CPP’s Bill Rogers: ‘we take a practical approach to decarbonisation’

The Canada Pension Plan (CPP) is a defined benefit plan that is funded by the contributions of employees, employers and self-employed people as well as the revenue earned on CPP investments.

It is a statutory program that is governed by the federal government and the provinces. As of September 2023, the CPP Investment Board manages over C$576 billion in assets on behalf of 21 million Canadians.

Net Zero Investor sat down with Bill Rogers, the fund's global head of sustainable energies, to talk about its flagship "Decarbonisation Investment Approach", a strategy that aims to find economic and practical ways to decarbonise heavy emitters.

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Have you seen any tangible results from the Decarbonisation Investment Approach (DIA)?

We've identified a lot of potential in the portfolio companies covered by our DIA pilot, but, as with any business transformation plan, we now need to move to implementation.  We see abilities to reduce the emissions of our heavy emitting portfolio companies by 30% plus, but it will take anything from a few months to many years to deliver those results, depending on the company.

Implementation requires understanding what opportunities are already available and investable, and what opportunities still require technological solutions to make economic sense. Understanding those opportunities also helps us think about where we can invest in early stage solutions and/or make the right kind of partnerships.

If tangible results take anything between a few months and many years, how do you enforce a decarbonisation timeline with your high emitting companies? CPP, unlike many of its peers, has not set an interim 2030 target for its net zero plans.

We're pretty practical about this. Although we want to drive decarbonisation as fast as possible, when you're talking about big refurbishment plans for buildings, or rolling out infrastructure across distributed assets, it takes time. Ideally, you want to work within the existing CAPEX schedule as opposed to making costly, additional interventions, which are much harder to achieve.

Could you provide an example of a project earmarked for implementation?

Take the Trafford Centre in the UK, a shopping centre with more than 150 retailers. We’ve identified a potential to reduce Scope 1 and Scope 2 emissions by over 50% by 2030 via energy efficiency measures. We’re now looking to incorporate those measures into a large capital improvements and maintenance plan that is already underway. In this context, energy efficiency entails changes to the lighting system and replacing and upgrading elevators.

While 100 per cent of Scopes 1 and 2 emissions from the Trafford Centre can be abated based on technological measures that exist today, not all are currently economically viable. These measures will be tracked as part of the ongoing maintenance plan.

Overall, the Framework [CPP's Abatement Capacity Framework]  provides a clear reporting output that will now be integrated into the Trafford Centre’s ongoing monitoring and reporting process.

When it comes to finetuning the transition plans for your portfolio companies, do you refer to international or national guidelines? And if so, which ones?

In the development of decarbonisation plans, our overarching work uses international standards including the SBTi and TCFD as general guidance where relevant, although each company and geography is unique and we are focused on what is achievable.

When we assess the decarbonisation potential of a particular business, we focus on what we can achieve today using cost-efficient technologies.

However, if the necessary changes still require improvements in technology or reductions in the technology cost, then we need to support development of those solutions to act.

We also reference sector specific guidance, such as the green buildings ratings for real estate and always incorporate local and regional policy perspectives.

We think this approach is the one that best manages the tension between our commitment to net zero by 2050 and our fiduciary duty to maximise returns for our beneficiaries.

Could you talk more about the business case for investing in decarbonisation? For example, do you identify many cases of decarbonisation-focused CAPEX reducing OPEX to streamline the business going forward?

We're very fortunate in that we've got a big balance sheet and are able to make significant CAPEX investments. However, such a luxury isn’t available to everyone and we think something should be done about that.

That’s why we recently invested $200 million in a company called Redaptive, an Energy-as-a-Service provider that funds and installs energy-saving and energy-generating equipment to help organizations reduce energy waste, save money, lower their carbon emissions, and meet their sustainability goals.

Companies like Redaptive can help other companies that lack the necessary in-house expertise to identify and finance decarbonisation opportunities. It also means the company doesn't have to make a trade-off between CAPEX and OPEX but can decarbonise their business and improve cash flow and sustainability in the short term from day one. We think these kinds of solutions are essential to mitigate that “CAPEX versus OPEX” dilemma, which, for companies or investors without a big balance sheet, can be difficult to resolve.

CPP has investments in oil and gas companies. How do you justify these investments as part of your net zero plans?

CPP has a 49% stake in Aera Energy LLC, California’s second largest oil and gas producer. We think this a good example of a company that is currently a high emitter but, over time, has the potential to make significant emissions reductions.

Even before we bought that stake in 2023, we did a lot of work with our partners to make sure we had a decarbonisation plan from day one. Step one of that plan entails shifting on-site energy generation to renewables. For example, we currently use gas to provide the energy to pump the oil but that’s slowly being replaced by wind and solar energy.

Where the company uses gas to generate steam, the aim is to capture the carbon from that process and store it underground by turning its depleted underground reservoir into a carbon storage site. US regulations provide a framework for this process.

Because Aera has multiple sites, the next step is to use that carbon storage to help decarbonise other companies in the vicinity by building a carbon sequestration infrastructure.

Do your oil and gas investments take into account the cost of decommissioning oil and gas assets and the potential for a drop in oil prices due to the energy transition?

Yes, we factor these possible costs into both existing assets and any new assets that we are looking to buy. Firstly, we assess the operations on-site, so how we’re extracting the oil and gas. And then we look at how we transport it. In the long-term, we look at how we can change the use of the assets, as we have done with Aera and the planned conversion of its underground reservoir into a carbon storage site.

A drop in global oil prices is definitely a major risk for any oil and gas business. Over time, oil will be phased out of the system. So when we make an oil and gas investment, we take a view on oil prices and put in some hedges.

CPP states that its net zero commitments depends on continued global action. What kinds of policy do you want to see from governments to support your overall net zero investment strategy?

A clear and transparent carbon price globally is the Holy Grail of policymaking. It would create clarity around the economics of decarbonisation across all our businesses. In terms of our Abatement Capacity Framework, it would move a large number of projects from uneconomic to economic, which is how we start our decarbonisation efforts.

Subsidies that support the emergence of decarbonisation solution technologies also help plug those “uneconomic” gaps.

Governments can also help reduce the bottleneck in the deployment of those technologies. Grid issues are still a massive problem. The world aspires to triple renewables by 2030, but that requires a huge unlocking of planning laws and improvements to grids.