March 21, 2020
Illustration: Sébastien Thibault
The decade in 2020 it could well be that of the finance-sustainability through the “greening” of the portfolios of larger investors and the capital allocation to the energy transition.
This text is part of the special Unpointcinq
In the fall of 2015, the superstar of finance, Mark Carney made a speech that marked the spirits, and possibly a turning point in the world order. The governor of the Bank of England, the canadian financial, previously governor of the Bank of Canada, lamented the inaction of insurers and institutional investors in the face of the ” tragedy of horizon “, that is, the threat of climate change to the global financial stability.
“For the first time, a large financial, and non-traditional apostles of responsible investment, told the investors that they had responsibilities and they had to do something with respect to climate change, recalls the actuary Bernard Morency, associate professor at HEC Montréal. Suddenly, the stake sticking out of his enclosure, and there has been an irreversible process towards finance so-called more sustainable, ” observes the former senior vice president and chief operations officer at the Caisse de dépôt et placement du Québec.
In January 2020, BlackRock, first asset manager in the world with 7000 billion u.s. dollars, announced that the changementsclimatiques would henceforth be at the heart of its decisions. This decision aims to meet the demand of its customers, investors, quisont more and more numerous to want to reallocate their capital in strategies that are respectful of the environment.
“If 10 % of international investors — or even 5% to put this project into execution, we will see the transfer of massive capital “, writes Larry Fink, chairman of the board and chief executive officer of BlackRock, which says that noussommes ” on the eve of a fundamental transformation of the financial sector “.
This positioning of BlackRock, among others, confirms that large-scale investors become aware of the influence they may have on the continuation of the world by deciding to allocate, or not, of capital certainssecteurs or business, ” the financial expert, sustainable Rosalie Vendette, collaborator at FinanceMontréal, an organization that develops the financial services industry in Quebec.
A hot topic
In 2017, the Caisse de dépôt et placement, which manages the wool socks Quebec, has set itself the objective of reducing the carbon intensity of its portfolio by 25% by 2025 and to increase its investments in low-carbon of $ 32 billion in 2020, or 14 billion dollars more in 2017. “This decision of the Fund has given leton, it is a kind of model for Québec,” says Michel Magnan, professor and holder of the Chair in corporate governance Stephen A. Jarislowsky at Concordia University.
Last November, the professor led a symposium of the CIRANO on the issues and challenges related to the decarbonisation of large portfolios, a hot topic. “As the costs of adverse climate conditions such as floods, heat waves, and forest fires are increasing exponentially, business people and investors are paying more and more attention to environmental risks,” says-t it.
In fact, “climate change is now considered as a financial risk in itself,” says Michel St-Germain, actuary at advisory firm Mercer. “Institutional investors, particularly pension plan sponsors, want to know how the companies they fund to manage this risk, which can dramatically affect the future performance. “
At the same time, the social pressure is the other engine of sustainable finance. “When 720 000 contributors tell us that the climate crisis concern, we listen and we act,” says Mario Tremblay, vice-president, corporate and public affairs of the Fonds de solidarité FTQ, and responsible for the issue of the fight against climate change. “It is, for example, is removed from the coal sector, we will not invest in exploration or exploitation of hydrocarbons in Quebec and recently, it has fallen 14 % in the carbon intensity of equity held in public enterprises “, he says.
In spite of everything, the decarbonisation of large portfolios would be still “embryonic” in Quebec, according to Michel St-Germain. Completely out of fossil fuels is not so easy, attests to Alain Vallée, director general of the pension Plan of the Université du Québec. “As companies are still in need of this form of energy to operate, the economic system would collapse. We would return 100 years back ! Is that what would be responsible ? ” asks the one who watches over a fund of about $ 4 billion with the help of managers, of whom two-thirds adhere to the principles of responsible investment (PRI) of the united Nations. “We try to make things better, in particular by supporting the transition of energy through investments in infrastructure or businesses. “
Finance this energy transition is also another avenue for greening large portfolios. In Quebec, for example, funds such as Ice sheets or Ecofioul support the reduction of greenhouse gas emissions and the deployment of technologies and clean energy. “The more investment and production in these sectors, the more there are economies of scale and best become the returns, which attracts more investors… The wheel then rotates in the right direction !” illustrates Michel Magnan.
Large investors also have the power to encourage, or even force, good enterprise practices in the field of the fight against climate change, in particular by applying the ESG criteria (environment, society and governance) into their investment choices.
“By requiring businesses to demonstrate that their viability will not be affected in the coming years due to climate, investors accelerate the process of improvement of their processes. In turn, the investors are reassured, and this loop leads aurayonnement green energy “, explains Denis Leclerc, president and chief executive officer of Écotech Québec, the “Tinder of clean-techs” that connects companies with environmental challenges with those that have technological solutions to propose.
Finally, large investors are also beginning to sulk as major projects based on fossil fuels. Think of the fund Berkshire Hathaway, owned by the american billionaire Warren Buffett, who resigned in march to fund the project GLN, Quebec, which involves the construction of a natural gas pipeline and a liquefaction plant in Saguenay. “It is a strategy that is recent and new,” points out Ivan Tchotourian, professor at the Faculty of law of Université Laval and co-director of the Centre for studies in economic law. “We withdrew from some projects that become too risky or do not meet certain criteria, and funds are redirected elsewhere. “
“The finance, it has no heart,’ recalls Bernard Morency. It is based on analysis of risk and return. If the risks increase, but not the outlook of return, the equation is just no longer there and the investors are turning to something else. “
Some brakes up
The present difficulty of quantifying the carbon footprint of businesses, particularly because of the supply chains become globalized, and a lack of common standards, are barriers to sustainable finance, to report a number of experts consulted. And while the disclosure by companies of information on the risks related to climate change is promoted by the canadian securities regulatory authorities, it is still not mandatory.
Result : the information available to the institutional investors to make their decisions is patchy or incomplete. However, in the budget of 2019, the federal government announced its support for the international standards proposed by the working group on the disclosure of information on the financial risks related to climate (Task Force on Climate-related Financial Disclosures), in addition to a phased approach to the adoption of these standards by large canadian businesses.