Climate change is one of the greatest challenges facing humanity today. Institutional investors in Canada and around the world are increasingly aligning their investments with transition to a lower-carbon future. Marco Fontana, Director, OMERS Infrastructure, comments on investment opportunities, role of investors to emerging trends in the energy transition.
1. The world’s energy system will shift from one based on fossil fuels to one dominated by renewable sources. What are investment opportunities for institutional investors across the value chain in this transition?
Climate change is one of the most pressing issues of our time, and we see the world transitioning to a lower-carbon economy. We believe that capital allocation will be a critical motivator of this transition. The entire energy value chain is evolving to accommodate the transition to cleaner, sustainable power generation. The rapid change in the power generation stack will continue to create investment opportunities for institutional investors.
Investment is required not only in new green generation assets, such as wind, solar and nuclear, but also in energy transmission and distribution networks that need to evolve to meet the challenge of transitioning to a green economy. The way we generate and consume power is changing both front of the meter in wholesale markets as well as behind the meter at the retail customer level. Institutional investors will continue to have opportunities to be part of the change by investing inboth front and behind the meter opportunities, including generation and transmission, and assets including distributed generation, storage and upgraded distribution networks. New asset classes, such as electric vehicle charging networks, will also grow in scale and offer potential new ways to gain exposure to the energy transition opportunity.
2. How do investments in renewable energy and its related sectors align with pension funds’ overall investment objectives?
The pace and scope of the transition to a low carbon economy will largely be determined by government policies, innovation, and technological disruption/adoption. As long-term investors, we see significant opportunities to invest in clean energy and our portfolio is shifting to reflect this.
Opportunities in the renewable energy and related sectors present solid fundamentals and economics, which are expected to generate stable and attractive returns over time, meeting the investment objectives of many long-term investors.
3. What roles do institutional investors (like OMERS) play in the portfolio companies to facilitate energy transition?
For institutional investors like OMERS with investments across the energy value chain, understanding and getting in front of the energy transition trend is an opportunity as well as a necessity. Energy used to be a sector evolving at slow pace
with well established market structures, strategies and players. The amount of disruption brought by the current shift in generation mix, technology improvements and change in consumption patterns require our portfolio company to adapt and think ahead.
We believe that as the world transitions to a lower-carbon economy, there is a vital role for responsible, long-term investors such as OMERS. As investors, we play a role in allocating capital responsive to this change and are partnering with our portfolio companies to find opportunities to evolve business practices and grow sustainably. We actively engage directly with portfolio companies in various ways, and as significant shareholders, we actively participate on the boards of these organizations, whether through our own employees or by appointing independent directors with specialized skills and experience.
4. What regions across the globe present investable opportunities for institutional investors?
The shift away from fossil fuels and the transition to a lower carbon economy presents opportunities in all the markets in which OMERS Infrastructure invests, from North America to Europe and Asia. Our team is committed to continuing to invest and facilitate the shift to clean energy in all the geographies we operate in.
5. What are emerging trends to watch in the energy transition sector for the next few years?
Growth in traditional renewable energy assets, including wind, solar and nuclear, will continue to play a major role in shaping the future of the industry. Key disruptive technologies will arise in power storage, with batteries and hydrogen becoming increasingly important, the electrification of transport and the economy more broadly, and the shift to a more distributed model for power generation and consumption.