CPP’s Manley: ‘Our priority is getting from 22 sustainable investors to 2,200′

RI speaks to CPP Investments CSO Richard Manley about training an entire organisation in sustainability and the oil and gas transition.

Richard Manley, chief sustainability officer at giant Canadian asset owner CPP Investments, presides over a relatively small team. With just 22 members, the sustainable investing group makes up just a fraction of the more than 2,000 people employed by the C$575 billion ($425 billion; €391 billion) pension fund.

Manley tells Responsible Investor that one of his key strategic priorities is “getting from 22 sustainable investors to 2,200”, adding that it was important to ensure the whole organisation has the relevant fluency in sustainability to integrate it where material across investment lifecycles.

One of the ways that CPPIB accomplishes this is through internal secondments. The sustainable investing group currently has two members of staff on secondment in other divisions, and has had transfers and secondments from all areas of the business, including infrastructure, secondaries, real estate, credit and real asset credit groups.

Manley stresses that secondments do not just involve more ecologically or socially aware young people. “This isn’t a simple intergenerational shift to focus on sustainability,” he says. “Some of these individuals are accomplished investors in their thirties and forties that view successful integration of sustainability as the future of investing.”

He cites the example of a secondment from the real estate group that ended up as a permanent role. The member of staff, a seasoned investor, sat on the real estate investment committee and knew all of CPP’s largest partners.

“While it took a little time to upskill him in sustainability, given how quickly and effectively he was then able to deliver these insights to investment teams and partners across the globe, it was well worth the investment,” Manley says.

He is keen to emphasise that the ability of his team to support integration of sustainability into the investment process is not just about the quality of its sustainability advice. It is also influenced by the ability to add value to the underwriting and value-creation process.

“Ten to 15 years ago, you could probably count on the fingers of one hand the number of buy-side heads of sustainable investing that had track records as successful investors and had taken a strategic pivot in their career to say ‘I’m a great investor, I want to become a great sustainable investor’,” says Manley.

“The emergence of a new generation of sustainable investors that are seasoned, successful investors wanting to advance integrating sustainability into the investment process is really exciting.”

A future for oil and gas

Manley, who chairs the ISSB Investor Advisory Group and sits on the UK’s Transition Plan Task Force, began his career as an oil and gas analyst.

Given recent moves by other asset owners to divest from oil and gas firms, and warnings that investors may have to look to demand-side engagement, RI asked Manley his views on the incentives and ability for energy producers to transition.

“A lot of time is spent talking about downstream scope 3 emissions,” he says. “But as we continue to see it, it is far easier to reduce supply of hydrocarbons than it is reduce demand for them.

“Producers have limited ability to influence demand and consumers have limited near-term alternatives, but higher energy prices can quickly erode public and political support for the energy transition.”

What oil companies actually control are emissions associated with production, transmission and processing, and power generation associated with these activities, he says.

As he notes, the most intensive source of GHG is methane leaks – and while regulation in various jurisdictions is moving at different paces, the cost of addressing methane is “increasingly economic” and monitoring for leaks is emerging best practice.

While sorting out methane will not get producers to net zero, it has a “pretty dramatic improvement” on equivalent emissions, he says.

Producers can also address power generation issues by installing renewables, even in remote sites previously inaccessible to the grid.

Addressing these issues, Manley says, can result in “meaningfully reduced emissions” for production.

The question then becomes incentives. Manley highlights an announcement by the largest LNG importers of plans to start demanding visibility of emissions associated with cargoes.

“I would speculate that utility buyers of LNG will start offering a premium for lower emission cargoes. If they can lower their upstream scope 3 emissions by double-digit percentage points for a few cents per Mcf, the implications for their overall emissions could be considerable.”

He added: “As the economic incentive to green production increases, the benchmark greens. When the benchmark greens, the green premium gives way to something very different – the grey discount.

“Over time there is a risk that oil and gas producers that don’t make the investments to green production will see customers switch suppliers or demand a discount in order to meet their decarbonisation commitments.”

While admitting that he is “extrapolating slightly” with his predictions, Manley highlights similar sequences of events in real estate and European steel.

“There’s no reason why that chronology of events wouldn’t come to the energy markets when customers start to discriminate in favour of lower carbon alternatives.”