What lies ahead for the Canada Growth Fund?
Originally introduced in the 2022 federal budget, the Canada Growth Fund (CGF)—the $15 billion financing agency pivotal to Ottawa's clean-economy aspirations—has been shrouded in mystery, causing confusion among clean-tech industry insiders and the heavy industries it aimed to assist in decarbonization.
However, since the CGF was entrusted to public sector pension fund manager PSP Investments earlier this year, it has made rapid progress.
In his first interview as CGF's CEO, Patrick Charbonneau told The Globe and Mail that over 60 potential investments were in the pipeline, with about 20 already prioritized. “There’s nothing better than a deal to explain what you’re trying to achieve,” Charbonneau said.
The CGF faces the grueling task of deploying an unusual mix of financial instruments, including equity, debt, contracts for difference, and offtake agreements, to reduce private sector investment risks in clean initiatives. Simultaneously, it must generate returns to maintain its $15 billion capital.
The CGF's success is also vital for Canada's international competitiveness in transitioning to a low-carbon economy and achieving national emissions-reduction targets. Both the government and PSP's credibility hinge on this financing model, which has garnered international attention, with the UK contemplating a similar approach.
Operational details reveal a team of 14 investors with diverse expertise, drawn from within PSP, to oversee CGF investments. Around two-thirds of 60 potential investments involve major industrial decarbonization projects, including carbon capture. The remaining third focuses on supporting Canadian clean-tech companies in their scaling efforts. The CGF has yet to advance into its third target area: supply chains. This deliberate approach aims to prevent overextending the fund, Charbonneau said.
The goal is to invest the entire $15 billion over five years, Charbonneau said. Initial conversations with industries the CGF intends to assist have begun positively shaping perceptions. The CGF is actively working to facilitate deals, reassuring skeptics.
The mix of deals may involve de-risking industrial decarbonization projects by creating tradeable carbon credits, which may require the use of carbon contracts for difference (CCfDs) or offtake agreements. The involvement of carbon capture projects in the oil and gas sector has sparked debate among environmental groups.
However, CGF's focus on smaller clean-tech companies aims to provide equity or debt to overcome the risk-averse Canadian investment culture that often hampers product commercialization. This is particularly relevant following the suspension of funding for Sustainable Development and Technology Canada.
While CGF's diverse pipeline involves electrification, biofuels, battery recycling, and agricultural technologies, choosing which early-stage companies to support is still a challenge. The fund's mandate dictates investments that the market doesn't adequately support, requiring a shift in PSP's risk tolerance.
“What you will find with investors is they take the tools that they have and get things done,” Charbonneau added. “These are all the risks that we’re used to assessing anyway. Just your appetite for it changes. We’re not immune to having some investment that will not return the capital, but on the portfolio basis that’s the objective.”
