Alberta’s CIO is not making a zero net commitment, and selling off fossil fuel producers is out of the question. Instead, it will focus on investing alongside portfolio companies to decarbonize, says its CEO.
Alberta Investment Management Corp. will unveil a “transitional funding” strategy in the coming months that will outline its plans to invest in a low-carbon economy on behalf of several of the province’s retirement plans and public accounts. Unlike with some institutional investors, divestment from fossil fuels – still Alberta’s dominant industry – will not be on the agenda.
For Edmonton-based AIMCo, focusing on a specific net-zero target would be a distraction from what is needed to balance energy supplies and reduce emissions, CEO Evan Sydal said. He believed in the concept but said he couldn’t commit on behalf of clients if he couldn’t see a clear path to get there.
“Energy use is rising, and net zero does not mean zero. The initial reaction of a lot of people in the investing world was to jump on the net zero bandwagon driven by divestment. We think this is unwise for a range of reasons,” Mr. Sydal said in an interview.
The world will need hydrocarbons. We need to make the ‘net’ big enough to be net zero. It is not only about eliminating the total, but also about increasing the network. If we don’t bring in the oil and gas industry and help them invest in decarbonization, we won’t get to net zero.”
He said the divestment of fossil fuel companies deprives them of the ability to make the capital investments necessary to reduce greenhouse gases and increases the risk of producers being acquired by buyers who have no interest in cleaning up operations or even by “unfriendly regimes”.
Not all major Canadian pension administrators agree on this view. Last year, Caisse de dépôt et placement du Québec caused a stir when it said it would sell its remaining oil-producing assets as part of its climate strategy. It also created a $10 billion fund to decarbonize other high-emission industrial sectors in which it holds property. The Ontario Teachers’ Pension Plan and the Canada Pension Plan use different strategies for their zero ambitions.
But the Public Sector Pension Investment Board is taking a similar approach to AIMCo, avoiding a specific emissions target and focusing on decarbonization efforts at portfolio companies.
Environmental advocates have criticized many of Canada’s large pension plans for not setting targets to exclude fossil fuels from their portfolios, arguing that this exposes recipients’ pension funds to climate-related risks.
With oil and gas shortages causing economic turmoil in Europe and contributing to inflation in North America, the race to extract carbon from the global economy is becoming increasingly contentious. But Mr. Sydal, who is chairing the opening of a new office for AIMCo in Calgary this week, said transforming the oil and gas industry could be “an investment opportunity for our generation somewhere, at a time when there are so few of them.”
“So we really want to get our hands dirty. We have the advantage of being Alberta and not being pushed into this kind of divestment. Instead, we can help heavy-emitting countries in the oil and gas business, invest in and decarbonise.”
AIMCo, which is owned by the Alberta government, manages $168 billion in assets on behalf of 32 entities, including municipal employee pension funds, first responders, judges, teachers, college professors and more, as well as government accounts such as the $19-billion provident fund. heritage.
In late August, it announced a 4 percent investment loss in the second quarter, joining many of its peers in showing how big drops in the stock and bond markets hurt results. However, the results outperformed similar assets that use it as a benchmark, she said.
Mr. Sydal took the helm in July 2021, following his tenure as CEO of Canada Mortgage and Housing Corporation. His entry came after a period of turmoil at AIMCo that resulted from a $2.1 billion investment loss at the start of the pandemic due to volatility. Associated instruments, when the markets were spinning wildly. An internal audit found that the organization suffered from a poor approach to risk management as well as inadequate oversight.
Today, he said, AIMCo is an organization transformed after what he called a “Tylenol moment,” with new leadership emphasizing close consultation with its clients on investment strategies – a promise he made a year ago. That includes talking to the heads of retirement plans “almost every week.”
“I have direct relationships with the CEOs of clients. I present to their boards. [Chief fiduciary management officer] Amit Prakash runs that part of the organization and in this regard I work for him. He tells me where I should go and who I should talk to,” he said.
AIMCo is considering opening new offices in New York and Singapore to enhance its expertise in those major financial centres. Asia and China, specifically, are getting a lot of attention. Besides its headquarters and new Calgary location, it currently has offices in Toronto, London and Luxembourg. “This is something we are looking at and haven’t decided yet,” Mr. Sydal said. “It’s a complicated thing. You have to find space. You have to find the people – the right people. Ideally, we would have senior employees in every office.”
Mr. Sydal is clear that AIMCo remains committed to maintaining environmental, social and governance (ESG) standards as criticism of this area is increasing in some political and commercial areas. Part E is represented by the decarbonization strategy, and sees diversity, equality and inclusion – Part S – as the key to the success of the organization.
“We’re a decision-making institution, right? That’s what we do. If people don’t feel comfortable speaking up and challenging decisions, we can’t make good decisions. And when people feel left out, for whatever reason – their gender, race, education, age – we limit our ability to make decisions.” The best decisions.