CDPQ’s Blanchard on the Need to Do Sustainable Finance Differently

Published May 15, 2024, 12:56 PM

Finance plays a critical role in addressing climate change, but the current approach is seen as insufficient. In this episode of the Bloomberg Intelligence ESG Currents podcast, Executive Vice President and Head of CDPQ Global and Global Head of Sustainability Marc-André Blanchard joins Eric Kane, BI’s director of ESG research, at the Bloomberg Sustainable Finance Forum in Toronto to discuss how sustainable finance should be done differently. They also talk about sustainability at CDPQ, the role of engagement, the importance of blended finance, incentives vs. penalties and the need to use all the tools at our disposal to address the climate challenge. Register here for BI ESG’s June 4 virtual conference, COP 28.5: Looking Back on Dubai, Looking Ahead to Baku.

This episode was recorded on May 7. 

ESG has become established as a key business theme as companies and investors seek to navigate the climate crisis, energy transition, social mega trends, mounting regulatory attension and pressure from other stakeholders. The rapidly evolving landscape has become inundated with acronyms, buzzwords, and lingo, and we aim to break these down with industry experts. Welcome to ESG Currents, brought to you by Bloomberg Intelligence, your guide to navigating the evolving ESG space, one topic at a time. I'm Eric Kine, director of ESG Research for Bloomberg Intelligence, and I'm your host for today's episode. For this episode, we're going to do something a little different, and we're going to present a fireside chat that I had with Marc Andre Blanchard at last week's Bloomberg Sustainable Finance Forum in Toronto. As I mentioned in the introduction I gave on stage, which you'll hear, Mark Andre is the executive vice president and head of CDPQ Global and Global Head of Sustainability. We talked about what sustainability means for CDPQ, the role that finance plays in addressing climate change in biodiversity, the importance of blended finance, the need to think about risk and opportunity differently, engagement and much more so. With that, we'll take you to the conversation.

So I have the.

Immense pleasure of chatting with Mark Andre Blanchard today. His CB is too long to review in its entirety, but I pulled out a few highlights. I hope you don't mind. So Mark Andre is currently the executive Vice President and Head of CDPQ Global and Global Head of Sustainability. He also currently sits on the Board of Directors and Executive Committee of the Sustainable Markets Initiative, which was launched by His Majesty King Charles the Third, where he also chairs the Blend of Finance Task Force, something we'll discuss in a few minutes.

And then.

Before joining CDPQ in September of twenty twenty, he was Ambassador and Permanent Representative of Canada to the United Nations in New York from twenty sixteen to twenty twenty. So again, Mark Andre, thank you so much for taking the time to join us during this great event.

Thank you. I'm very happy to be here. Thank you, Thanks for Bloomberg and yourself for the invitation.

So I'd like to start by asking you about sustainability at CDPQ and what your role entails.

So well. CITPQ, I think I just want to make sure that I give you the basic information about CITYPQ. It's a ninstitution investors from the province of Quebec. It's we have, you know more, managing myn for forty eight investors or forty eight depositors. Six million people in Quebec are counting on us to actually receive a pension when they retire. We have We are Canada's second largest pension funds or institution investors. We have four hundred and thirty four billion dollars of assets under investment. We are under management, we have we're invested in seventy countries. The peculiarity of CDPQ is we have a dual mandate, a mandate for return to our depositors and a mandate as well of contribution to the economic development of Quebec, which makes us the actually the fund that is the most invested in the world in its local economy. We have eighty eight billion dollars CAD invested in the economy of Quebec and we are actually aiming to bring this hire by twenty twenty six to our one hundred billion dollars invested in Quebec. We believe that actually this gave us a very special DNA to actually to invest in the world. We have a strong belief that when our communities where we invest are strong, that actually our investments are doing better. And for those of you who are asking you, we don't divulge the difference between our investments in Quebec and the rest of the world for when we report them. What I can tell you and what our CEO says all the time is that actually you know what it pays to invest in your local communities, and actually we do very well in our investments in Quebec. The dual mandate brings us eric to Actually I've thought about it. I've thought to make sure that we could think about it differently for sustainability, and that's why we were the first institution investors in the world to in twenty seventeen to actually have a very aggressive plan. So since then we've reduced by fifty nine percent our carbon footprint. Since twenty seventeen, we've increased our green assets. We have now fifty three billion dollars of green assets and we have like eighty percent of our portfolio is with low carbon with a low carbon footprint. So we believe what we deploy constructive capital and for us, sustainability is part of constructive capital and this is you know where we think it's going. And if you look at how that our sustainability. I'm the responsible for sustainable lity throughout the CITYPQ. When you look at how my group is divided, it just shows you where we put the emphasis going forward. So we have every investment we may there's an ESG analysis that is done pre investment with actually a view also to put a plan together for how you know the value creation of this. The second is obviously we have a group that deals with engagement with our portfolio companies including proxy voting and the engagement with public companies and also with our companies where we have governance rights or where we have control or where we we in context of the private equity. And the third one is actually on value creation and also investing in the in the transition because these are the three components. For me, it's actually are we investing taking into account erg creditias? Are actually are we engaging with our companies. And the third are we investing and promoting value creation? Because that's a part that is often missed and by by I find in the narrative that it's it's also the transition, A just transition is all also about value creation for investors and for the academy.

