Image courtesy: CPP Investments

The Canada Pension Plan Investment Board has created the Sustainable Energy Group, a new investment vehicle focused on growing market opportunities as the energy sector evolves and global power demand grows, especially for low-carbon energy alternatives.

Bruce Hogg, managing director, head of Sustainable Energy Group, said the platform held about $18 billion in assets as of the end of 2020, with strong potential growth for the portfolio in the coming years.

“We started the energy business I think about seven years ago and it was a function of what was in the energy stack, or cycle, at the time. So we started off with conventional oil and gas and built that business up,” Hogg said. “The business I started was as a function as renewable energy became increasingly part of the energy supply mix.

“When we took a broader look around the energy spectrum and some of the new things we were talking around . . . biofuels, alternate fuels, hydrogen, more complex energy solutions, we just thought we were getting to the point that the best way for CPPIB to invest was to be able to look across the entire energy spectrum.”

It was an evolution as the energy and supply mix changed and the group was brought together to have a more unified front to the industry. The group combines the organization’s expertise in renewables, conventional energy, new technology and service solutions.

Hogg said the key is finding the best risk-adjusted returns.

“So we don’t have deployment targets. It’s a function of what we think the market will bear. If we were to double that portfolio in the next five to six years, that would be a good outcome for us,” he said.

SEG to hold a diversified portfolio

The group holds a diversified portfolio primarily consisting of long-term tangible assets, including renewable energy sources such as wind, solar and hydro, as well as conventional power, upstream oil and gas, energy midstream, carbon capture and liquefied natural gas (LNG). It also invests in areas of innovation, technology and services to the energy industries, and manages agriculture investments.

The portfolio consists of about $9.2 billion in the former power and renewables and $8.5 billion in the former energy and resources groups.

Hogg said SEG will generate compelling investment opportunities for the CPP Investments, positioning it as the leading global energy investor.

The five key sub-sectors for SEG are:

1. Power & Renewable;
2. Energy Midstream;
3. Commodities & Alternative Fuels;
4. Distributed Energy & Services; and
5. Innovation, Technology & Services.

Hogg said in emerging markets as wealth effects go up there is an increased demand for energy which drives a whole raft of economic goods.

“That’s an important thing for CPPIB because ultimately we’re capital providers and so that’s a good fit for us with our business in developed markets. As a diversified fund, we also have an appetite for emerging market exposure. So it’s actually a very nice fit in terms of opportunities for us to invest for the benefit of the CPP Plan but also just where we see the opportunities,” he said, adding that increasingly the portfolio will be a reflection of where the economy is going with newer technologies.

A 30-year investment horizon

CPPIB cites the Bloomberg New Energy Outlook 2020 report that says about US$15.1 trillion is expected to be invested in new power capacity alone by 2050.

“The energy sector is one of the most important enablers of the global economy and is composed of a wide spectrum of suppliers from conventional to renewable. Along our unique investment horizon, we see a dramatic opportunity to invest in, and support, the evolution and innovation occurring across the sector,” said Deborah Orida, senior managing director and head of real assets, CPP Investments.

“CPP Investments is exceptionally well placed to be among the winners, in part through our partnership model alongside companies willing to grasp the future and forge ahead.”

CPPIB is a professional investment management organization that manages the fund in the interest of the more than 20 million contributors and beneficiaries of the Canada Pension Plan. At December 31, 2020, the fund totalled $475.7 billion.

“We’re less focused on a particular technology. It’s more what makes sense as a way for us to invest our capital,” said Hogg.

“We’ve got very flexible long-term capital. As a fund, we have the ability to play from early stage venture capital to more mature infrastructure businesses and what this combination is designed to do is bring a lot of that risk capital under one roof.”