• Since 2017, our Policy – Sustainable Investing requires that we include climate change considerations in our investment analysis and approval process, as well as in integrating risks related to ESG factors. The Sustainability team develops this policy, which is then approved by the Executive Committee, followed by the Board of Directors.
• In addition, to ensure oversight of our sustainable investing governance, the Executive Committee reports semi-annually to the Board of Directors, based on sectoral strategic plans, risk mapping and the Climate Strategy.
• In 2018, the Board of Directors took a strong step by linking the incentive compensation of all employees, including the members of the Executive Committee, to the achievement of climate targets. We are one of the first global institutional investors to adopt such a measure.

• The climate attributes (risks and opportunities) of investments are subject to the same governance as our other investment criteria. They are incorporated into the due diligence review of investments and into our portfolio monitoring. These issues are addressed in specific sections of the investment approval and reporting documents. Particular attention is paid to the physical risk incurred through real assets (infrastructure and buildings) as well as to transition risk.
• Working in collaboration with the entire organization, the Sustainability team closely monitors the annual climate targets of our specialized portfolios. These analyses are submitted to the various committees on which CDPQ executives sit, including the Investment-Risk Committee (IRC).
• In 2021, a transition risk analysis of the portfolio was carried out by the Sustainability team in collaboration with Risk Management for presentation to the IRC. This analytical framework is now used in the due diligence review of certain new investments. Overall exposure to this risk is also monitored, and was updated in 2023.
• Close attention is paid to data quality. Since 2021, a carbon certificate has been added to these extra-financial data, which now benefit from controls similar to those applicable to financial data, including external verification.

Physical risks

• In 2020, we began an innovative partnership with two Canadian peers and The Climate Service to co-develop Climanomics, a tool used to better understand, measure and report on physical climate risks in financial terms. We continued to use this tool after this supplier was acquired by S&P Global in 2022.
• Today, our teams analyze the different types of physical climate risks over the short, medium and long term. The risks are taken into consideration for each new investment in real assets (infrastructure and real estate) as well as for some of our portfolio assets (for more details, see section 5. Management of physical risks).

Transition risks

• Since 2021, for certain new investment opportunities, we analyze the company’s business model and its exposure to transition risks, based on the materiality of the risk and the liquidity of the security, as well as the following factors:
  • Regulatory or political action (carbon pricing, subsidies)
  • Technological innovations
  • Market risks (changes in demand for certain products)
  • Lawsuits
  • Reputational risks
• These analyses are extended to the entire portfolio and cover different time periods (for more details, see section 6. Management of transition risks).

Climate-related opportunities

• There are many climate opportunities (for more details, see section 9. Seize opportunities). Internal discussion groups involving various portfolio managers are organized on the transition and related technologies, and our teams continuously look for investment opportunities, both direct and through external partnerships.

• In 2017, CDPQ was one of the first major global institutional investors to adopt a climate strategy covering its entire portfolio. At that time, we set ambitious targets for acquiring low-carbon assets and reducing the carbon intensity of our portfolio.
• In 2018, the Board of Directors took a strong step by linking the incentive compensation of all employees, including the members of the Executive Committee, to the achievement of climate targets. We are one of the first global institutional investors to adopt such a measure.
• To that end, many teams were mobilized, including:
  • Digital Technology (accessibility and analysis of climate data)
  • Finance and Operations (data quality and reporting, green bond issuance)
  • Talent and Performance (training, calculation of variable compensation)
  • Risk Management (risk management, portfolio construction)
  • Communications (internal communications)
  • All investment teams
• In 2019, we also decided to adopt a major objective: to achieve a net-zero portfolio by 2050 by focusing on decarbonizing the real economy.
• In 2021, having far exceeded our intermediate targets set in 2017, we unveiled a new strategy based on four essential and complementary pillars to meet the major challenges inherent in the transition:
  • Hold $54 billion in low-carbon assets by 2025
  • Decrease the portfolio’s carbon intensity by 60% by 2030 compared to 2017
  • Create a $10-billion transition envelope to decarbonize the highest emitting sectors
  • Complete our exit from oil production by the end of 2022
• In addition, we refined our climate risk identification and management tools (for more details, see sections 5. Management of physical risks and 6. Management of transition risks).
• The climate issue is now an integral part of CDPQ’s business model (Figure 16):
  • The investment teams review their strategy each year to capture more low-carbon and transition opportunities as a way to optimize risk management, decarbonization and portfolio construction
  • The Sustainability team supports the investment teams in their climate ambitions, continuously reviewing their practices and refining their risk management tools
  • Climate risks are integrated into the due diligence performed on each new investment and in portfolio monitoring, like all other risks
  • Specific guidelines have been introduced to manage investments in fossil fuels and their value chains
  • The support groups (Digital Technology, Finance, Legal Affairs, Compliance and Secretariat, Talent and Performance, Risk Management, Communications, etc.) meet regularly to ensure that the operational risks related to the Climate Strategy are controlled and managed like all other risks

