Inflation protection will be provided by real estate and private equity: AIMCo chief investment officer
The CEO of Alberta Investment Management Corp. (AIMCo) says divesting from fossil fuels is the opposite of what pension funds should be doing if they want to help solve the climate crisis.
Evan Siddall — head of what is one of Canada's largest institutional investors, with $168.3 billion of assets under management as of the end of last year — said in an interview that AIMCo wants to be a leader in financing the transition to a low-carbon economy, but it won't do that by divesting from fossil fuels as some global pension funds have done.
Instead, Siddall said AIMCo will be exploring opportunities to invest in oil and gas companies and other heavy industrial emitters.
“We don’t believe in (divestment) at all, as a strategy," Siddall said.
"The energy sector is the sector that’s investing in this area (emissions reduction) the most, and that has the most to lose. So we think that deserves our support and that’s where we will invest. And we think that’s where the returns are too.”
Siddall made the comments Wednesday at a ribbon-cutting event in Calgary to mark the opening of AIMCo's new office in that city. Up until now, AIMCo — which is responsible for the investments of pension, endowment and government funds in Alberta and is headquartered in Edmonton — has had secondary offices in Toronto, London, U.K., and Luxembourg.
Siddall — who has been AIMCo's chief executive for just over a year, and was formerly CEO of the Canada Mortgage and Housing Commission — is also considering opening offices in Asia and possibly New York as it seeks to become more globally focused over the next couple of years.
But he said there is no denying the importance of the Canadian energy sector currently and moving forward as global efforts to decarbonize economies and hold the trajectory of climate change below the dangerous tipping point of 1.5 degrees Celsius of warming accelerate.
“We (AIMCo) have been absent from the Calgary oil and gas and energy hub, which has probably left us less informed than we could be," Siddall said.
While environmental groups have argued that one of the best ways to make progress on climate change is to urge banks, pension funds and investors to cut funding to the fossil fuel industry, Siddall said that's misguided.
He said if Canada is to meet its Paris Climate Agreement pledges it will need not only to invest in renewable, zero-emission energy, but also to help heavy emitters lower their greenhouse gas footprints, or go from "grey to green."
“And that means investment in oil and gas companies. It actually means supporting them," Siddall said.
AIMCo already has $3.2 billion invested in no carbon or low-carbon assets through its infrastructure and renewable resources portfolio. The corporation also completed its inaugural "green bond" issuance last year through its AIMCo Realty division.
But Siddall said in the year ahead, AIMCo will explore opportunities for its clients to profit from the transition to a low-carbon economy by providing capital to heavy emitters working on their own net-zero plans.
"The initial sectors we’re looking at are the energy sector, the power and utilities sector, industrial emitters in general," he said.
"We see the potential for strong financial returns. We’re a long-term investor, so unlike public markets that tend to operate quarter to quarter with much shorter-term horizons, we can look to a transition into 2030 and see the path to earning a return on decarbonization.”
In recent months, the Canadian oil and gas sector has rolled out a flurry of announcements of proposed projects — from hydrogen plants to renewable diesel facilities to carbon capture and storage — aimed at lowering the industry's emissions profile.
The largest of these is the massive project proposed by oilsands consortium Pathways Alliance that aims to capture CO2 emissions from oilsands facilities and transport it to a storage facility near Cold Lake, Alta, delivering an estimated 10 million tonnes of emissions reductions per year.
On Tuesday, Lindsay Patrick — head of ESG and strategic initiatives for RBC Capital Markets — said in an interview in Calgary that there's growing recognition within the financial sector that tools such as green bonds could be used not only to support the scale up of green technology, but also to help clean up more conventional industries.
"The new idea is to support companies that aren’t 100 per cent green, but that have specific projects that are aligned with a 1.5 degree scenario," Patrick said.
However, Greenpeace senior energy strategist Keith Stewart said Tuesday that financing companies because of specific climate-friendly projects they may have doesn't make up for the fact that the Canadian oil and gas sector is still planning to increase the overall volume of fossil fuels they produce in the long-term.
"When you’re providing this kind of blanket finance to these companies, you’re funding the bad stuff along with the better stuff," Stewart said.