Canada’s CPP Investments bets big on transition to clean energy

CPP Investments, Canada’s largest pension fund manager, sees massive long-term opportunities as countries and companies embark on clean energy transitions, and it plans to double investments in the space by 2030, senior executives said in an interview.

“A year ago, we started to evolve the narrative internally from thinking about climate, not just as a risk, but as an opportunity that is very consistent with the type of capital we have. The world will do everything it can to transition to net-zero. And that’s not just transitioning from conventional energy to renewables. That’s the entire economy having to transition, which will require significant amounts of capital to the tune of $3 trillion a year. So, we see this as a generational investment opportunity to invest in the global economy’s transition to net-zero,” said John Graham, president and chief executive of CPP Investments.

Government mandates to reduce the use of fossil fuels have already driven large capital flows into renewable energy, and with scientists warning that carbon emissions must be halved by 2030 from the 2019 level to keep global warming within 1.5 degrees Celsius above pre-industrial levels, investments are only likely to accelerate.

“In India, we have a partnership with ReNew Power. We are also looking to invest with leading renewable platforms around the globe,” he said.

Graham said that every asset class, whether it’s real estate, private equities, credit or public equities, will present opportunities to invest in the economic transition. Out of its Canadian $550 billion ($436 billion) assets under management, CPP Investments currently has C$67 billion in energy transition assets, including its investments in the renewables sector. The pension fund manager plans to double this by 2030.

The fund manager continues to be bullish on India, having grown its portfolio in the country despite the pandemic. It plans to increase investments across sectors such as infrastructure, real estate, and technology while also ramping up its presence in credit and pharma and healthcare, sectors where it doesn’t have significant exposure in India.

“As you can see, with C$19.6 billion being invested in India, it (investment) has been robust. It’s been a robust few years, even through covid, where we’ve continued to materially grow our portfolio. And for me, one of the most encouraging parts of it is the breadth of the portfolio we have in India. It’s really exciting to see the growth in infrastructure, real estate, public equity and private equities. That really speaks of the diversification in the Indian economy and the depth and breadth of the economy. And that’s one of the reasons we’re so excited about future opportunities here,” Graham said.

The pension fund manager has invested in several Indian tech companies, including Flipkart, Byju’s, VerSe Innovations and Eruditus, and will continue to allocate capital to such investments, even as tech valuations have come under pressure lately because of volatile global markets.

“Globally, there’s been a bit of a correction in the valuation of technology as rates have increased. But for us, we see this as a really important component of the global economy. It’s important for us to have diversification and growth in the portfolio. What we focus on as an investor is really picking our spots. We don’t invest in everybody, and we take our time and find those companies where we think they’re high-quality companies, and invest in them for the long term,” said Graham.

Sujeet Govindaraju, managing director and India office head at CPP Investments, added that the pension fund manager has a nuanced approach to investing in technology companies. “There’s no one-size-fits-all answer. We go sub-sector by sub-sector, and then we evaluate what works. We have seen some trends play out. For instance, in China or South Korea, once you hit $2,000 per capita income, the household consumption just takes off. That’s what’s happening in India over the last two or three years. But then you look at sector by sector and what’s happening there. What is the ability of the company to start monetizing? They will benefit, but they need to be very careful about how they’re utilizing the cost curve as they grow the revenue. So, we look at it in a very nuanced manner. We will not invest based on trends,” he said.

Govindraju added that while CPP Investments has not invested in the pharma sector, it sees promising opportunities in the sector post-covid.

“ India can be a big pharma powerhouse. What’s happened after covid is that some of the companies have built some great capabilities. So we’re looking for those great pharma companies which can cater not just to the Indian audience, but also be an export powerhouse and build long-term capabilities,” he said.