Leverage your infrastructure investment to reach your carbon-neutral goals

November 2021, 120 World leader representing 197 State traveled to Glasgow for 26When United Nations Climate Change Conference (COP26). They discussed the next decade of climate change measures and the support needed to reach the Paris Agreement’s goal of limiting global warming to 1.5 ° C. Achieving carbon neutrality is not easy in sectors such as construction where emission reductions are difficult. Strategic shifts are needed to prioritize and invest capital in projects. It is important to develop policies and incentives related to new technologies and innovations.

McKinsey’s Tony Hansen spoke with Emmanuel Jacro, Senior Vice President and Head of Infrastructure, Quebec Investment Trust Bank, to learn more about the role investors play in these developments. (CDPQ).

McKinsey:What are the biggest challenges or barriers to achieving your carbon neutral goals?

Emmanuel Jacro:Carbon neutrality must be more than an abstract goal. It must be transformed into realistic and concrete measures and quickly. Take energy as an example. According to a May report by the International Energy Agency (IEA), carbon neutrality cannot be achieved at this time. Unless the annual investment in clean energy is tripled in 2050 Year.

One of our challenges as a long-term investor is to fulfill our promises and invest capital in the value chain as soon as possible and as soon as possible. It is important to understand that renewable energies (sun and wind) alone cannot achieve carbon neutrality. Investing in new technologies and innovations such as batteries, green hydrogen and carbon sequestration is essential. In addition, policies and incentives aimed at developing these sectors can be of great help in accelerating their implementation. artwork.

In addition, we need to tackle the transition of the economy as a whole by not only increasing the number of green assets, but also reducing carbon dioxide emissions in the high-emission sectors. We must consider the current and potential impacts of the climate crisis on people.It must be a migration fair.

McKinsey:What strategic changes do investors and the infrastructure industry need to make to reach their net goals?――――zero?

Emmanuel Jacro:The sense of urgency was evident at COP26 : There is no choice but to halve emissions by 2030 in order for the world to achieve carbon neutrality and limit temperature rise. 1.5 ° C. Therefore, investors need to have the ability to accurately measure where they are standing. This allows them to set ambitious short-term and medium-term goals and hold them accountable. evolution.

Aim for 54 From here the green asset B $ Achieved reductions of 2025 and 60 Percentage of overall portfolio carbon strength by 2030 compared to the first measurement of 2017.

From this point of view CDPQ launched a new climate change strategy in September In 2021, four years after becoming one of the first institutional investors to set goals for reducing carbon dioxide emissions in each portfolio. I decided to be even more ambitious this year.

All investment decisions we make take climate into account and use the climate budget to track carbon emissions in our portfolio. He was also the first major institutional investor to link employee compensation to climate goals.Our portfolio companies are well aware of ESG factors [environnementaux, sociaux et de gouvernance] Fighting climate change is two of our central priorities.

However, investing in low-carbon assets is not enough. As a major player in infrastructure investment, we cannot avoid the high emission sector. This includes raw materials such as steel, concrete, copper, lithium and structural plastics, as well as transportation and agriculture.Our new climate strategy includes 10 transition envelopes 1 billion for these aggressive decarbonizations Sector.

McKinsey:How do investors prioritize projects in their portfolio and develop capital at that pace? need?

Emmanuel Jacro:As capital needs grow exponentially and competition and transaction value increase, investors need to consider new approaches. One of the strategies we have found effective is to form long-term partnerships with recognized players who share our vision. For example, last year we joined Ørsted and Cathay PE and made a major investment in the Grand Changhua offshore wind farm. From 1 Taiwan.

We are also considering new areas such as sustainable land management and green hydrogen, and are considering new approaches.

For example, created 500 platforms One million Dollar for innovation in sustainable investment. This allowed us to build new partnerships and expand our expertise in emerging areas.It also created business opportunities in key sectors of the economy. Sustainable.

McKinsey:What role can technology play in increasing project sustainability and how to measure it? yield?

Emmanuel Jacro:First, let me say that we cannot rely solely on disruptive innovation to tackle the climate crisis. In addition to renewable energy, storage and energy efficiency, a variety of new technologies are needed to achieve carbon neutrality. Key sectors such as biofuels, batteries, carbon recovery and hydrogen can significantly change carbon emissions. carbon.

Innovation in the construction sector also plays a key role in allocating additional capital to energy conversions. For example, offsite-designed modular or 6-D building information modeling (BIM) solutions are techniques that can significantly improve project sustainability. At the same time, you can reduce the life cycle costs and risks associated with new investor projects such as: we.

We want to help develop innovative solutions that accelerate the energy transition. From this point of view CDPQ has invested in companies such as Energize Ventures. EnergizeVentures Digital.

McKinsey:What new funding approach will you need to design your project?

Emmanuel Jacro:Government alone cannot provide sustainable infrastructure at the pace and scale needed to address the increasing risks of climate change. Long-term institutional investors are one of the largest capital pools available and can play a key role in funding critical infrastructure for a more sustainable and low carbon economy. carbon.

The public and private sectors can also work together to reduce investment risk while pursuing carbon-neutral goals. In addition to traditional public-private partnerships, 50 Quebec’s largest public transport projects, Réseauexpress métropolitain (REM) The year we plan to launch in Montreal later this year is a good example. REM was designed entirely by CDPQ Infrastructure, one of our subsidiaries. We act as a prime contractor, envisioning each stage of planning, financing, execution and operation. In addition, the presence at each stage of the project ensures work efficiency and quality, as well as integration into the project. community.

McKinsey:How do investors manage the inevitable risks associated with carbon-neutral projects?

Emmanuel Jacro:Climate change can disrupt societies, sectors and communities. In the long run, they affect the value of each infrastructure asset. Therefore, we must be able to evaluate how to build a sustainable future. Elasticity.

At CDPQ, the assessment and management of climate risks and opportunities is ours. To process.

We closely monitor both physical and transitional risk climate risks, which are covered in specific sections of investment approval and accountability documents. These risks are subject to the same governance process as other types of risks. Disclosure is also essential. Follow the Task Force (GIFCC) recommendations for financial disclosure related to climate change. Investor.

Finally, our risk management takes into account the 1.5 ° C target of the Paris Agreement and a set of scenarios from recognized sources such as the IEA. We also work with other companies in the same industry to keep up with the development of risk assessment methodologies and develop comprehensive tools for investors. A company.

McKinsey:Regulations related to public policy drag?

Emmanuel Jacro:Investors can move society forward by directing capital to sectors with very high infrastructure needs, such as sustainable mobility. We know that we can increase our contributions by working with like-minded groups. To that end, we are co-founders of two major global investor groups, the Investor Leadership Network and the Net-Zero Alliance, both addressing climate change-related issues and developing policies and regulations aimed at carbon neutrality. Is affecting. economic.

Here in Canada CDPQ was also involved in two expert advisory boards, the Federal Government and the Quebec Government. We work with stakeholders in different sectors and organizations to ensure that all perspectives are taken into account in the decision-making process.Climate change affects all of us and we are all responsible Act.


About the author

Based in McKinsey’s Seattle office, Tony Hansen is Managing Director of the Global Infrastructure Initiative. (GII).