The Green Investments of the Biggest Asset Owners: NYS Common, Japan’s GPIF, CDPQ, Washington State & Others

Supported by Impax Asset Management

 

New York Common, GPIF, Canada Pension Plan and more: they’re all pouring billions of dollars into renewables, agtech and other sustainable and cleantech investments. We take a look at where the money is going, and what’s going to be hot in 2021.

A trio of windfarms in the ocean off the French coast. A biotech startup that creates dairy products without animals. Electric vehicle charging stations, solar farms, sustainable wastewater treatment plants and energy-efficient buildings.

When it comes to sustainable investing, pension funds and other institutional investors have an increasing range of choices. And they’ve been taking full advantage of those opportunities, with billions of pension fund dollars flowing toward these and other projects in recent months.

All indications are that this flow of cash will only continue.

“With the new [Biden] administration’s commitment to re-join the Paris Climate Agreement, investors are reading the writing on the wall that strategies in support of lower carbon emissions, that address climate change are set to benefit from policy tailwinds, instead of the headwinds faced during the Trump Administration,” says David Richardson, executive director for client services and business development at Impax Asset Management.

But it’s not just the change in the White House that will draw more money to renewables, agtech and other sustainability projects.

In 2021, “The release of pent-up demand and continuing economic stimulus measures will help to strengthen the global economy,” Richardson says. “A return to multilateralism under Biden will lead to greater international focus on climate change and biodiversity loss. And continuing technological advances will encourage increasingly ambitious policies to deliver net-zero carbon commitments.”

CleantechIQ has been tracking these investments. Here is a non-exhaustive look at where some of the world’s biggest pensions are putting their green dollars to work these days — the sectors, the projects, and the funds and managers that are benefiting from this renewed institutional investor in sustainable investments. The information has been culled from a range of sources including interviews, official announcements, conference presentations and internal documents.

New York Common Retirement Fund

In December, New York State Comptroller Thomas DiNapoli, who oversees the $226 billion pension, announced that the fund has committed to a goal of net-zero greenhouse gas emissions across its portfolio by 2040. Reaching that goal will be possible in part due to the fund’s hiring, in January, of Andrew Siwo to head up its new Sustainable Investments and Climate Solutions (SICS) program. Chief among his responsibilities is to increase the pension’s sustainability investments to $20 billion over time. Those investments stood at about $8 billion at the start of the year, and had jumped to $11 billion by August.

SICS makes investments across multiple asset classes including private equity, public equity, green bonds, clean and green infrastructure funds, and LEED-certified real estate funds. There are scores of investments within the SICS portfolio, targeting things like low-carbon, resource efficiency, waste management and pollution reduction.

Common Fund’s commitments include $300 million to Avenue Capital’s Sustainable Solutions Fund and $250 million to Calvert’s Core Bond Strategy, with a focus on green bonds and affordable housing. It also invests in the Nuveen Core Impact Bond Strategy, with an emphasis on climate change and conservation.

Among the most recent investments, in the summer and fall, New York Common allocated some $350 million in a pair of transactions to the Stonepeak Global Renewables Fund, which looks for investments in wind and solar across developed markets. Earlier in the year the pension fund allocated $100 million to the Brookfield Infrastructure Fund IV, which focuses on renewables like solar, wind and hydro, as well as battery storage. In October, the pension made a modest $5 million commitment to the New Era Capital II fund, which makes early-stage investments in areas like agtech and energy.

The pension also paired with Goldman Sachs Asset Management to create a customized, $2 billion “Risk Aware, Low Emissions” program, or RALE, to reduce investments in large-carbon-emitting companies.

Canada Pension Plan

With C$457 billion (US$355 billion) in assets, Canada Pension Plan has made numerous investments in renewables this year. Its exposure to renewables has been roughly doubling for each of the past two years: renewables made up 0.4% of total assets in 2018, 0.75% in 2019, and 1.5% at mid-year. As of Sept. 30, renewable investments totaled about C$9 billion.

Investments in renewables this year included the $6.1 billion acquisition, in March, of Pattern Energy Group, a company with a portfolio of 28 renewable energy projects in Canada, the U.S. and Japan. And in May, CPP bought a stake in a partnership with EDF Renewables that is developing three offshore wind farms in France. The initial investment was €80 million ($98 million), with more money to follow. CPP says it “expects to continue identifying similar opportunities in the European offshore wind sector.”

