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CPP Investments ready to play long game with carbon markets

The Canadian Pension has entered the voluntary market at an important stage in its development and wants to invest in decades long carbon-capture projects.

CPP Investments will pursue a long-term strategy in the voluntary carbon markets space, which it thinks could be “15 times bigger by 2030 and 100 times bigger by 2050,” said Bruce Hogg, managing director and head of sustainable energies group.

The Canadian pension became one of the first institutional LPs to directly enter the carbon credit trading space through its partnership with non-profit Conservation International at the start of October.

CPP Investments’ $20 million commitment – along with $500,000 from Conservation International – will initially support forestry projects capable of generating carbon credits that can be traded on the voluntary market. It will also look at “other innovations in the field of nature-based climate solutions,” according to a statement.

“We’re thinking this market could be 15 times bigger by 2030 and 100 times bigger by 2050 – while this [$20 million] is a small investment, we think there’s a genuine opportunity for us to scale in it,” Hogg told Agri Investor.

“There’s obviously things that need to be done around standardization of the market, tradability and quality control. But we think all those things play to somebody like us quite well, where we have the patience and time to invest to make sure we’re only backing people that are developing the best and highest-quality credits,” he added. McKinsey estimates the carbon market “could be worth upward of $50 billion in 2030.”

The partnership will focus on opportunities in Brazil, Chile, Columbia and Peru, where its first project is based. The 600,000-hectare Amarakaeri Communal Reserve project is expected to have a 30-year lifespan and could average annual emissions reductions of between 220,000 to 360,000 tons of CO2, which is roughly equivalent to the emissions of 50,000 to 75,000 cars, according to a company statement.

Credits generated by the initiative will be verified under the Reduced Emission from Deforestation and Forest Degradation (REDD+) program, which is a United Nations-backed framework that aims to curb climate change by stopping the destruction of forests.

Hogg said it was too soon to discuss how CPP’s partnership could engage with the agricultural regenerative farming space, where a new voluntary carbon credits market has emerged. He did say, however, that the pension “sees a great opportunity there.”

“We actually combined our former agricultural program so we’re now looking at carbon capture, agriculture and agricultural logistics. It’s coming together in an interesting way and when we think historically about how institutional investors invested in agricultural lands or forestry, it was a very different thesis. And so, we’re seeing an opportunity here and we’re trying to work it through,” explained Hogg.