Absolutely, it's a great introduction, and you mentioned a couple of key principles in there. Of course, you know the ESG analysis that you do before an investment. You mentioned of course engagement as well. So I think you've kind of answered pieces of the next question, but maybe just to kind of reiterate, I'm curious as to your views on cdpq's role and the role of finance in general in addressing climate and biodiversity.

Well let's take climate first. Just for the the I was actually reading something published by TPG Rice Climate, and you know they were assessing that about six point five trillion dollars per year will be spent on energy transition in the coming ten to ten two fifteen years. So you know, just think about it. This is on a magnitude that is difficult to grasp even you know, six point five trillion dollars a year. That's six thousand, five hundred billion. This is this if you know, when you think about it, if only twenty percent of this happens in the private market, it will make the scale of investment in energy transition greater than the entire private equity market or private equity industry today. That's that's how that's the scale that we're talking about. So for us, what we believe is we need to work on the on the on the transition of the economy as a whole. You know, there's and that I showed it with our targets. It's you're reducing the carbon footprint of of everything, but also of IE emitting sectors. This is why we have a transition envelope of ten billion dollars that skated to actually I emitters the art to abate sectors. Investors have a role to play to actually reduce the the the emissions of those that sector. And as I mentioned and you'll hear it often from me during this presentation. For me, it's it's it's also about the opportunity of the of the transition as investors. So yes, increasing the number of our green assets, but also of the value creation to work with our companies to actually take that route, that journey of the transition. The biodiversity is an interesting question, Eric, it is, it is not nascent, but it's it's coming a little bit more and more to the part of the agenda. Uh, it's still it's in its infancy, I mean, but we actually believe that if you think about supply chain disruption, about price volatility, about the destruction of real assets due to the erosion or wildfire, wildfire, of course biodiversity needs to be taken into account as an investor, and and we actually more and more take that into account in our investment. The issue there is the development of tools to measure the potential impact on biodiversity and and so make the right decision to invest limit our impact. And and so what we've done so far is, uh is we we've we've joined a group part of Cambridge University to actually look at, uh, you know, how how to respond really in in concrete ways to some of the systemic risks like biodiversity or you can think about another nascent risk is the the the the the NPT microbio resistance. That is also a growing issue. And so we with Cambridge University, we're working there and with other institution investors for one point, through trillion dollars of assets under management, we're part of that. And then and so how how do we integrate that in our investment processes? And then you search and df Marine, the CEO of fond acc is one of the top leaders in the country on the is on these issues. And so we actually partnered with pond Acco and others, with Canadian Parks and Wilderness Society and others in Quebec to actually work with the University share Brook to develop, you know, the teams that will lead to indicators for the financial sector. So that's that's how we see diversity and that's uh, but we believe it's actually going to gain in importance and relevance for investors in the future.

Absolutely. So you mentioned, of course the opportunity side in addition to the risk side when you think about issues like climate, bio diversity, and fascinating that you brought up anti microbial resistance as well. I'm curious to hear your thoughts on what structures and policies you ultimately I think are needed in order to kind of strengthen the role that finance plays in these issues and finances kind of ability to recognize these opportunities.