In the past year, CPP issued two green bonds, raising a total of $2.2 billion for renewable energy projects. The pension says it was, in fact, the first pension fund manager to issue a green bond back in 2018, and the first pension to issue a euro-denominated green bond in early 2019. It uses green bond proceeds for projects like acquiring and operating wind and solar projects, acquiring and upgrading sustainable water and wastewater systems, and direct investments in LEED Platinum-certified buildings.

In fact, CPP now owns more than 300 green-certified buildings across 25 counties, including 15 LEED Platinum buildings and 51 LEED Gold.

The pension is also interested in alternative proteins, and in July made its second investment in animal-free dairy maker Perfect Day. CPP added $50 million to an earlier investment, and was the lead investor, along with investors like Temasek and Horizons Ventures, in expanding the startup’s Series C funding round.

Perfect Day is the first investment CPP has made within its new Climate Change Opportunities strategy, according to Leon Pedersen, the pension’s head of thematic investing. That investment bucket “will focus on innovative companies that are well-positioned to respond to the challenges posed by climate change,” he says. “Sustainable technologies like Perfect Day are poised to capture structural shifts in industrial practices, physical resources and consumer preferences for environmentally conscious options, which are well-suited to our long-term investing approach.”

Another focus area for CPP is carbon capture, utilization and storage, or CCUS. Among its investments in this space is Wolf Midstream, the company behind the Alberta Carbon Trunk Line, a large-scale CCUS project that came online this year and can transport up to 14.6 million tons of CO2 annually — equivalent to capturing the CO2 from more than 2.6 million cars, CPP says.

“While CCUS is at an early stage, it has potential to play a significant role in reducing global carbon emissions, particularly as technologies improve,” pension documents state. CPP will “continue to seek out quality investment opportunities in CCUS infrastructure, as well as meaningful early-stage innovation, technologies and services.”

Government Pension Investment Fund

Japan’s GPIF, the world’s largest pension fund with some $1.5 trillion in assets, invests broadly across public markets, both domestic and international, equities and bonds.

The pension has been active on the ESG front in recent years, and that continued in mid-December, when it announced it had allocated 1.3 trillion yen ($12.6 billion) to be invested passively against ESG-themed benchmarks from MSCI and Morningstar. It benchmarked 1 trillion yen to the MSCI ACWI ex-Japan ex-China A ESG Universal with Special Taxes index, and 300 billion yen to the new Morningstar Developed Markets (ex-Japan) Gender Diversity index.

GPIF has been even more active among green bonds in recent years, and that’s been accelerating. This year alone, GPIF announced arrangements with at least four international development banks — roughly the same pace as last year. Under these arrangements, the pension helps the banks issue green bonds to fund a range of sustainability projects. Then, through its third-party asset managers, GPIF buys many of those bonds itself. The pension is thus helping to fund green projects, while also supporting the development and expansion of green bond markets worldwide, making it easier for other green bonds to come to market, and for other pensions to buy them.

The latest such deal came in December, when GPIF announced it was helping Export Development Canada issue green bonds. Other such arrangements this year were struck with Kommunalbanken Norway, or KBN, in June; Kommuninvest, Sweden’s local government debt office, in March; and, also in March, with Kreditanstalt für Wiederaufbau or KfW, Germany’s flagship promotional bank.

The proceeds will go for a variety of projects, usually in the country or region of the issuing bank. For instance, Kommuninvest uses its green bond proceeds for projects in renewable energy and green buildings, among other things. Among the specific projects it’s funded recently have been the expansion of electric bus fleets, funding new wastewater treatment plans, and building levees to protect a city from rising seas.

KfW has traditionally used its green bond proceeds to finance renewable energy projects, but it has recently started to use such funds to underwrite the construction of energy efficient new buildings. KBN, similarly, uses green bond proceeds for green buildings, as well as for water and wastewater projects, renewable energy, and green transportation uses.

