The $400-billion Caisse de dépôt et placement du Québec (CDPQ) has integrated environmental, social and governance (ESG) considerations into all its operations, and the fund’s commitment manifests in its investments, according to Leong Wai Leng, managing director and head of Asia Pacific for the Canadian pension fund.
“We are very serious and very committed to climate, and we are now actually one of the world's top investors of renewables in the infrastructure space,” Leong told the audience at AsianInvestor’s 13th Southeast Asia Institutional Investment Forum in Singapore on November 22.
“Not only are we investing in renewables, but we are also divesting from coal,” she said.
Mitigating climate change is a central pillar of CDPQ’s ESG strategy, and the fund has shown its commitment by earmarking $10 billion for equity financing towards the energy transition in a meaningful way.
"We are trying to see whether we can be part of the solution in financing the energy transition, and that is a complex task. I must stress it is a work in progress, and we hope like-minded investors out there will join us,” she said.
CDPQ has made a lot of progress and is far ahead in its commitment to achieving net-zero on the “E” side of the issue, but Leong admits this is the most easily quantifiable aspect of the equation.
On the S and G side, Leong also touched on an equally important aspect: diversity and inclusivity.
"We are setting standards for diversity and inclusivity not just within our own company, but also for our portfolio companies where we have an active stake — so we will be able to influence the gender diversification of the boards of the companies that we invest in,” said Leong.
Leong also highlighted the fund's efforts to ensure that their portfolio companies contribute their fair share of taxes, targeting an effective tax rate of about 15% to support local economies.
WORKING WITH CONSTRAINTS
Sriram Iyer, chief executive of India’s $6-billion HDFC Pension recognises the growing significance of integrating ESG principles into the fund’s investment strategies, despite the unique challenges presented by the Indian market.
"ESG is now setting the centre stage as far as our investment process is concerned, and it has become a dominant theme for India’s government," Iyer told the panel.
HDFC’s investment strategy faces unique constraints of having to work solely within the Indian markets, putting the fund in direct confrontation with market-specific issues such as market depth, liquidity, or the lack of suitable investment opportunities. In addition, the fund only invests in the top 200 companies by market capitalisation, limiting its range of possible investments.
Despite these constraints, HDFC has made significant progress in integrating ESG. The fund carefully evaluates the ESG score for every company it invests in and has aligned 80% of its equity investments with the National Stock Exchange ESG index.
“There is immense growth potential in ESG-focused investments, and we are constantly exploring opportunities within this space,” he said.
Iyer asserts the active role the fund is playing in supporting sustainable initiatives, particularly through its involvement with the Indian Government's issuance of green bonds.
"HDFC has been an active participant in this initiative, and we believe the initiative presents a promising opportunity for sustainable investments. The amounts available are small, but that money is to be directed only to green companies. So it’s a small start, but we've been participating actively in that as well."
MAKING AN IMPACT
On the same panel, Hazman Hilmi Sallahuddin, the chief investment officer of Kumpulan Wang Persaraan (KWAP), Malaysia's $30-billion public pension fund, shed light on his fund’s approach to sustainability and its opportunities in Asia.
"ESG has become an overused term; we're focusing on how we can make a real impact," said Sallahuddin.
The landscape has evolved considerably. Since its inception, KWAP has moved its targets from MDGs (Millenium Development Goals) to SDGs (Sustainable Development Goals) and now to the creation of their own ESG guidelines and scoring methodology.
"In the absence of convergence of standards, that is something that we have to do for now. We cannot run away from doing what we think is right," he said.
KWAP, since 2018, has had a responsible investment team focusing on ESG across all asset classes: an indication of their commitment to sustainable investing.
Discussing the future of KWAP's ESG strategy, Sallahuddin suggested looking "beyond ESG integration."
“There is complexity in the execution. When we talk about ESG and impact, people will always ask, 'Are you compromising returns to do this right?' You can have that debate, but oftentimes it means you won't get anywhere."
As a potential solution, he indicated that KWAP is considering the introduction of specific KPIs for ESG and impact investing, noting that the fund plans to make a pledge to achieve net-zero emissions.
"We hope to announce it in Q1 next year," he said, "We're trying to walk the talk...trying to do no harm, do good, and trying to get our portfolio companies to ride along the journey with us."