology works and how we look at the world in this respect and they got the money.