The Canada Pension Plan (CPP) is one of the world’s largest public pension funds, with $434.4 billion in assets under management as of June. The mandate of the investment board that runs it (CPPIB) has been to manage funds in the best interests of Canadian CPP contributors and beneficiaries (Canada’s retirees) and to maximize investment returns – all without undue risk of loss. As CPP Investments CEO and president Mark Machin recently observed, “Our investment mandate and professional governance insulate our decision-making from short-term distortions and gives us license to help shape the long-term future.”
However, our Canada Climate Law Initiative analysis of CPPIB’s disclosures calls into question the kind of future that it’s helping to create. In our report, Troubling Incrementalism, we found that CPPIB was heavily invested in six high-carbon, billion-dollar investments, both in Canadian oil sands and in hydraulic fracturing in the United States. In four of the six cases examined, CPPIB established the companies in question, investing billions of dollars and putting CPPIB employees and former employees on the boards of the companies it had created.
The report raises questions about whether CPP Investments should continue to support the resource-intensive Canadian economy as it is now – financially risky and inconsistent with the low-carbon economy – particularly now that the federal government has committed to net-zero emissions by 2050. CPPIB’s investments in oil sands and fracked gas lost 23% last year, making Energy and Resources its worst-performing asset class. If CPPIB is projecting losses for a decade or more in an investment class, shouldn’t it be making long-term investments in new technologies, companies and future prospects?
Legal research by CCLI found that Canadian courts, regulators and investors now recognize that climate change poses systemic financial risks and should be addressed accordingly. Pension trustees also have fiduciary obligations in terms of intergenerational equity; shouldn’t CPPIB’s investments support industries of the future that will create the jobs, infrastructure and growth today that Canada will need to become a thriving economy in the 21st century?
Addressing concerns raised by CPPIB’s carbon-intensive holdings is not simply a matter of divesting from high-carbon investments. It’s a question of asking CPPIB to stop its direct support of expanded oil sands development, and “fracking” in the U.S., and asking it to start putting its money and managerial expertise to work creating companies that will expedite Canada’s transition to a lower-carbon future.
Over the past months, a number of promising studies have shown that there are significant economic and environmental opportunities in Canada from investments in a low-carbon economy, from energy retrofits for existing buildings, to investments in electric vehicle infrastructure, to scaling up nature-based solutions. These are industries where CPPIB’s financial sophistication and dedicated assets could well be brought to bear in service of developing new opportunities while supporting the transition to a low-carbon economy. The recently launched Green New Bill campaign calculates that Canada could see $308 in returns to the economy over the next decade for every $20 the federal government invests today through existing arm’s-length institutions charged with a fiduciary duty to Canadians.
We contend that it is time to have a serious discussion about the role of a national public pension fund in its home country. We invite CPP Investments to engage with contributors to and beneficiaries of CPP in a careful discussion of what its responsibilities are to support the government’s transition policies. If CPP Investments contributes to the development of low-carbon solutions, it could help to unlock purely private capital through de-risking and co-investment strategies and could provide the kinds of venture capital long missing in the Canadian economy.
We urge CPPIB to take seriously its power to reshape the future into which Canadians will retire.
Professor Cynthia Williams is chair of business law at Osgoode Hall Law School, York University. She is co-principal investigator of the Canada Climate Law Initiative along with Dr. Carol Liao and Dr. Janis Sarra of the Peter A. Allard School of Law, University of British Columbia.