Two Canadian pension funds have announced an agreement with Spanish banking giant Banco Santander to jointly acquire a portfolio of renewable energy and water infrastructure assets which is valued at over $2 billion.
The pension funds, Ontario Teachers’ Pension Plan and the Public Sector Pension Investment Board (PSP Investments) will expect to see the transaction closed sometime in the first half of 2015, and in conjunction with Santander intend to invest “significant additional amounts” over the next five years.
A new company will take ownership of the assets, and be equally owned by all three parties.
“Over the last seven years in Santander, the business has become one of the leading developers of renewables projects around the world, having invested over US$2 billion in renewable energy and water projects,” said Marcos Sebares, CEO of the new entity, who will head up an experienced team (presumably to counter his youth).
“A combination of Santander, which has consistently been voted the greenest bank in the world, and two investors, such as PSP Investments and Teachers’, who have a long history of sustainable investing, marks the beginning of a new phase in the development of our company into one of the world’s leading renewable energy investment companies. We have a strong balance sheet and long term investment strategy, with a mandate from shareholders to grow the new company over the next five years.”
The only indication of the exact nature of the assets comes from the Ontario Teachers’ Pension Plan press release announcing the venture. The portfolio of assets includes wind, solar, and water infrastructure assets across seven different countries that are currently operating, or in development.
“We are excited about partnering with Santander and PSP Investments and look forward to supporting management in growing this company significantly in the coming years,” said Andrew Claerhout, Senior Vice-President, Infrastructure at Teachers’. “This investment directly supports our focus on investing in platforms that provide access to development opportunities globally.”
“This investment fits well with our strategy of deploying capital in sizeable opportunities that offer long term revenues and growth potential along with solid partners,” said Bruno Guilmette, Senior Vice-President, Infrastructure Investments at PSP Investments. “It also allows PSP Investments to continue to develop its portfolio of private energy assets while contributing to environmentally sustainable energy production.”
Pension Funds Following Investment Trends
In my life, I would never have imagined myself so regularly writing the words “pension fund.” But in many respects, the conservative world of pension fund investing acts as a good barometer of the rest of the investing world.
Only last month, Norway’s biggest pension funds manager KLP announced that it was divesting entirely from coal energy. KLP, the pension fund for the country’s public sector employees, intends to redirect approximately $75 million into renewable energy companies.
“We are divesting our interests in coal companies in order to highlight the necessity of switching from fossil fuel to renewable energy,” stated KLP’s CEO Sverre Thorne. “We’re quite convinced that we will manage to deliver the same returns in the future without those from coal companies. We want our owners and customers to feel secure about that.”
Not long afterwards, Norway’s $870 billion sovereign wealth fund announced that the most harmful coal, oil, and gas investments would be assessed and excluded on a “case-by-case basis” — a strong statement that the country will not tolerate being party to environmentally devastating energy generating resources; but similarly making it clear that they will not be making ad-hoc sweeping changes based on morality.
Such a decision, according to a Bloomberg New Energy Finance analysis from August of this year, would globally cost upwards of $5 trillion.
This is not to say that investors are not taking an interest in so-called “ethical” investments — they are, and for good reason. There is a prevailing train of thought that fossil fuel assets could eventually become “stranded” by emission regulations, which is fuelling a trend towards fossil fuel divestment.
“The $5.5 trillion needed to build out clean energy through 2030 will offer many new opportunities for investors, but a major switch into that and out of fossil fuels would require a massive scale-up of new investment vehicles,” explained Nathaniel Bullard, author of the Bloomberg New Energy Finance analysis.
The problem facing investors looking to make ethical decisions is that “fossil fuels are investor favourites for a reason.” Bullard continued:
Very few other investments offer the scale, liquidity, growth, and yield of these century-old businesses with economy-wide demand for their products.
In the end, fossil fuel divestment will be a long-term strategy, not one that is hurried. As Siemens chief executive Roland Busch made clear in a speech earlier this year, coal is a necessary fuel at the moment.
“In the next ten to 20 years I can’t imagine running any economies without fossil fuel. Beyond 20 years, it’s very hard to say.”
So I suggest we revisit this discussion in 20 years. Join me?