Figure 16

Factoring climate change into our investment process

• Lastly, CDPQ actively participates in various investor groups involved in the fight against climate change (for more details, see the Leadership section) to keep abreast of new developments:
  • We serve on the Board of the NZAOA, which we co-founded in 2019 to support the decarbonization of the real economy, and we take part in several of its working groups
  • We also co-founded in 2018 and have since co-chaired the ILN, a group of 13 global institutional investors that namely aims to address climate change
  • We also participate in the work of Climate Action 100+, a group of investors whose main goal is to raise companies’ awareness on climate-related issues

Pre-investment

• We analyze the physical risks for each new investment in real assets (infrastructure and real estate) as well as for some of our portfolio assets.
• These analyses use Climanomics (for more details, see section 3. Identification of risks and opportunities) to identify and assess such risks under various climate scenarios and over different time periods.
• The issues that are identified are then analyzed using tools tailored to the specific context of the investment under consideration, which may include discussions with the target company.
• The potential costs generated by physical risks are integrated into the financial analyses of the investment, when relevant. In some cases, these analyses may lead to a decision not to invest.

Post-investment

• An approach similar to pre-investment is taken with respect to our portfolio assets. Once the issues have been identified, we enter into dialogue with the management of the targeted company so that it accounts for these risks and takes appropriate measures. In many cases, this means enhancing the climate resilience of assets, but also interacting with external stakeholders. This is because the physical risks may not only affect the asset but also certain critical inputs to our investment that are managed by third parties (e.g. access roads, key suppliers, public infrastructure).
• More detailed analyses of physical climate risks were performed in 2023, specifically for our Infrastructure portfolio. In all, 1,550 geolocation points were selected, covering 32 files and representing around 90% of the portfolio’s asset value. The analysis considers seven sectors: electricity, telecommunications, transportation, renewable energy, ports, airports and highways. The next step is to open a dialogue with the Boards of Directors of the companies identified as priorities so that they can take action on the issues identified.
• The ILN published a guide in 2021 to encourage portfolio managers to incorporate physical risks into investment decisions and adopt best practices.

Analysis of transition risks

• We have developed qualitative tools to improve the way transition risks are factored into our analyses. These scalable tools are aimed at guiding decision-making according to regulatory, technological and socio-economic developments around the world. They will also enable our teams to ask the right questions when analyzing investment opportunities.
• In 2021, CDPQ conducted a complete review of its investment portfolio across all sectors and asset classes. The transition risks were analyzed based on a framework tailored to corporate business models, by developing scenarios based on realistic assumptions concerning the impacts of the energy transition. Going forward, reviews of our portfolio will be carried out from time to time depending on our new investments and their exposure to transition risks.
• We assess these risks according to four focus areas:
  1. Sectors in which the transition will have a negative impact on product demand
  2. Sectors in which products will need to be adapted during the transition
  3. Emitting industrial sectors with established demand for their products but for which decarbonization is complex
  4. New needs arising from the emergence of industries of strategic value for the future
• Three time horizons are considered:
  1. Short term (<5 years): relatively low and specific risks in certain jurisdictions and companies, analyzed on a case-by-case basis
  2. Medium term (5–12 years): risks of a technological, regulatory or market-related nature or pertaining to carbon pricing, potentially affecting the competitiveness of highly carbon-intensive companies
  3. Long term (>12 years): risks associated with high carbon intensity sectors for which lower carbon substitutes or disruptive technologies exist
• The level of exposure was rated on a 6-step scale, ranging from very favourable to critical.
  1. Very favourable
  2. Favourable
  3. Neutral/low sensitivity
  4. To be monitored
  5. Problematic
  6. Critical
• The last analysis performed as at December 31, 2023 concluded that in the short term, our exposure to transition risk was low, with 4% of the portfolio considered as to be monitored, while 96% of the overall portfolio was low sensitivity or favourable to the transition. In the medium and long term, the percentage of assets with negative exposure to transition risk increases. However, over such horizons, we expect that our portfolio companies will have initiated risk mitigation measures, and that we will have been able to reposition the portfolio to limit our exposure.
• We also completed our exit from oil production, including extraction and refining, as well as from thermal coal mining, which contributes to progress in decarbonizing the portfolio and reducing transition risk.
• In 2023, we voluntarily took part in a transition risk assessment exercise conducted by the Bank of Canada and the Office of the Superintendent of Financial Institutions. The results confirmed that our portfolio is well positioned with regard to this type of risk.
• It should be noted, however, that the methodologies underlying this work remain very approximate. We continue to monitor the market for any improvements to these tools.

