Canada Pension Plan~Follow Your Money

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November 13, 2019|Chief Investment Officer

Top Canada Pension Plan Embraces Energy, Both Fossil Fuel and Not

CPPIB is plying the oil and gas sector for investment opportunities, as well as going into renewables.
Canada’s largest pension fund is not letting go of its investments in oil and gas, as well as renewables, anytime soon. The Canada Pension Plan Investment Board (CPPIB) CEO, Mark Machin, said in an interview with BNN Bloomberg in Toronto last week that the sector, including pipelines and other resources, are appropriate for the fund’s portfolio.

“We will look at traditional oil and gas, whether it’s pipelines or other resources,” said Manchin, referring to renewables. “As long as we can understand all the risks behind the investment, that the regulation may change, that preference may change, that geography may change. If we can understand those and can still be compensated sufficiently, then we’ll continue to make that investment.”

The program is still committed to renewables. The fund, which has a value of about $300 billion, acquired North American wind farm operator Pattern Energy last week for $6.1 billion. Shares cost $26.75 per share for a total of $2.6 billion. The remainder covered the company’s debts. Pattern has built 28 renewable energy projects in the US, Canada, and Japan. The investment is one of the largest M&A deals in US renewables.

In relative terms, though, energy, whether green or not, is not a huge chunk of CPPIB’s portfolio. The fund is invested in more than 20 energy companies ranging from pipeline companies to renewables. As of March 30, the end of its most recent fiscal year, just 1.6% of the fund’s portfolio was invested in the traditional energy sector, and 1% in a category called “power and renewables.”

Manchin’s remarks follow a setback for the Canadian energy industry. Last week, legacy energy firm Encana announced plans to move its corporate headquarters to Denver, and drop references to Canada in its branding. Pipeline shortages, Canadian anti-oil sentiment, and the availability of capital in the US are reasons for the relocation.

The Pattern Energy deal demonstrates the delicate balance Machin is striking between reaping the rewards of oil and gas revenue and acknowledging the “multi-faceted” and “very complicated risk” of climate change, including public outrage over fossil fuel investments.

“It’s important as an investor that we understand all of those risks and how fast the energy transition is going to happen,” he said. “When we look at every investment, we understand all the risks that climate change could present…We are able to understand the risks in a more granular way now because of some of the tools and the disclosure practices that have really improved.”

Manchin is referring in part to the Financial Stability Board’s Task Force on climate-related disclosures that have pushed companies to provide more information, data, and metrics for funds like CPPIB to make investment decisions. (The CPPIB is one of two global pension fund managers on the board.) In April, the fund launched a framework for teams to evaluate climate change-related risks and opportunities. About 4% of the fund is invested in traditional and renewable energy.

The Canadian fund is stopping short of joining the throngs of investors lining up for the Aramco initial public offering. Saudi Arabia is taking its giant oil company public amid great fanfare and international investor interest….

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