What it sees as an increasing demand for carbon trading as the world progresses towards net zero is why carbon credits play an important part in Queensland Investment Corporation (QIC)'s $17.8 billion infrastructure portfolio.
“The pricing of carbon will be some form of penalty or reward to transition away from fossil fuel usage. So, if we have an asset which is benefiting from it, and if we have carbon credits, their price is only going to go up and up as we go forward,” said Ravi Sriskandarajah, QIC’s executive director for clients solutions and capital.
“In order to hit the climate change targets, you are going to have to penalise the use of fossil fuels in energy generation more and more, so there's going to be a greater demand for them,” Sriskandarajah said.
Investments in renewable energy infrastructure – wind or solar for example – form a major part of QIC's infrastructure portfolio.
In late November, it committed two pooled funds it manages - the QIC Global Infrastructure Fund and the QIC Infrastructure Portfolio – to net zero by 2040, involving $3.6 billion in global infrastructure investment.
“Our objective is to build portfolios that deliver resilient long-term returns across market cycles, with diversity across geography, lifecycle and three core sectors - transport, energy, utilities and social infrastructure,” said QIC head of global infrastructure Ross Israel in a statement on Nov 25.
In 2021, QIC invested over $2.8 billion globally in the three sectors, including the acquisitions of the Australian business of Tilt Renewables by Powering Australian Renewables, the country’s largest renewable energy generation platform; and CenTrio, a district energy platform in the US.
As the owner of a physical asset, environmental, social, and governance (ESG) factors not only fall into the investment process, but also how to manage the asset to get to a carbon neutral position after purchasing, Sriskandarajah stressed.
And this is where carbon capture becomes a crucial area for real asset investors, not only for asset management, but also for helping investee companies’ transition in carbon footprint, said QIC’s chief economist Matthew Peter.
As part of the effort, QIC is looking at investing in companies that provide platforms to help companies monitor and transition reductions in their carbon footprint in various ways, Peter said.
It also makes thematic investments in agriculture and other nature-based assets as part of its sustainable investment in infrastructure.
QIC is the asset management arm of the Queensland government based in Brisbane. It manages $69 billion of assets as of June 30.
Similarly, JP Morgan Asset Management in June acquired US-based Campbell Global, a specialist in forest management and timberland investing.
Investment in timberland could generate carbon credit for asset owners. For example, an average-height tree can help remove the same amount of carbon produced by a standard car driving for 400 miles, said James Peagam, head of global insurance solutions at JP Morgan Asset Management.
A forest owner can decide whether to sell this carbon credit or to retain for its own corporate purposes to offset the carbon footprint in its own portfolio or at an operational level, Peagam said.
“If you have a surplus [of carbon credits], you can sell that to enhance the return of the asset class…which is quite worthwhile for investors to be looking at, especially under inflation, which is very supportive of [return of] the asset class,” Peagam said during AsianInvestor’s recent Insurance Investment Breakfast Briefing.
He noted that Australasia has been a good performing market for timberland investment in the last decade. The US Pacific Northwest has recovered to the 6-7% range with overall global target returns in the 10-12% range, he added.
This article has been edited to clarify that timberland investments performed well in Australasia, not Australia, and with additions about performance in the US Pacific Northwest.