Specifically, if you ask me one thing about sometimes I find the narrative of HG, I'll make one introductory comment that is not an answer to your question, but it's where I come from personally. As I when I think about this as a leader from my institution, I often hear us about the narrative of the transition, and it is a very very narrative, a very negative narrative, and we have to be careful with that. Yes, we must see it from a risk perspective, but you also must see it when you're an investor, as an opportunity to invest. And this is often lost a little bit. And I warn people who are in the room here and are part of sustainable investment, a chief sustainability offices and all of that. In different kinds of institutions, we we a lot of our culture and philosophy come from the risk culture, and and we meet at the moment. I feel in some institutions there's a like, we must not lose the dialogue with the investors in our institutions with the one with the companies that we're doing business with. And that's why I put a lot of emphasis on this So that's one thing that's not an answer to your question. I'm coming to the answer to but that just shows you that we must think about doing it differently and think about us. We are a pension fund quote unquote, when you think about it, is a lot of what we do is related is a pension fund. A lot we have other investors, but it's a significant part of what we do. We have built a sixty seven kilometers, we've designed, built, and we're managing and we're going to operate and we're operating sixty seven kilometers of light rail train around Montreal. You know, it's the longest automated light rail line in the world. This is something that actually has reduces you know, the emissions by one hundred thousand tons a year. It's a virtual circle when whenever you're a Quebecer you sit on that train, you're basically paying helping your pensions. It's a model that has been recognized for its efficiency. I mean, I'll brag about it for one second because I'm in Toronto and you have some issues with some of the but like, it's the least expensive, least expensive new public transit system built in North America. It's one hundred and fifty million by the kumilomitter. And I won't ask you what is the cost of the Egglinton line. But I've been a resident. I'm a big fan of Toronto. I've been a proud resident of this city for my family for eleven years. So I can do that when I'm in Toronto and talk. But it just shows you that there's a different role for investors in the transition. And for example, that brings us to blended finance that has been made possible through a blended finance arrangement with the Government of Quebec, the Government of Canada, Iidro Quebec or is the energy supplier, the municipalities that it goes through, the airport in Montreal and all of that. This is the way of the future. When you think about that, a lot of the things we need to be doing in the transition. The risk return equation will not be quite right for institution investors. It will not be quite right either for governments because they cannot put that on their balance sheet because they won't have the physical space. It is not something that can be done by philanthropy. It is not something that can be solved alone by technology, and we need to actually come together in a way that we've never done before. Really, And so this is why I'm telling you we need to think differently about risk. We need to think differently about opportunities. When we don't know something, we tend to overestimate the risk, underestimate the opportunities. And actually we need to think differently about partnerships. And we need to partner with an organization that we're not used to partner with. And this is a big thing for us. You know, governments, you know they kind of know what we do, the institution, investors, the Maple Aid in Canada, but not really. And we kind of know how they operate in governments, but not really. And then the philanthropy. So we all need to learn to work together and spend more time thinking about how we're going to make these partnership works because they are essential to the transition. Just think about it that it is both in the developed world and in the developing world. And forget one thing I want to I would just to make sure that I'm a little respectful also of my experience at the UN and all of that. If the transition does not happen in the South, it will not happen in the world, and we sometimes forget it and we say, now, that's not an issue for us. Well, those of us who believe we have a strong role, an important role to play in the transition, we also need to think about how we're going to play that role in some other parts of the world. Just think about it, Southeast Asia in the next I think I'm not precise on that number, so just don't hold it against me, But in the next ten to fifteen years, we'll actually be consuming the entire if we let it go. If we let the situation go with the way it is at the moment and with the growth they have, they will be eating the entire carbon budget of the planet just them alone. So we need to think about how we're going to be part of that solution as well.

Absolutely, I won't wait until the rivalry between Montreal and Toronto, but I do a friendship.

We are very good friends and complementary in so many ways, and so much stronger together, I'm sure. But I do very much appreciate.

You're bringing up the idea of blended finance. I think it was, you know, one of the things that I wanted to ask you about and I think the example you gave of the light rail project in Montreal is quite telling and powerful. So maybe going back to your introductor your remarks, you mentioned the importance of engagement when you think about, you know, cdpq's approach to sustainability, wondering if you can, you know, tell us a little bit more about how CDPQ engages with portfolio companies and how critical that really is to progress.

I and I was listening to the to anna from teachers before they do engagement as well at teachers and I salute them for that. And we're not alone doing this, but I really believe if you're an asset owner, your role, you have a big role to play with the engagement with your portfolio companies. And this is this is to me, this is very key to the future of what we need to be doing. And just give you an example. Last year, my team add three hundred interaction engagement with our portfolio companies. And you know it goes from simply raising awareness of HGS among our portfolio companies to helping them design some of some plans to get to net zero and looking at opportunities. I actually believe we really need to go to the two point zero, in the three point zero in the coming two three four years of how we engage with our portfolio companies to really it's again changing the narrative. We're not there to tick boxes and ask them and only an investigation and ask them for numbers and all of that and data. We're also there to create value with them, and this is the this is how we need to build that partnership, and it's going to be good for the company, good for the insitution investors, and good for the planet at the same time. For example, my dream is to actually bring CDPQ CDPQ, we own all sorts of participation in companies that can contribute to so much to actually make sure that some of our portfolio companies actually progress and accelerate their progress on their net zero net zero pathway and and so. But sometimes some of our companies cannot do that alone. So if we do it together, if we bring three, four, five, six, seven, ten of them together with the right resources, then we can leap frog. And I think it's the role of insution investors like us to do that. But again that's a different role than the traditional role that we had as an asset owner and so we need that's how we need to think about the partnership differently, the blended finance differently, the way we look at the world differently.

