S2G Ventures and CDPQ: A Partnership to Invest in Climate Solutions

S2G Ventures and CDPQ: A Partnership to Invest in Climate Solutions

At S2G Ventures, we believe a healthier and more sustainable food system is the under-recognized solution to critical global challenges like climate change.


We envision a food system where all consumers have access to healthy food. Where food is grown more sustainably, resulting in higher profit margins for farmers and economic growth for rural communities. A system that improves the asset value of farmland by focusing on soil health and empowers farmers with a toolkit of technologies - including new genetics, new fertility and crop protection and digital tools. One that is more biodiverse, with new rotations on the farm, resulting in more choices for the consumer. That ultimately results in a system that is no longer bound by the false choice of productivity versus nutrition and affordability.


The food and agriculture sector, with the right technology, incentives and partnerships, can mitigate, and one day perhaps reverse, the warming of our planet. We see our future vision coming to life through the hard work of entrepreneurs and innovators every day. But we know it will not be easy and it will take time. Long-term investment and partnerships are critical to build and scale the next generation of our food system.



Solving the climate crisis requires commitment from long-term investors

Climate change is no longer a distant risk. Every day, the planet is experiencing the human, environmental and economic impacts. Natural disasters are more frequent and severe, affecting more than 39 million people in 2018.(1) Left unchecked, the cumulative damages from climate change may reach $8 trillion globally by 2050.(2)


Unfortunately, the world is not on track to meet the goals set forth in the Paris Agreement. 2019 was the second warmest year on record. Despite a projected 6% drop in greenhouse emissions due to the pandemic, the United Nations projects the world will still fall short of the 7.6% annual reduction required to limit global warming to 1.5 degrees Celsius.


More investment is needed to correct the course. In May, the financing gap to achieve the 17 Sustainable Development Goals identified by the UN was estimated to be $2.5 trillion per year.(3) The pandemic has widened this gap further. Additionally, a recent report by the Paulson Institute estimates that the current biodiversity financing gap, encompassing the impacts to biodiversity by agriculture, will be over $700 billion a year for the next decade.(4) Entrepreneurs and innovators around the globe are working on solutions - they need investment and partnerships to scale.



Our partnership with Caisse de dépôt et placement du Québec

When we were introduced to the team at Caisse de dépôt et placement du Québec (CDPQ), a Canadian long-term institutional investor with a global presence, we were thrilled to connect with an organization that shared our commitment to investing in solutions to mitigate climate change. Since 2017, CDPQ has committed to reducing its portfolio’s carbon footprint by 25% per dollar invested by 2025. Climate is now factored into all their investment decisions, affording it an essential position to make its portfolio more sustainable.


Following many conversations and planning sessions, we are pleased to announce a co-investment partnership between our organizations where CDPQ will invest up to $125 million over the next 3 years alongside our team. The partnership furthers our shared core principles, objectives and commitment to sustainable investing. Together we will invest behind entrepreneurs that are making the food and agriculture industry more sustainable and climate friendly.


The co-investment partnership between CDPQ and S2G is an outcome of CDPQ’s partnership with CREO Family Office Syndicate (CREO), a New York City-based not-for-profit organization that aims to galvanize capital into low carbon solutions.



To kick off the partnership, we sat down with Kim Thomassin, Executive Vice-President and Head of Investments in Québec and Stewardship Investing at CDPQ to discuss their investment strategy with respect to climate change, their successes so far and the areas of opportunity they are looking forward to in the coming year.


CDPQ adopted an investment strategy to address climate change in 2017. Can you talk a bit about the principles and pillars of your strategy?


At CDPQ, we are proud to say that we were one of the first global investors to set measurable targets and take concrete action on climate change.

To achieve this, three years ago, we put in place a climate change strategy structured to contribute to the transition to a low-carbon economy, while seizing investment opportunities that can arise from it.


Our strategy is based on four pillars:

  1. Factor the climate in every investment decision. So now climate is part of every investment decision we take and discussed in our investment committees.

