The Canada Pension Plan Investment Board (CPPIB) announced today, that it will issue its inaugural Green Bond, as it looks to invest C$3 billion (US$2.31 billion) in renewable energy and low carbon assets over the next year.
The CPPIB will be the world’s first public pension fund to launch a Green Bond, as the climate-friendly bonds' popularity increases in the financial sector. Climate Bonds latest analysis for 2017 shows a December 31 tally of US$155.5 billion – a new annual record, up 78% on the adjusted 2016 figure of US$87.2bn.
“The issuance of Green Bonds is a logical next step to CPPIB’s investment-focused approach to climate change, and we are pleased to be a pioneer amongst pension funds in this regard,” said Poul Winslow, Senior Managing Director & Global Head of Capital Markets and Factor Investing. “The capital raised will help support strong, long-term investments in eligible green assets that position the Fund for continued success.”
According to CPPIB, eligbile for Green Bonds can be issued for wind and solar PV assets, as well as sustainable water and waste water management assets and LEED platinum certified green buildings.
Just this year CPPIB will invest US$391 in Renew Power Ventures, demonstrating the pension funds growing interest to allocate assets into renewable power projects.
While sovereign wealth fund investment in renewable energy, and divestment from fossil fuels, has been considered a viable tool for bringing forward the energy transition, such programs have also been viewed critically for a number reasons. Chief among which; sovereign wealth funds are notorious about asset safety, since they are managing public funds. Secondly, most sovereign wealth funds are obliged to abstain from making politically motivated investments, since their management should not be considered as a political tool.
The growing interest of sovereign wealth funds in renewable energy investment augurs a welcome shift in the market. It demonstrates that investments in renewables now pass the stringent scrutiny of sovereign wealth funds – even when set against the backdrop of Section 201 tariffs or the planned Chinese cap to additional PV installations. Secondly, renewable energy has transcended political left-right binaries: As it is not only progressive governments are implementing policies aimed at installing increasingly more renewable energies. For example, Austria’s new government, a centre-right-wing coalition, issued a roadmap by which the country’s electricity demand should be met in total by renewable energy resources by 2030.
The Climate Bonds Initiative, a not-for-profit investor-focused organisation providing, among other services, detailed reports on the global Green Bond market, that by the end of 2018 US$250 billion in green bonds will have been allocated. Moreover, the organisation, estimates and actively works towards the goal of US$1 trillion in Green Bond investments by 2020. This demonstrates how rapidly this market is growing and how the finance sector is running with these investment mechanisms.
CPPIB's step to establish its own Green Bonds could be taken up by other sovereign wealth funds, with serious implications for renewable energy financing.
Pension funds, on the other hand, have recently showed interest in southern European solar markets, as these are expected to host a large number of unsubsidized PV projects, a segment that may require diversified portfolios and sophisticated financial models.