What is your money doing to save the planet as COP26 opens, the last chance conference to limit global warming?
A good part of your savings, the one that insures (ra) your check for the Quebec Pension Plan, is managed by the Caisse de dépôt et placement, which recently decided to sell its last shares in oil, but to keep those in natural gas and pipelines.
La Caisse is one of 295 financial institutions in 40 countries which collectively manage assets exceeding 90 trillion US dollars, and which are committed to achieving carbon neutrality in their portfolios by 2050, to set a interim target for 2030, to establish a science-led approach and report on their progress annually.
They rallied under the banner of the Glasgow Financial Alliance for Net Zero (GFANZ), chaired by Mark Carney, United Nations Special Envoy for Climate Action and Finance. Canadian banks and Desjardins have just joined.
Their big challenge: to finance the demanding transition to a green economy, including tripling investments in clean energies by 2030. For Canada alone, the Royal Bank estimates the investments required to achieve carbon neutrality at $ 2 trillion.
However, despite all the goodwill we are willing to lend them, or perhaps because we do not fully trust them, these financial institutions need ambitious objectives and rigorous frameworks imposed by governments.
They are moreover lucid enough to recognize this and claim the leadership of the G20. Unfortunately, we will be disappointed with the political commitments made in Glasgow.
Sustainable finance has reached an inflection point, where it is becoming dominant, but still with all the imperfections of immaturity. It is progressing at high speed and, thanks to the vigilance of certain regulators, it is working to correct its flaws, such as the absence of comparable data to gauge the companies in which it invests, and criteria to distinguish green products from those. who claim it or who are partially, because new to the race.
Sustainable finance, like finance itself, comes in a wide range of institutions and products that play complementary roles within the financial system. There would be no market if everyone had the same needs, the same taste for risk and the same views on the future. The saver is therefore confronted with “50 shades of green”, as Carney and Janet Yellen, the US Secretary of the Treasury, wrote nicely.
A study by the International Monetary Fund (IMF) shows that the individual investor allows himself to be influenced by the label that the financial institution attaches to his products, without examining the list of ingredients.
As in Europe, we need controlled appellations, but which make room for companies in transition.
The Caisse’s new climate objectives are a good illustration of the complexity of the issues facing institutions and savers.
Let us take the sale of oil companies first. Who says sellers, says buyers, recently hedge funds which in the short term are making a fortune thanks to the increase in the price of oil. Producers pollute as much as before. Similarly, we have seen mining companies improve their image with shareholders by dumping their hated coal to private funds, which continue to exploit them on the sly.
Why sell then? To reduce the long-term risk of the portfolio, when we know that the hydrocarbons industry is called upon to contract sharply and write off reserves that will never be exploited. Then, to redeploy this capital in more promising industries.
The Caisse also acts as a responsible shareholder by engaging and exercising their voting rights. Sometimes private discussions and the tabling of binding proposals at the general meeting lead management to correct its behavior. Especially when several institutional investors coordinate their efforts, as in the Climate Action 100+ initiative, which targets large emitters of GHGs.
Getting rid of the oil companies sounds good, but it does not solve the heart of the problem, which is the omnipresence of hydrocarbons in the economy.
The Fund therefore reserves an envelope of 10 billion to invest in polluting companies, but determined to decarbonize, in three essential sectors: transport, agriculture and materials such as cement and steel.
Finally, the Caisse aims to invest 54 billion by 2025 in green assets to triple its portfolio of low-carbon assets such as renewable energies, mobility and sustainable real estate. All of these initiatives will help it reduce the intensity of its portfolio by 60% by 2030.
La Caisse is a leader among the world’s major investors, but the other institutions of Montreal’s financial center are not left out. PSP Investments, Desjardins, la Nationale, Fiera, Addenda, the Solidarity Fund, Fondaction, the University of Montreal pension fund, etc. have made serious commitments.
Moreover, studies estimate that in Quebec, 68% of investments qualify as responsible by integrating ESG criteria (environment, society and governance). This proportion would be 62% for Canada as a whole, 42% for Europe, 33% in the United States and 24% in Japan.
Does it pay to have a good conscience? ESG strategies are less risky, because to ignore global warming is to invest in denial. Most studies suggest that they are also more profitable, as they focus on companies that will take advantage of the business opportunities offered by the decarbonization of the economy. But as always, some managers will do better than others and no one will walk the water.
The other question is the influence of sustainable finance on the behavior of companies. The same IMF study shows that those with poor ESG scores face a higher cost of financing, which undermines their competitiveness against those with the best scores, a signal that speaks volumes.
Although essential, sustainable finance is not a panacea. Decarbonization also requires energetic public policies, including a higher price on carbon.
Finally, both the financial and political aspects must ensure that this transition is fair, that it helps vulnerable people and regions to reposition themselves for the future.
The collective savings of Quebecers have largely converted to sustainable finance. Individual savings from RRSPs and defined contribution pension plans lag far behind, but investments in ESG funds have been growing strongly since the pandemic.
At one minute to midnight, it is high time to review our investments to bequeath a planet favorable to life to the next generation.
Read the G20 call to action by GFANZ Read the IMF study on sustainable finance See the GSIA website for global penetration of sustainable finance Consult the 2020 portrait of responsible finance in Quebec What do you think? Express your opinion