Caisse Chief Sounds Alarm on Climate?

Sep 19 19:09 2018 Print This Article

Michael Tutton of the Canadian Press reports, Time to see climate change mitigation as an economic opportunity, Caisse chief says:One of Canada’s largest pension fund managers says trillions of dollars should be shifted into investments that will counter global warming, in part because it’s crucial to long-term profits. Michael Sabia, chief executive of the Caisse de Dépôt et Placements, spoke Tuesday at a roundtable discussion on sustainable finance on the eve of a three-day meeting of G7 environment, oceans and energy ministers in Halifax.The G7 ministers will be discussing climate change, plastics pollution, illegal fishing and clean energy at the meeting.Sabia said government action is urgently needed, but he also urged capitalists to stop seeing climate change solely as a risk, and to “get on with” seeking profits from the need for more renewable energy, low-energy real estate and low-carbon transport systems.“Climate change and responding to climate change is an important investment opportunity. It’s a profitable investment opportunity,” said the executive.The pension fund manager told the gathering of business people, civil servants and non-governmental experts that about $45 trillion in long-term investments handled by institutional pension funds should move more quickly to areas such as clean-energy, low-energy buildings and low-carbon transport systems.As Sabia began speaking, he reviewed the past summer’s evidence of the impact of climate change.“We see its impact every day. Heat waves and drought in Europe. This summer record temperatures of 33 degrees Celsius north of the Arctic Circle. ... Deadly hurricanes, floods, wildfires that were the largest in the history of the State of California,” said the executive.Some business leaders are starting to factor in climate change to their investment and planning decisions, but the pace needs to accelerate, he said.“Some of that is happening across funds around the world. But my point is: not nearly enough,” he told the gathering in his opening presentation.“Why is that? Because too many investors, even long-term oriented investors, still see climate change as a constraint, as something that forces them to make a choice, to compromise their returns.”The executive with Canada’s second largest pension fund manager — which handles $308 billion in net assets — said more investors must shift away from this way of thinking.“Climate change ... is not a constraint. It’s an opportunity to do two things: to contribute positively to the transition to a lower carbon economy and at the same time ... to generate the returns we need to be good stewards of people’s savings.”The Caisse announced last year it plans to reduce the carbon footprint of its overall portfolio by 25 per cent by the year 2025.Sabia said it’s working out well.“There’s growth everywhere as a result of the beginnings of a reaction to the threat of climate change ... the energy sector is one example,” said Sabia.“At least 50,000 megawatts of new wind power is being installed annually ... that’s equivalent to the utility ... of Hydro Quebec.”He cited his pension fund’s investments in solar and wind energy, along with low-energy real estate projects, as producing strong returns, mentioning its investment in the fast-growing Azure Power, a solar producer in India.Economist and climate expert Nicholas Stern, a teacher at the London School of Economics, also spoke at the opening panel, backing Sabia’s argument that environmental policies are good for job creation and the economy.“Finance ministers are interested in productivity, investment, innovation, growth and revenue. It’s all here in the transition to the zero carbon economy,” he said.“There is no long-run growth that is high carbon (emissions). It self-destructs.”The economic researcher said the world’s infrastructure is projected to double in 15 years while carbon emissions must fall 30 per cent to hold temperature increases to safe levels.“Those two numbers tell us we must do something radically different, and ... we have to do it fast,” he said.Meanwhile, he said the alternative of preserving ecosystems, creating more public transit, and building solar energy, are all part of a positive story for the economy and for humanity.