  2. Increase low-carbon investments by 80% from 2017 to 2020. We already surpassed this target in 2019 and almost doubled what we had in 2017.

  3. Reduce our carbon intensity by 25% per dollar invested between 2017 and 2025. We reached 21% last year.

  4. Exercise strong leadership in climate matters within our industry and our portfolio companies.


It was a lot of work, but we are thrilled to see how much we have already achieved. And we don’t intend on stopping here.


In 2019, we made our most ambitious commitment yet — to be carbon neutral by 2050 — through an initiative called the United Nations-convened Net-Zero Asset Owner Alliance. From 12 members in November of last year, we are now a group of 29 investors representing nearly $5.0 trillion assets under management. All members of the Alliance have pledged to transition our portfolios to net-zero emissions by 2050.


You have had some pretty significant results already in just three years. What has been the biggest learning you can share about your ability to drive climate mitigation, and also investment returns?


From the start, one of the key aspects of our strategy was to publicly set ambitious but reachable targets for CDPQ. It is also with this goal in mind that we have included climate targets in employees’ variable compensation. All this allowed us to engage actively and transparently with our partners and portfolio companies, while pushing for more disclosure on climate risks.

To achieve our climate targets while continuing to make good investments that generate expected returns, we allocated carbon budgets to each of our portfolios, in other words an annual limit on GHG emission for each dollar we invest. This limit is set based on CDPQ’s overall 2025 intensity reduction target and we’re on track to achieve our objective. At the end of 2019, the carbon intensity of our portfolio was down 21% from its 2017 level. Our low­-carbon asset portfolio totaled $34 billion, up 95% over 2017.

We also understood that tackling climate change requires working closely with our peers and partners. This is why CDPQ is actively involved in several climate change initiatives, such as the Investor Leadership Network (ILN) of which we are a co-founder or the Net-Zero Alliance. In April 2019, we also announced a partnership with the CREO Family Office Syndicate, with the aim to direct more capital into climate investments. Today, we are announcing with S2G a co-investment partnership where CDPQ will invest up to $125 million over 3 years in ventures that aim to make the food and agriculture industry more sustainable.


As you know, at S2G we are focused on food and agriculture. What drew you to these areas of focus as a way to mitigate climate change?


Food and especially agriculture are sectors that are globally significant GHG emissions sources. They’re also industries that are at the forefront of innovation, for example with new technologies trying to address climate change and to drive change for more sustainable, while profitable, food production.

By working closely with partners such as S2G and CREO, we expect to create good investments opportunities in sectors such as sustainable food, agriculture and water.If COVID-19 has shown us anything, it’s the need to work together to ensure access to safe and sustainable food supplies.


What do you think will be the long-term portfolio impact of climate change? Is this important issue now becoming urgent?


Climate has been on our radar for many years. Institutional investors must have a long-term perspective on their investments and if your focus is on the long term, climate change becomes crucial.

Now, forest fires on the West Coast or in Europe and other extreme weather events remind us of the importance of taking decisive action. So, we will keep investing in assets that make tangible contributions to the fight against climate change, and we will work with our portfolio companies to improve their carbon footprint. This improvement will be a major condition to our long-term commitment to these companies.

As we move into the post-COVID world, we must remain focused on building a more resilient and sustainable economy. That’s why at CDPQ our goal is to provide “constructive capital”.


Thank you CPDQ for your time today and partnership with us as we work to build a better food system.


Sources:

  1. https://unstats.un.org/sdgs/report/2020/goal-13/

  2. https://www.eiu.com/n/global-economy-will-be-3-percent-smaller-by-2050-due-to-lack-of-climate-resilience/

  3. https://www.csis.org/analysis/covid-19-demands-innovative-ideas-financing-sdgs

  4. https://yaleclimateconnections.org/2019/04/climate-change-could-cost-u-s-economy-billions/

ABOUT THE AUTHOR

Sanjeev Krishnan

Managing DIrector

View more.

footer-watercolor.png

Subscribe to our Newsletter

  • LinkedIn
  • Facebook
  • Twitter
  • Instagram

© 2020 S2G Ventures