Energy transition is a term that has different meanings. For a manager such as Brookfield Asset Management, accounting for a shift to cleaner generation means having a robust renewables portfolio. The Toronto-based firm’s infrastructure portfolio is around 46 percent invested in assets contributing to the transition – renewables, batteries and efficiency technologies. In its response to our questions, Brookfield writes that this signals its “conviction in the acceleration towards a carbon-free economy”.
While declining to identify its proportion of energy transition investments, BlackRock told us it has more than $6 billion invested in 267 wind and solar projects. Macquarie Infrastructure and Real Assets also declined to identify what percentage of its portfolio is made up of transition assets – a definition it calls “open to interpretation” – but pointed out that it managed 12.3GW of clean energy capacity.
AMP Capital outlined its investments in district heating in the Nordics, wind and solar in Australia, as well as energy storage projects Down Under. It says storage will “play a crucial role in helping to support” a large-scale buildout of renewables.
Another Australian firm, IFM Investors, says it has mostly focused on integrating behind-the-meter renewable projects at its assets.
Many of these GPs also highlight the role of natural gas as a bridge from oil and gas while renewables are being built out.
Renewables are the opportunity the Abu Dhabi Investment Authority is considering most during the transition. Its 12GW clean energy platform accounts for 15 percent of its infrastructure portfolio. “Our renewables platform has grown over fivefold,” it tells us.
Other investors have not taken up renewables quite as quickly. The Ontario Municipal Employees’ Retirement System has invested 3 percent of its total portfolio in renewables, and the China Investment Corporation is at 4 percent (excluding fund investments).
CIC is “actively looking” for renewables investments, but admits that some opportunities “can hardly meet our return targets […] We are trying to find a balance between return and going green”.
Like some GPs, Canada’s CDPQ is choosing to invest in renewables and other energy transition assets. These assets, including energy-efficient buildings, currently make up 9 percent of its total portfolio. The investor also says it is using its “influence as a large shareholder” to promote energy efficiency, the switch to greener fuels or the adoption of renewables at its portfolio companies.
Role of energy efficiency
In the fight against climate change, energy efficiency is often described as the “forgotten fuel”, since it is effectively invisible when compared with wind turbines or solar panels. Yet efficiency measures will be key in the fight against the effects of global warming and so, naturally, we were keen to find out what actions the top GPs and investors are taking in this respect.
Responses were limited, demonstrating that this particular fuel remains largely forgotten. Answers from the likes of ADIA, Allianz, Blackstone, CDPQ, CIC and OMERS were either lacking in specific references to how the organisations were implementing energy-efficiency measures or did not contain any references to it at all.
However, there were reasons to be hopeful, with other firms mapping out a possible road ahead for others to follow.
AMP Capital points to its 2015 acquisition, alongside Infracapital, of EQT’s Adven, the heating company operating in Sweden, Finland and Estonia. The firm tells us that “central to its business is energy efficiency” in what is traditionally an energy-intensive industry.
It also points to its involvement in transport, a sector that companies and governments have struggled to decarbonise and make more efficient: “AMP Capital has also made strides in this respect with its UK rolling stock business. Angel Trains is at the forefront of innovation in alternative fuel sources, such as hydrive battery propulsion, leading to efficiencies that will reduce pollution and limit fuel use without the need to invest in expensive overhead line infrastructure.”
Australia’s IFM Investors has implemented or is implementing measures at domestic electricity supplier Ausgrid. These include investing in technology to monitor and manage energy use and enable more solar energy use, for which the utility has installed 4MW of arrays across 20 sites. Ausgrid is also upgrading more than 60 percent of its 260,000 streetlights to energy-efficient LEDs, improving the efficiency of its vehicle and property portfolio, and investigating how to improve the management of sulphur hexafluoride emissions.
Brookfield says it is implementing “strategic energy efficiency measures” in many of its assets, without specifying which ones. About 6 percent of its infrastructure portfolio, the firm tells us, “is in assets that support energy efficiency, utilising innovative technologies to provide sustainable energy to customers”.
Energy and water efficiency form part of BlackRock’s key performance indicators. MIRA also says energy efficiency is one of the sustainability metrics that it considers when screening new investments.
Divestment out of favour
“Divestment gets you a headline, but you haven’t really done anything to direct your organisation to be a positive contributor,” CDPQ writes in response to our questions.
It says divestment is “something that we prefer not to do”, instead highlighting initiatives such as the Investor Leadership Network and the Net Zero Asset Owners Alliance, which help investors engage with portfolio companies about transition and carbon-reduction efforts.
CDPQ says it manages the “small portion” of its fossil fuel-exposed portfolio through “declining carbon budgets” while setting targets for renewables investments.
This is in line with how some GPs are considering whether to divest assets. IFM Investors “actively integrates proactive ESG management into our ownership approach”. It will also decline to invest in future carbon-exposed assets.
BlackRock recently announced a commitment to divest from companies that generate more than 25 percent of revenues from thermal coal. ADIA has an underwriting process “that penalises potential investments that score poorly on sustainability metrics”. It says its portfolio has less than 2 percent invested in gas generation and oil-derived products and less than 10 percent exposed to natural gas.