Quebec pension fund announces climate change strategy

Quebec pension fund announces climate change strategy

Quebec lawyers versed in green technology and a low-carbon economy are heralding the new climate-smart investment strategy announced by the massive Caisse de dépôt et placement du Québec pension fund.

“I think it’s a very big deal,” says Doug Clarke, a commercial lawyer and clean technology financing expert with Therrien Couture LLP, a law firm with offices in and around Montreal.

“From a leadership perspective, the CDPQ is one of the largest investment funds in Canada and by far the leading entity for investment policy in Quebec, and which people here look to in the marketplace for direction of investment. For them to say publicly that climate change is such a significant issue that they have decided to adopt and integrate carbon reduction into their investment model and be a part of every single investment decision they make sends a huge message to the investment community [and] is a signal to lawyers on the importance and need to advise clients on the broader climate changes that are coming,” says Clarke.

Under its new investment strategy, which was unveiled Oct. 18, the CDPQ sets out a series of targets and actions that are designed to make a positive contribution to the growth of a low carbon global economy, and to help protect the fund manager’s nearly $300 billion in assets and investments.

Those actions include the factoring of climate change as a fundamental risk into all of its investment decisions (which could involve a whopping $170 billion in new assets by 2025, based on CDPQ growth estimates), an $8-billion increase in low-carbon investments in the next three years (a 50 per cent increase over the fund’s current investment rate in the sector) and a 25 per cent drop in the fund’s carbon footprint across all asset classes by 2025.

“In the wake of the Paris Agreement and changing consumer choices and technology, we’re already seeing markets undergoing rapid change,” CDPQ president and CEO Michael Sabia said when the new strategy was announced.

“This new reality has prompted us to review the risk-return profile of several industries and companies. It will also create new attractive investment opportunities for our clients.”

Canadian Lawyer contacted several Montreal lawyers who do everything from environment and climate change law to mergers and acquisition and pension fund transactions at prominent firms. All declined to comment on the CDPQ’s new investment strategy, some citing their firms’ extensive transactional dealings with the Quebec pension fund behemoth as the reason.

For his part, Clarke calls the announcement both “a good news story” for the global environment and “a wake-up call” for lawyers in Quebec and elsewhere in Canada.

“If you think about risk and how your business can be affected by climate change, you need to be aware of that when advising clients,” says Clarke, who did his first carbon transaction in 2008.

A decade later he is still one of only a handful of Quebec lawyers who specialize in low-carbon economy and markets, a sub-niche area that has been slow to develop due to the lack of carbon pricing and the economic viability and feasibility of green technologies.

According to Clarke, long-term climate models clearly indicate that change is afoot — and that lawyers need to relay that reality to their clients.

“All kinds of data are now available for North America in the coming decades,” he says. “A contractor who enters a 10-year deal needs to know that as a macro-business condition. The impact of climate change on a business is kind of like of NAFTA: it’s not written into the contract, but it has broader elements and implications.”

In addition to considering the direct impact that climate change could have on clients — like the cost and ability of making snow in 30 years for a company that is looking to buy a ski hill in southern Quebec — Clarke says lawyers’ due diligence request list related to climate change must also consider the client’s regulatory obligations now and in future.

“Now that large funds like CDPQ are taking climate into account as a factor in their investments, clients at a minimum need to be aware of these trends and to what extent they will be affected by future regulations and their businesses going forward,” says Clarke.

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