Management of transition risks

• We manage transition risk on three fronts:
  1. Our investments in low-carbon assets that reduce the economy’s dependence on fossil fuels
  2. Our investments in assets that actively reduce emissions
  3. Our exit from the oil and thermal coal production sectors
• We have set ambitious low-carbon investment targets, aiming to reach $54 billion by 2025, which is more than three times the amount of such assets we held in 2017. We exceeded this target as at December 31, 2024, with $58 billion in low-carbon assets in our portfolio.
• As at December 31, 2024, $79 billion of our assets under management corresponded to companies with a decarbonization objective aligned with the Paris Agreement and certified by SBTi, and $15 billion were working toward this. Obtaining this certification can take up to two years. When this is added to our low-carbon assets ($58 billion), we have $152 billion in assets aligned with the Paris Agreement.
• Our engagement and shareholder voting activities with public companies are aimed at demanding the implementation of concrete plans and the adoption of decarbonization targets aligned with the Paris Agreement.
• We made our first investments in the energy transition in 2015 and 2017. Our deployment of capital has been conditional to these companies transitioning from a highly carbon-intensive energy source to more sustainable solutions, such as renewable energy. With our support, they have made their mark as some of the first companies in their regions to develop ambitious SBTi-certified decarbonization plans. These are concrete examples of our deployment of constructive capital in transition assets. We have since invested in several companies that have transition plans aligned with the Paris Agreement and are taking action. External consultants are given mandates to certify the decarbonization trajectories of these companies. We now hold $6.2 billion in transition assets.
• We have also completed our exit from oil production, including extraction and refining, as well as from thermal coal extraction and power production, thereby contributing to progress in the portfolio’s decarbonization and reducing its transition risk.
• These combined actions have enabled us to continue our efforts to decarbonize the portfolio. In 2024, we reduced our carbon intensity by 69% from 2017, surpassing our target of a 60% reduction by 2030, which is in line with our goal of a net-zero portfolio by 2050.

• As a member of the NZAOA, we are determined to work together on defining best practices, influencing our portfolio companies and further driving the financing of existing climate solutions in order to meet our target of decarbonizing the real economy. We also set the goal of a net-zero portfolio by 2050 (for more details, see the Leadership section).
• In 2021, we reviewed our climate targets and published a new strategy, including a target to reduce the carbon intensity of our portfolio by 60% by 2030 compared to 2017.
• In 2023, we began work to better assess companies’ expected emissions and transition risk management trajectories. This tool is currently being deployed internally.
• We are updating our climate policy now that our targets have been reached.