“This is an inclusive growth story and it’s very attractive ... moreover we know how to do it. At least we know how to start strongly and we’re going to learn like mad.”The meeting of G7 ministers starts on Wednesday with a gathering of G7 environment ministers.Catherine McKenna, Canada’s federal minister of the environment, has said she will be talking about the rules around the Paris climate agreement.She’s also promoting a non-binding ocean plastics charter, which five of the seven G7 nation leaders signed at the Charlevoix summit with the goal of reducing plastic waste in the world’s oceans.McKenna told The Canadian Press in an interview that she plans to bring the charter to the United Nations next week as well during a trip to New York.A spokeswoman for her department said the charter will be raised in talks with various nations outside of formal proceedings of the United Nations General Assembly.Carl Meyer of Canada's National Observer also reports, Too many investors still see climate action as anti-profit, says Quebec pension fund boss:Too many investors are still seeing climate action as a restraint on profit, the president of one of Canada’s biggest pension plans told a room full of foreign government officials and private sector leaders Tuesday.Michael Sabia, the president of Caisse de dépôt et placement du Québec, which manages $300 billion in assets, made the remarks at the opening of a meeting on the “new climate economy,” organized on the edges of the G7 environment ministerial in Halifax.“Too many investors, even long-term oriented investors today, still see climate change as a constraint — something that forces them to make a choice, to compromise their returns, and therefore runs counter to their fiduciary obligations to their clients,” said Sabia. “As long-term investors, collectively, we need to think differently, because addressing climate change is not only about what you stop doing — more importantly, it’s about what you start doing.”Sabia didn’t name specific investors or governments at the meeting in a hotel conference room, but spoke about the trillions of dollars in economic gains that studies have shown will be available to nations that shift to a low-carbon economy.Reporters were permitted to hear opening remarks from some speakers before they were ushered from the room.Nicholas Stern, chair of the U.K.-based Grantham Research Institute on Climate Change and the Environment,was expected to prepare a briefing on the rest of the closed-door meeting for the environment ministers from the Group of Seven nations meeting on Wednesday.The pension plan was among Canadian companies listed as some of the top investors in new coal power plants overseas, according to a December 2017 report by Friends of the Earth Canada and Germany's Urgewald. The federal government has been pushing to phase-out coal power worldwide.Asked by National Observer after the meeting whether the group had discussed investments in coal power, Marc-André Blanchard, Canada’s ambassador to the United Nations, said “we discussed infrastructure in a very wide sense.”“We discussed the necessity to build resilient infrastructure, low-carbon infrastructure, the fact that there are many opportunities in renewable energy," he said.In June, La Caisse and Ontario Teachers' Pension Plan announced a partnership with the Canadian government and several financial services companies in G7 countries to come up with a unified approach to disclose climate-related risks, among other objectives.The pension plan also produced a climate change strategy in 2017, committing to a 25 per cent decrease in carbon pollution per dollar invested by 2025, a 50 per cent increase in “low-carbon investments” by 2020 and to “factor climate change into all our investment activities and decisions.”Three federal Canadian ministers will co-host their counterparts from France, Germany, Italy, Japan, the United Kingdom, and the United States, as well as the European Union, this week for meetings on energy, oceans and fisheries, plastics and marine waste, and a just transition for workers in the fossil fuel industry.Climate becoming ‘people’s issue’ says Caisse bossSabia has worked at high levels in both government and business, as a deputy secretary in the Privy Council Office and as president of Bell Canada International and chief financial officer at Canadian National Railway. He also said the pension plan has noticed that consumer attitudes and buying patterns are now changing.“Climate change is becoming a popular issue, a people’s issue. We see this frequently — we see it in the companies we invest in,” he said. “How? Because their growing concern is to ensure that their brands are seen by the public to be on the right side of this defining issue.”He said across industries as diverse as real estate, agriculture, transportation and electronics, there has been progress on reducing emissions, “but frankly, not enough.”As an example of the scope he envisions, he said at least 50,000 megawatts of new wind power is being installed annually, the same as produced in a year by Hydro Quebec, which he said was the fourth-largest hydro producer in the world. Meanwhile, solar power’s price is five times lower than a decade ago, and in several countries, such as India and China, solar is cheaper than coal and gas plants.Sabia also took aim at governments, although not naming any, noting that while some have introduced carbon pricing and reformed their tax code to address climate change, “obviously, in other countries, governments are going to need to demonstrate greater leadership on this issue.”And he noted the urgency of climate change, compounded by “growing economic pressure on the middle class and the related issues of the rise of populism and trade protectionism around the world.”