By Jodi Wildeman, Conor Chell, MLT Aikins.

 

These days, net-zero targets are about more than just protecting the environment. For a growing number of companies, having a credible net zero plan is key to accessing investment capital. 

 

Institutional investors around the world are promising to decarbonize their investment portfolios by investing in companies with sound net-zero strategies. According to a report from EY, 86% of institutional investors intend to invest in companies with aggressive plans to reduce their emissions. 

 

In February, the Canada Pension Plan Investment Board, which manages $550.4 billion in assets on behalf of Canadians, announced its plan to have a net-zero investment portfolio by 2050. CPP joins other pension funds and institutional investors around the world that have made similar pledges.   

 

Retail investors also expect action on climate change. A survey from the Responsible Investment Association found 85% of retail investors in Canada agree that companies should have net-zero plans, and 80% want investment fund managers to engage with companies to reduce their emissions. 

 

Companies that don’t respond to the growing demand for climate action clearly risk losing access to capital. As the pressure on companies to decarbonize continues to grow, carbon capture, utilization and storage (CCUS) projects will be key to achieving net-zero for industrial emitters. 

 

Targets Must Be Meaningful 

 

If your net-zero strategy boils down to feel-good messaging about the environment, you need to rethink your approach. Investors aren’t looking for marketing hype – they expect meaningful, measurable emissions targets when they’re deciding how to allocate capital. 

 

Your plan for achieving net zero must be realistic. Otherwise you could not only lose access to capital, but face potential litigation – as illustrated by the recent case of Shell shareholders threatening legal action against the company’s directors over Shell’s net-zero strategy. 

 

Given this climate, it is essential that large industrial emitters have concrete plans to reduce their emissions. CCUS projects offer a proven industrial-scale application for drastically reducing emissions, and these projects will be essential to many companies’ net-zero strategies going forward. 

 

Tax Breaks for CCUS Projects 

 

To date, the largest impediment to implementing CCUS has been the cost. But high costs can now be offset with a tax credit recently announced by the federal government. 

 

In Budget 2022, the Government of Canada announced a refundable investment tax credit for businesses that incur eligible CCUS expenses. Though enhanced oil recovery projects are not eligible for the tax credit, projects that store CO2 underground or in concrete are eligible. 

 

Businesses will receive tax credit rates of: ​

  • 60% for investments in equipment to capture CO2 from the air 
  • 50% for investments in equipment to capture CO2 from other sources 
  • 37.5% for investments in equipment to transport, store and use CO2 

These tax credits will be available for the 2022 tax year, so investments made this year will qualify. To incentivize businesses to act quickly, the government also announced that it would reduce the tax credit rates by 50% for the period from 2031 through 2040. 

 

The announcement also included plans to publish a CCUS strategy later this year, and a promise to invest $194 million to expand the Industrial Energy Management System to help reduce industrial emissions. 

 

Shared Infrastructure Will Make CCUS More Accessible 

 

The costs associated with CCUS might also be reduced as more carbon capture hubs and CO2 pipelines become operational, allowing multiple CCUS projects to share the same infrastructure. (For more details on CCUS hubs, see the MLT Aikins Energy Playbook