• Through our shareholder vote, we support shareholder proposals aimed at promoting better disclosure of climate-related risks and opportunities, in accordance with TCFD recommendations.
• Moreover, we speak with our portfolio companies’ executives to better understand their climate change strategies and encourage them to adopt best practices. In some cases, CDPQ pools its efforts with peers to maximize its influence on companies.
• As part of various initiatives, we work with other investors to influence the practices of the heaviest emitters and raise awareness among investors and companies on best practices for addressing climate issues.
• In 2022, we voted against the re-election of certain Board members of 10 companies to underscore their lack of ambition on decarbonization. These individuals are responsible for sustainability and climate-related issues on their Boards. We continued our collaboration in 2023 and voted against the re-election of Board members at nine companies (for more details, see the Climate engagement) case study). In 2024, we raised our expectations and voted against the re-election of 21 Board members.
• In 2023, we became signatories to a collaborative engagement campaign that seeks to reduce methane emissions. We sent letters to five of our portfolio companies to encourage them to join this initiative and develop best practices in emission reduction (for more details, see the Commitment to reduce methane emissions case study).

• CDPQ has developed various tools to seize the many climate-related investment opportunities:
  • An ambitious low-carbon investment target ($54 billion by 2025) that is aligned with CBI’s taxonomy (for more details, see the section Our low-carbon assets section).
  • A $10-billion transition envelope to decarbonize high emitters. The envelope targets critical transition sectors such as power generation, materials, transportation and agriculture, and will reduce GHGs in the real economy (for more details, see the Our transition assets section).
  • The Sustainable Land Management mandate, formed within the Infrastructure portfolio, which plans to deploy up to $2 billion by 2026 to acquire forest and agricultural land on several continents. Our investments in this sector are for the long term, in compliance with rigorous sustainability criteria and the highest standards of sustainable development. This mandate helps diversify our low-carbon investments (for more details, see the Our biodiversity initiatives section).

• As part of our investment process, we analyze the role that each component of the energy value chain plays in the transition.
• In order to achieve our carbon intensity reduction target, we have had carbon budgets in place for each portfolio since 2017. All our portfolio managers are required to incorporate them into their investment decisions, on equal footing with their performance objectives. Their variable compensation depends on it.
• Since 2020, as a member of the NZAOA, we are committed to complying with the conditions set out in the Alliance Thermal Coal Position:
  • No investments in or financing of new power generation projects that use thermal coal
  • Withdrawal from projects or companies that are not aligned with a decarbonizing trajectory of 1.5 °C:
    • By 2030 in industrialized countries
    • By 2040 in emerging countries
• In 2021, we also joined the Powering Past Coal Alliance (PPCA), an organization consisting of national and subnational governments, businesses and organizations working to advance the transition from coal to renewable energies.
• Oil production, including extraction and refining, as well as thermal coal mining and power generation, now figure among our investment exclusions. This applies to both new operational or expansion projects and companies in this sector. Investments in or financing of new oil pipelines are also excluded. This covers both public and private companies, as well as projects involving these activities.