“Climate change is real; it’s gone beyond the point of being a risk,” said Sabia.“We see its impact every day — heat waves and drought in Europe this summer; record temperatures; 33 degrees Celsius north of the Arctic circle in Finland...in North America, pretty extreme weather events, deadly hurricanes, floods, wildfires.”‘Governments alone cannot do it’: Canadian envoyBlanchard, Canada’s ambassador, also gave opening remarks. He noted that Jamaica — one of the non-G7 countries, along with Marshall Islands, Norway and South Africa who sent representatives to the meeting — had worked with Canada to secure a crucial UN meeting.Courtenay Rattray, Jamaican ambassador to the United Nations, “and the leadership of the entire Jamaican government,” helped Canada round up 60 countries for a discussion at the UN hosted by the secretary-general focusing on sustainable finance, said Blanchard.“We’re here to show leadership and demonstrate a sense urgency through commitment,” he said. “Lots of capital is urgently needed. Governments alone cannot do it.”In G7 economies, added Blanchard, the private sector controls most capital, so how it responds to the climate crisis can have a big impact.“We need close partnership to ensure immediate action on disclosure, developing green financial products, building resilient infrastructure, and investing in sustainability," he said.So Michael Sabia is sounding the alarm on climate change and asking investors to take it seriously, seeing it as an opportunity, not a constraint.I'll tell you where I agree with Michael and where I am more cautious in my recommendations.First, there is definitely something going on with the climate and you see it every year around this time when hurricanes, typhoons, floods and wildfires hit us hard.The economic cost of climate change is staggering and it impacts many industries. Michael is right, climate change is real and it's gone beyond the point of being a risk.In my opinion, we are losing the war on climate change. There are too many people on this earth with too many cars, air conditioners, eating too many burgers which come from cows emitting too much CO2.Basically, I think we are screwed and we are beyond the point of no return.I'm also very wary of "carbon taxes" and government policies which aren't doing anything to curb climate change. Politicians and environmentalists love these policies but when you talk to experts, they throw cold water on a lot of nonsense policies.Anyway, those are my cynical views but it doesn't mean we should stop trying to implement policies that make sense over the long run, and Michael is right, institutional investors that manage trillions need to step up to the plate collectively and start measuring and addressing the risks of climate change and invest in renewable energy which is profitable.One thing, however, I'm very skeptical of divesting from fossil fuels and think the fiduciary responsibility of any pension fund manager must go first and foremost to making sure the pension plan is solvent and sustainable over the long run.If you want to invest in solar, wind farms and other renewable energy, great, just make sure these are profitable investments over the long run.I would like to see the Caisse and other large pensions report the returns of their green investments across public and private markets every year and over the last five years.Don't tell us these investments are profitable, show us and convince us they make great sense over the long run.However, Michael is right that pensions are slow to move on climate risk and they need to be more proactive when it comes to these risks.Below, Michael Sabia, Caisse de Depot et Placement president and chief executive officer, discusses how investors are reacting to rising trade tensions with Bloomberg's Shery Ahn and Amanda Lang on "Bloomberg Markets." (June 2018)

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About Article Author

Pension Pulse

Leo Kolivakis is an independent senior economist and pension and investment analyst with years of experience working on the buy and sell-side. He has researched and invested in traditional and alternative asset classes at two of the largest public pension funds in Canada, the Caisse de dépôt et placement du Québec (Caisse) and the Public Sector Pension Investment Board (PSP Investments). He's also consulted the Treasury Board Secretariat of Canada on the governance of the Federal Public Service Pension Plan (2007) and been invited to speak at the Standing Committee on Finance (2009) and the Senate Standing Committee on Banking, Commerce and Trade (2010) to discuss Canada's pension system.

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