CDPQ

The C$333 billion ($259 billion) Caisse de dépôt et placement du Québec (CDPQ) has been aiming for low-carbon for years, having set a goal in 2017 of boosting its overall investments in low-carbon assets by 50% by the end of 2020. Officials later raised that goal to 80%, and also want to reduce the portfolio’s greenhouse gas intensity by 25% by 2025.

CDPQ now “takes climate change into account in all investment decisions,” Bertrand Millot, the pension’s VP for risk management, fixed income and head of climate risk and issues,” told CleantechIQ recently. It also views climate change as “an investment opportunity.”

“We feel that green investments reduce the carbon intensity of the portfolio,” he added.

Recent moves include, in October, buying a portfolio of more than 70 PV solar plants from Q-Energy in Spain. The investment was the first stage in the creation of a “new CDPQ platform in the country, which will seek to aggregate further renewable assets,” the pension said at the time. The price wasn’t announced, but CDPQ says the plants generate enough electricity combined to power 115,000 households.

A month earlier, CDPQ struck a partnership with S2G Ventures, agreeing to invest $125 million over the next three years, with a focus on “backing entrepreneurs that are developing concrete solutions to climate change.”

Chicago-based S2G invests in companies working to improve the sustainability of the food system; past investments have included Beyond Meat, Apeel Sciences and MycoTechnology. S2G also recently put $100 million into a new strategy focusing on companies working to make the ocean and seafood supply chain more sustainable.

At the start of 2020, CDPQ had C$34 billion invested in low-carbon assets, roughly double what it was just three years prior. Besides the two investments mentioned above, other recent low-carbon investments include a C$150 million investment in the metro system in Sydney, Australia; reinvesting $75 million in Azure Power Global, a solar power developer in India; investing in EV charging company AddÉnergie; and loaning £150 million ($200 million) to finance a solar asset portfolio operated by Lightsource BP.

San Francisco Employees’ Retirement System

In March, the $28 billion pension set a target of having its entire investment portfolio be net-zero by 2050. As part of that effort, the pension has shifted more than $1 billion into low-carbon investments. In fact, as of mid-year, San Francisco ERS had more than $1.4 billion invested or committed to low-carbon and renewable energy-related strategies. That was about 5.4% of its total assets.

The bulk of that is the $1 billion the pension put in a pair of low-carbon strategies, both of which have since outperformed their benchmarks.

The pension put $500 million into a passive passive public equities strategy managed by Goldman Sachs Asset Management. Similar to New York Common’s strategy, San Francisco ERS’s “Risk Aware Low Emissions” promises emissions that are at least 50% lower than the Russell 1000. The pension also committed $500 million to Generation Investment Management’s Global Equity Strategy, a fund with a carbon intensive that’s 70% to 80% lower than its benchmark, the MSCI World index.

Smaller investments include $50 million in Vision Ridge Partners’ Sustainable Asset Fund II, which focuses on real assets in areas like electric vehicle charging, energy efficiency and solar power. San Francisco ERS put another $50 million into New Energy Capital Partners’ Infrastructure Credit Fund II, which invests in solar and wind projects, energy storage and energy efficiency.

The pension has more than two dozen other private equity and similar funds that combined give it at least $78 million in exposure to renewable energy and other clean tech projects, pension documents state.

Ontario Teachers’ Pension Plan

In October, the $205 billion OTPP led a large $1.25 billion equity investment into Singapore-based Equis Development, or EDL, which develops and operates renewable energy and waste projects in the Asia-Pacific region. The pension’s investments will go a long way toward helping EDL execute on the 40-plus projects it currently has underway across Japan, South Korea and Australia, in areas like renewable energy and biomass generation, power grid distribution and transmission, and waste infrastructure.

The investment “fits with our greenfield and renewables strategy to focus on development stage opportunities through high-quality platforms,” says Ben Chan, the pension’s managing director for Asia-Pacific. “We believe this investment will help us build scale in Asia and grow our exposure to renewables.”

And in November, the pension issued its first-ever green bond. Proceeds from the 10-year, €750 million bond will be used for a range of programs with a focus on those that reduce carbon emissions , remove and store carbon, replace direct fossil fuel use, and help adapt to the impact of climate change.