• Our main indicators are the carbon intensity (in tCO₂e/M$) of a company or portfolio, under the methodology recognized by the NZAOA, as well as the volume of low-carbon investments (in $B) under the CBI criteria.
• In 2018, CDPQ implemented an IT system that connects its internal databases to those of external climate data suppliers in order to estimate, in real time, the carbon intensity of our various portfolios and measure changes. Particular attention has been paid to the quality of the data and their governance, in order to mitigate the operational risks associated with this disclosure.
• In 2023, we developed a tool that better assesses companies’ climate trajectories, based on existing external work. This tool is currently in the process of being deployed internally.
• Since 2017, CDPQ has been using the carbon intensity metric for a company or portfolio, in accordance with the methodology recognized by the NZAOA. We consider this indicator to be credible, rigorous, easy to understand, derived from a transparent methodology, and useful for decision-making, as it allows us to compare companies and measure our progress, regardless of portfolio size. This includes the vast majority of our emissions, i.e. Scope 3, Category 15, as defined by the Greenhouse Gas Protocol. To calculate our intensity, we only use the Scopes 1 and 2 emissions of our portfolio companies. For now, data on their Scope 3 emissions are either unavailable or not sufficiently reliable to be included in our calculations (for more details, see Table 15 in Appendix 2).
• In 2022, CDPQ conducted a detailed analysis of the Scope 3 GHG emissions data of our portfolio companies. The data represent supply chain emissions and are tied to use of the company’s products. Our analysis showed inconsistent data quality and a low rate of disclosure by our companies and data suppliers (for more details, see Table 15 in Appendix 2). This limits our ability to calculate this data at the portfolio level. Despite the fact that Scope 3 emissions are more difficult for our portfolio companies to control and more complex to calculate, we continue to encourage companies to disclose them and define emission management plans, especially when there are economically viable solutions for reducing them. When the data are of good quality, they can be used in a risk assessment, more specifically in files associated with fossil fuels.
• The businesses selected for the transition envelope are evaluated by our teams and reviewed by independent external experts in order to validate the rigour of their respective decarbonization plans and ensure alignment with the Paris Agreement. The selected companies must meet specific criteria defined by CBI or SBTi, have a proven robust decarbonization strategy, possess an implementation plan, and disclose their progress. The financial exposure and carbon emissions of the companies held in the transition envelope are rigorously monitored to ensure that they meet the required criteria and follow their transition paths.
• In 2022, we benchmarked the methodology we use to calculate the intensity of our portfolio and the transition envelope against the calculation standard of the Partnership for Carbon Accounting Financials (PCAF)¹. CDPQ began disclosing its carbon intensity in 2017, two years before the PCAF standard was published. The benchmarking validated the robustness of CDPQ’s methodology and found that it differed only slightly from the PCAF standard. As a result, we have decided to continue making our disclosures based on the CDPQ methodology.
• In 2023, we published the carbon intensity of our sovereign bond portfolio for the first time. The methodology used to make this calculation complies with the PCAF standard and reflects the latest NZAOA recommendations. Since this intensity is calculated in relation to macroeconomic metrics (gross domestic product), it is not comparable to the corporate intensity metric, which uses the long-term capital employed by a company. It is therefore excluded from our carbon intensity calculation, and is not subject to decarbonization targets. A large portion of the government bond portfolio is a source of cash or duration management, and consists of Canadian or U.S. federal government bonds. We therefore have neither the usual levers nor the necessary decision-making power to manage their intensity.

1. Except for provincial bonds for which we use a federal proxy due to lack of information available.

• The intensity of CDPQ’s portfolio is calculated on a perimeter of $456 billion, or 100% of our exposure (for more details, see Appendix 2).
• In 2024, the carbon intensity of CDPQ’s portfolio was 24.4 tCO₂e/M$, down 55 tCO₂e/M$ from 2017 (for more details, see the Carbon intensity section).
• In order to be aligned with PCAF¹ disclosure standards and the NZAOA recommendations, we have calculated the carbon intensity of GDP associated with our sovereign bonds with and without a country’s emissions corresponding to land use, land-use change and forestry (LULUCF). Sovereign intensity is obtained using the most recent data available at the time of calculation sourced from recognized international organizations such as the United Nations Framework Convention on Climate Change (UNFCCC), the European Commission (EDGAR) and the World Bank. As at December 31, 2024, the intensity of CDPQ’s sovereign bond portfolio, as defined by NZAOA, was:
  • 226 tCO₂e/M$ without LULUCF and 218 tCO₂e/M$ with LULUCF for our return-seeking portfolio
  • 205 tCO₂e/M$ without LULUCF and 184 tCO₂e/M$ with LULUCF for our liquidity sub-portfolio.

1. We voluntarily include by proxy provincial bonds in our calculation to fully cover our sovereign perimeter, even if the PCAF standard is based solely on federal government bonds.

• We disclose the carbon intensity of our total portfolio annually. We also provide information on the contributions made by various sectors to our overall carbon footprint, in addition to their weights in CDPQ’s total portfolio, in billions of dollars.
• The methodology used to measure the intensity and absolute footprint of our assets can be found in Appendix 2 and EY has performed a limited assurance engagement of it (for more details, see Appendix 3). This methodology applies to our portfolio subject to targets, as well as to the transition envelope for which decarbonization targets are set based on each investment.
• The methodology used to measure the absolute intensity and footprint of our sovereign bond portfolio is presented in section 12, which EY also assured to a limited level.

• Our carbon intensity reduction targets are broken down by portfolio based on asset class, time horizon and investment universe.
• In 2024, we reduced the carbon intensity of our corporate portfolio (excluding the transition envelope) by 69% compared to 2017 and increased our low-carbon investments by $40 billion compared to 2017, for a total of $58 billion.
• We now hold $6.2 billion in transition assets and $152 billion in assets that are compliant or near-compliant with the Paris Agreement.