Absolutely, the idea oftnership, I think ties into my next question. So CDPQ is a signatory to both the Nature Action one hundred and the Climate Action one hundred plus, and you sit on the Board of Directors of the Executive Committee of the Sustainable Markets Initiative. As I mentioned during your introduction, I just want to hear, you know, maybe some additional thoughts on the importance of these collaborations and these initiatives for engagement.

Well, it's exactly. It goes right into what I was just saying. The Sustainable Market Initiative was created when King Charles the Third was Prince Charles, and it's now led by Brian Monhan who is the CEO of Bank of America, and it's between two hundred and fifty and three hundred members that are there, and it's all at the very high level, but it's all representatives of the real economy. And that's why I love that it's a mess sometimes because it has all sorts of vehicles in different industries and it's a mess because we're all starting on this journey. You know, we've never done it before, taking an entire planet and transitioning it. So it's complex. How do you deal with the issue that you've raised about sustainable aviation a few feel a few minutes ago. I mean, you need to deal with the production in agriculture. You need to deal with the regulation in transportation, you need to deal with the airport owners. You need to deal with the aircraft manufacturer. You need to deal with the airlines. You need to deal with the price tickets in some developing market of the of the of the airline tickets you need. It's endless, and so how do you need to bring these people, the right people around the table to actually make sure that we can develop the partnership and the right investment platforms and all of that. And that's what these groups do, like the Sustainable Market Initiatives. You have other groups like the Net zero Alliance and stuff that is more about standards and disclosure and that that is very that is essential as well as a role. But now what needs to be done is a lot about doing We we now know the objectives that where we have to go to for the most part, now the issue is how are we going to get it done? And this is a very tough part. I'm not saying that the first the other what we've done so far was easy, but I think what we have to do now can be tough. But the opportunities linked to it are really big and important and significant for for for everybody. And and this is this is, this is part of the difference. I'll show you. I'll give you an example of a different partnership that I never thought would happened in a few years ago the US Treasury, So we created when canadastood the last G seven in twenty eighteen, under Prime Minister Truro, we created the Investors Leadership Network. It's a group of institutional investors from the G seven that came together on climate, infrastructure and diversity. And the group is still going on stronger than ever. Fourteen members, ten trillion of assets under management, all the many of the big players around there. And you know what, last year, a year ago, we did an agreement with the US Treasury to actually because on the transition, they wanted to make sure that we were looking more closely at how we could contribute to the transition in some parts of the emerging markets, and that led to an agreement with USTDA with is the US Trade the Development Agency to actually a project preparation facility of one hundred million yes available to the institution investor around the table who would have taught and the and the leads on this agreement were CDPQ, NETICXIS and in ninety one. None of these funds are of the of Residency in the US. So the US Treasury making an agreement with something flowing from the G seven in Canada, that's fine, But then U, S D S U S TDA that does something. And with the US Treasury and three main institution investors representing that group that are none of them are you are American? So it just shows you that actually how people are looking at this differently than before, and who would have taught that institution investors would be interested in project preparation on such a scale. And so this is this is this is the new world that we live in and we need to make progress on that. Because everybody recognized what are the impediments to get the institution investors like CDPQ to invest in the transition in some parts of the world. Well, it's the lack of bankable projects. It is the fact that we need some deriskking tools that are at scale, and we need the de risk king of the foreign exchange and we need as well access to better information about the data of multilateral development banks. And so just to finish on this because it's an interesting topic that I'm also passionate about. When you look at it, people talk about the reform of the World Bank. Actually the actual president of the World Bank is a great ag Bank is fantastic, is you know, giving a lot of implementing a lot, pushing it through a lot of reforms. But think about it. The institution investors, like the one I represent in the world, all of us can buy. All of the institution investors in the world have nine hundred times nine hundred times more capital than all of the multilateral development banks taken together. So when the multilateral development banks were created sixty seventy years ago, the institution investors did not really exist in the world. Like us, We did not exist. We're sixty years old, and so that's the world has changed. But the institution are now catching up. And it's tough in this current geopolitics actually to get the nimbleness that is needed to do what we need to be doing. So that's why you need this new kind of these new kinds of partnership and new ways of thinking about the around these problems and these issues. Absolutely.