In 2019, OTTP paired with Google parent Alphabet to launch Sidewalk Infrastructure Partners, with the goal of delivering “next-generation infrastructure” across North America. One of its most recent investments came in December, when the partnership made a $20 million equity investment in startup OhmConnect, along with committing another $80 million to develop a demand response program, with the ultimate aim of upgrading power grids’ efficiency and reliability.

Other areas of interest for OTPP include Pony.ai, an autonomous driving company for which OTPP led a $267 million funding round in November, and a 3D robotics supply chain company called Attabotics, for which OTPP led a $50 million Series C funding round in August.

Overall, the pension says it continues to look for “attractive climate-friendly investment opportunities.” Sectors it likes in particular include renewables, clean energy transmission and energy efficiency and storage. Other areas of interest include green buildings, sustainable agriculture, and water distribution and efficiency, pension documents state.

All of these investments should benefit from a new effort the pension launched in May. OTPP paired with asset manager Wellington Management and climate change think tank Woods Hole Research Center on a program to improve the integration of climate science into the pension’s investment valuations.

“Our investments, particularly those in real assets, require careful consideration of the physical risks posed by climate change,” CIO Ziad Hindo says. “With access to top-quality climate science data, we can build on our own expertise in this area and use the research provided to develop deeper insights.”

Washington State Investment Board

The $153 billion WSIB is moving away from fossil fuels and toward renewables: the pension system has invested more than $730 million in companies whose entire revenues come from renewable sources of electricity. It’s also invested in utilities and other companies that have a “significant portion” of their business in renewable electricity.

All this comes as the system had sold off virtually all of its coal-related holdings by 2019; its remaining fossil fuel investments dropped to 4.8% of total assets by early this year, down from 6.5% a year earlier. That’s nearly a 25% drop in the space of 12 months.

Overall, WSIB has about 45% of its assets in private market investments, a far higher percentage than most other public pension systems. Within that figure is a sizable real estate portfolio, where investments often have a focus on energy efficiency projects; on housing or commercial projects that are close to transit systems, to help reduce climate stress from transportation; and on energy efficiently.

All these moves come as the Washington state legislature this year passed a bill that requires all state agencies to cut carbon emission to at least 25% below 1990 levels by 2035, and to make the state net-zero by 2050.

WSIB also has made sizable bets on agriculture projects with smart water management, including, about a year ago, a $500 million commitment to Ecosystem Investment Partners. EIP acquires, restores and protects high-priority conservation properties, then sells the resulting conservation credits to companies that need to offset their own environmental impacts.

This isn’t a new area of interest; WSIB’s sustainable agriculture investments date back to at least 2015, when it invested in Equilibrium Capital‘s ACM Permanent Crop Fund, which invests in sustainable agriculture and food processing in California, Oregon and Washington.

Looking Ahead

These investments — all those billions of dollars flowing to renewables, agtech and other green and sustainable projects — are all but certain to continue, and in a major way. It’s already happening, in fact: in mid-December, Canada Pension Plan announced it had created a new renewables platform in the UK. Called Renewable Power Capital, it will invest in solar, onshore wind and battery storage projects across Europe.

That’s just the beginning. Indeed, asset manager Octopus Renewals said in a report in November that institutional investors worldwide expect to double their renewable energy investments over the next five years. This feeling is widespread: “80% of institutional investors surveyed plan to increase investment in renewable energy assets in the next three to five years,” says the report, which was based on a survey of investors.

Investments will also be impacted by the long-term effects of the coronavirus pandemic, Impax’s Richardson notes. That includes changes to the working world, with an increased need for digital technology and investments in business continuity and cloud computing.

Besides that, “The pandemic has also increased focus on industrial automation and supply chain technology and diversification, including a focus on local supply chains, and more sustainable food and water provision,” Richardson says. “It has also spurred investments in health and well-being, ranging from personal diagnostics, antiviral drugs and telemedicine to natural ingredients and nutrition.”

Investors will obviously have an expanding menu of investment options as the world grapples with the twin challenges of the pandemic and climate change. The recent pension fund investment activity, and big-ticket inflows to asset managers like Impax, makes it clear, Richardson says: “Institutional investors are moving beyond considering investments in the transition to a more sustainable economy to actually making sizable investments in strategies positioned for this transition.”

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