Canada Pension Plan Investments (CPP) is on the hunt to buy utility and oil and gas assets unloved by competitors seeking to unload polluting assets, then profit from reducing greenhouse gas emissions and put them back on the market, Chief Sustainability Officer Richard Manley said on Thursday.
Money managers have piled in to the renewable energy sector as part of a broad drive to limit environmental damage in recent years, leading to lofty valuations, and some have turned away from traditional energy businesses.
CPP, one of the world’s biggest pension funds with C$575 billion ($418.94 billion) in assets under management, sees a rare opportunity to invest in the shift to a lower carbon economy.
“There is an emerging imbalance between owners of grey assets readying themselves to sell them at multiples where the decarbonization thesis generates fundamentally attractive returns, but there is not a very deep pool of investors ready or in some cases maybe even able to take those assets onto their balance sheets,” Manley told Reuters.
CPP’s portfolio includes Canadian pipeline operator Enbridge and India’s Bharat Petroleum Corp. It bought a 49% stake in California oil venture Aera Energy in March.
Manley said he saw “institutional pressure for companies to accelerate decarbonisation by selling their most conspicuous emitting assets” alongside “institutional reluctance of large parts of the market to buy grey assets to see their financed emissions increase near term”.
Renewable energy projects, meanwhile, have seen costs rise and returns dip, prompting funders of capital-intensive projects like wind farms, especially the offshore variety, to reconsider their investments.
Manley said CPP was also seeing opportunities for “moving capital towards green investments selectively, where they generate compelling returns”.
CPP allocated 11% of real assets to energy and resources and 12% to utilities and other infrastructure as of March 31, according to its most recent annual report.
The pension also allocated 5% of active equities to utilities and 12% of real estate to utilities and other infrastructure and 11% to energy and resources, the report said.
(Reporting by Isla Binnie and Maiya Keidan Editing by Marguerita Choy)