So maybe for our last question, you mentioned, of course the US stress and its involvement in the project that you just mentioned. Obviously, the Treasury plays a big role in the Implesion Reduction Act, which in the US I think continues to be described as kind of a great example of the power of incentives, which is perhaps leads, you know, back to this idea that you're mentioning of rethinking, you know, how we're approaching these problems. So I just wanted to hear maybe in the in the closing moments here kind of how ultimately you view the balance between, you know, the two regulatory approaches of you know, the character versus the stick, or incentives versus penalties.

So, you know, I'll tell you a story. When I arrive as Ambassador of Canada to the UN, I was coming from the private sector. I was sharing CEO of Makarta Titro, one of Canada's national law firms, before I was appointed by Prime Minister Trudro to the UN and I arrived at the UN and I asked the Secretary General, how can I help. I'm here, I'm Canada, I represent Canada, and as you know, we're here to help. He said, well, you know, we we have. We've just signed the Purse Accord and we've just agreed on the SDGs. But he said, we're so lucky to have someone from the private sector coming to the UN because nobody's talking here about how we're going to finance all of this. So you need to bring that discussion to the u N. And that's what I've tried for the for the four years. And after I was there, then I went to see the number two of the UN and I said, you know, I said, how do you see the u N? And how you know for someone like me coming from the outside. He said, you only need to remember one thing. World piece is like a stool that stands on three legs, and the role of the UN is these three legs. There's a leg on security, there's a leg on development, and there's a leg on governance. And if you only work on one legs of the stool, the stool will not stand. There will be no world peace you need, and you said, just understand that the world will be always imperfect, but we all need always need to work on security, development and governance at the same time. And to me, really it struck me and I kept it in my mind since then. It's the same thing with what we're trying to do in the transition. If we only work on the governance, which is the stick, I actually believe it won't work. And we need we need the governance, but we also need the opportunities, you know, we need the development side, and and and whatever the other leg you want, which is probably I think the stakeholders. We need to work make sure that we also work with the social license needed to get all of this to be working together. So my point is with the RARA, that was a great way of remembering or noticing that actually, you know what, Yes, the stick works. It has moved some capital, not as much as we would have liked, and not as fast as we would have liked. We have to notice that. And then you had the RARA that was completely like a different approach, a carrot, not a stick. Four hundred billion dollars of public money, no cap. They now believe it's going to be six hundred billion. The four hundred billion was supposed to trig one point two trillion. The sixth underd billion will move one point one point I do you have my math right in one point eight whatever? From three times? Yes, one point eight. So this is also a number that we have to So we have difficulties putting our mind around. But you know what, Just remember there's a in the South. In the US, there's a debate about ESG, there's a debate about climate, but without any I don't want to judge anything in the US. But let's notice that what the New York Times and CNN reminded us a few months ago about the money. The money is going faster in some Republican states who are not known to be the most enthusiastic about the transition. Why. Some may say it's because of regulation, but some may say all suits because of the financial opportunities that are looked at. So my point here is, let's use everything we have, and if we only use one side, I actually build. That's why I want to make sure that we have the right narrative in place. We're still all human beings at the end of the day, and our psychology works for that as for other stuff, and you know, we tend to be a risk averse when there's a gain and risk taker when there's a loss, because we always think we can postpone that loss, and so we tend. So I invite us to think about also the carot and the gain and make sure it's part of the story, because I think there's room for the entire story there to be part. We also need to be very realistic about the challenges the urgency, but also let's not forget what are the opportunities and how we can actually all benefit from it. So thank you very much, wonderful.

I think that's a great way to end, and thank you so.

Much for joining us. Thank you, thank your pleasure.

I think the idea of using everything we have to address the climate challenge and making sure we tackle the problem from all legs of the stool is a fantastic way to conclude this conversation. And I want to thank Mark Andre again for joining me at the Bloomberg Sustainable Finance Forum for an on stage recording of the podcast. I do also want to mention that the BIESG team will be hosting a virtual conference on June fourth called COP twenty eight point five, looking back on Dubai, looking ahead to Baku. The event will include a panel on funding the Transition, where I'm sure many of the concepts, including blended finance that we discussed with Marc Andre, will be talked about. You can find out more about the virtual conference and register by clicking on the link in this episode's description, And as always, you can find more information on all things ESG by going to our dashboard BI Space ESG go on the Bloomberg terminal, and if you have an ESG quandary or burning question you would like to ask bi's expert analysts, send us an email at ESG Currents at Bloomberg dot net. Thank you very much, and we'll see you next time.

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