Why Brookfield is betting billions on the race to cut carbon

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Mark Carney spells out what’s behind his new role shepherding an impact fund worth as much as US$100-billion for Brookfield Asset Management (BAM-A-T) focused on combatting climate change: “It’s the transition, stupid.”

The former governor of the Bank of England and Bank of Canada says the global transition to a net-zero carbon world, in which emissions are simultaneously cut and offset, will need more than investments in existing renewable energy projects and technology. Instead, energy companies, utilities, tech firms and industrial companies will require trillions of dollars in capital to transform their operations and achieve that goal.

Brookfield has made a splash by starting up the impact fund to deploy that capital. It is essentially a massive bet on the concept that working to halt climate change is both an imperative for humanity and a money-making opportunity for private investors. The target is to have US$50-billion to US$100-billion in assets under management in the impact fund before long and run it alongside its other asset classes.

“In my judgment, that is the big secular trend, which is this shift. And that’s one of the biggest commercial opportunities – full stop,” Mr. Carney, Brookfield’s new head of ESG (environmental, social and governance) and impact investing, told The Globe and Mail.

The impact fund, announced in August, adds to the Toronto-based private-equity giant’s businesses, which include real estate, infrastructure and financial services. It also runs one of the world’s largest privately held portfolios of renewable energy plants, an effort Brookfield started roughly a quarter-century ago by buying existing small hydro projects in the United States and Canada. Brookfield now has more than US$575-billion in assets under management across all its areas of investment.

Certainly, ESG investing is not a trend Brookfield alone has spotted. In Canada, major pensions have been plowing money into the sector over the past several years. Last week, the Canada Pension Plan Investment Board, which kick-started its renewables effort in 2017, said it formed a new company to boost its European investments in solar, onshore wind and battery storage.

The competition for investments promises to be intense, raising the prospect that Brookfield may be one of many bidders. But CEO Bruce Flatt says its immense scale and history with renewables will allow it to rise above the competition. “We can buy [solar] panels in China cheaper than anyone else in the world because we buy the most panels, of anyone, on a global basis,” Mr. Flatt said. “We know how to buy them. We know how to set up the plants. We know how to buy the land. These are complicated things, and they just differentiate us.”

Mr. Carney has long touted the importance of climate considerations in financial and economic decision-making. He was instrumental in developing the Financial Stability Board’s Task Force on Climate-related Financial Disclosures, which has become the world’s gold standard for private- and public-sector reporting of climate-related risks and impact. He remains a United Nations special envoy for climate action and finance, a volunteer position.

The world will need investments of US$3-trillion to US$3.5-trillion a year for several decades to “decarbonize” its economies, he predicts, and achieve the Paris Agreement target of cutting emissions to the point where the rise in global temperature is limited to 1.5 degrees. For energy, that means shifting to renewables, investing in cleaner fuels to bridge the transition and stabilizing power grids – but also big investments across the economy.

“That requires operating expertise, which Brookfield has. It requires … the ability to do large-scale transactions, it requires experience in business transformations, it requires global reach. All of those are existing competencies of Brookfield,” Mr. Carney said.

Governments are becoming more serious about the need to slash emissions after years of becoming signatories to agreements, setting targets, then not meeting them. On Friday, Prime Minister Justin Trudeau announced $15-billion in spending and a more than tripling of the carbon tax to $170 a tonne by 2030 to get to the government’s emissions-reduction goal.

In the U.S., president-elect Joe Biden has vowed to recommit to the Paris Agreement after Donald Trump pulled the country out and has cited fighting climate change and transitioning to clean energy as priorities for his administration.

However, Mr. Flatt said the change in U.S. administrations has little bearing on Brookfield’s climate-related investments, which he views as a “consistently global objective.”

“While it is ultimately a positive to have government support for green investments, the shift towards renewables and emissions reduction is a longer-term trend that already has significant momentum,” he said.

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