This year, we asked Brookfield to disclose the criteria it uses to determine asset eligibility within its transition-labeled funds. Its three transition funds, having raised tens of billions of dollars, could mark the kind of investments needed to drive the energy transition, while offering investors access to growth opportunities in the transitioning economy.
But, the funds currently lack any mechanisms which ensure that capital allocated to transition opportunities are invested in genuine alignment with the energy transition, or with net zero. There are no internationally recognized best practices identified in the funds’ guiding document, nor any explanation of how specific assessment mechanisms are applied. There is no mention of lifecycle emissions assessment, nor carbon lock-in.
This leaves the door open for misaligned investments. LNG is of particular concern. Brookfield boasts a considerable, and growing, gas portfolio, and Brookfield Infrastructure CEO has falsely referred to LNG as a transition fuel. This follows a wider trend of financial institutions justifying massive LNG investments, despite holding climate commitments, by promoting LNG as a transition fuel. This is despite the fact that its high lifecycle emissions profile and methane leakage rates render it just as carbon-intensive as coal, and as it faces significant demand risk due to its high cost profile, and as countries continue to execute transition plans.
Investments like those in LNG infrastructure which have no place in a decarbonized economy, and which require decades of sustained buyers to be profitable, present significant transition risk to investors aiming to invest in transition growth opportunities.
This is what our proposal aimed to achieve. If Brookfield were to develop a comprehensive set of eligibility criteria, committing to abiding by credible decarbonization pathways, it would protect against transition risk and reputational risk. Fund investors would receive assurance that their investment goals are being honoured, and their own climate commitments respected. Shareholders could be confident that Brookfield’s transition reputation would not be undermined.
While our proposal did not pass, we will continue to engage with Brookfield to ensure its transition funds are credible transition investment vehicles. This also speaks to the need for a science-based green and transition taxonomy in Canada. While Brookfield’s funds are the first of their kind in the Canadian space, capital continues to flow into the space. A credible taxonomy would offer investors confidence that their transition-labeled investments are not diverted to fund fossil fuels.
