This fall saw an accelerating trend of global pension funds divesting from oil, gas and coal and aligning their portfolios with a safer climate future. Yet Canadian pension funds continue to buck the trend, remaining saddled with carbon-intensive portfolios, fossil fuel infrastructure assets, and board members with close ties to the oil and gas industry. The most recent example came on Wednesday, when the Canada Pension Plan (CPP) announced a new investment approach that will see the fund help “essential, high-emitting businesses decarbonize” while explicitly removing the critical tool of divestment from its toolkit.
As of December 1, at least 177 global pension funds had investment policies that partially or completely excluded fossil fuels. In October, Europe’s biggest pension fund, the Netherlands’ ABP, announced that it would divest from fossil fuel producers. Three New York City pension funds committed to net-zero by 2040 and pledged to invest US$37 billion in climate solutions by 2035. And in September, Sweden’s AP1, which already excludes fossil fuels, launched a fund to facilitate the whole-economy net-zero transition and reduce absolute emissions.
This year also saw Canada’s big public pension funds say that they’re getting serious about the climate emergency, pushed along by a growing number of concerned beneficiaries and sponsors demanding action. But if they want to emerge as global leaders, these pension giants need to rapidly deploy credible climate-safe investment strategies and stop gambling Canadians’ retirement savings on fossil fuel expansion.
Canada’s 10 largest pension funds alone have more than $2 trillion in assets under management. How these funds invest our pensions is critical to achieving the Paris Agreement goal of limiting average global heating to 1.5°C above pre-industrial levels. Avoiding climate catastrophe is critical to pension funds’ fiduciary duty to maximize returns and invest in the best long-term interests of millions of Canadian beneficiaries.
Canadian pension funds are using sophisticated tools to measure their portfolio carbon footprints, testing their portfolios against different global heating scenarios, setting targets to reduce portfolio emissions intensity, and sharpening their shareholder engagement strategies to prioritize climate action. They’re also allocating billions of dollars toward climate solutions, such as renewable energy and clean technology. For example, the Ontario Teachers’ Pension Plan (OTPP) now has 14% of its portfolio, or more than $30 billion, invested in what it considers climate-friendly assets.
In recent years, some of Canada’s largest pension funds have also been quietly offloading their fossil fuel stocks. CPP and Caisse de dépôt et placement du Québec (CDPQ) have reduced the value of their fossil fuel equity holdings by more than 90% over the last 10 years. In November, OMERS (Ontario Municipal Employees’ Retirement System) and the Investment Management Corporation of Ontario established net-zero-by-2050 goals, joining OTPP and CDPQ in the net-zero club.
How these funds invest our pensions is critical to achieving the Paris Agreement goal of limiting average global heating to 1.5°C above pre-industrial levels.
These are all laudable signs of progress, but no Canadian pension fund has gone nearly far enough to address the unprecedented financial risks of climate change and align its portfolio with a safe climate future. The recent Canadian Pensions Dashboard for Responsible Investing report found very few examples of global best practices when it comes to climate risk and responsible investing.
No Canadian pension fund has published a comprehensive investment strategy that credibly aligns its portfolio with climate safety. Apart from the CDPQ’s commitment to divest from oil producers by the end of 2022, none have formalized an exclusionary screen on fossil fuels. CPP continues to explicitly rule out divestment, even though its public equity portfolio’s cumulative return would be 17.08% higher had it divested 10 years ago. It’s encouraging to see CPP’s focus on critical decarbonization pathways for hard-to-abate industries, but it doesn’t seem to grasp that there is no credible or profitable pathway to zero emissions for companies whose core business is exploring for, extracting, refining or transporting fossil fuels. And it doesn’t help that CPP’s board of directors has close ties to the oil and gas industry.
Even as the International Energy Agency warns that fossil fuel expansion must end immediately to salvage a 1.5°C world, Canadian pension funds invest billions of our retirement dollars in companies and assets that expand oil, gas and coal infrastructure. In many cases, our pension funds own the pipelines, oil and gas companies, and offshore gas fields themselves.
The oil and gas industry’s net-zero commitments lack credibility. Yet Canadian pension funds cling to a misguided belief that “having a seat at the table” means they can “engage” their way to changing a fossil fuel business model that is fundamentally incompatible with climate safety.
ABP, on the other hand, said it was divesting because it saw “insufficient opportunity for [it] as a shareholder to push for the necessary significant acceleration of the energy transition at these companies,” opting to focus its engagement on the utility, auto and aviation sectors instead. In divesting from oil sands companies this year, the New York State Common Retirement Fund (NYSCRF), the third-largest pension fund in the United States, concluded that those companies “do not have viable plans to adapt to the low-carbon future” and “pose significant risks for investors.”
If Canada’s pension funds are serious about protecting our retirement savings and investing in a safe climate future, there’s no more time for greenwashing and incrementalism. They must catch up with their global peers and listen to the growing number of beneficiaries demanding change: shift capital out of high-risk fossil fuel assets and into profitable climate solutions, crack down on company greenwashing, and dramatically scale up investments in climate solutions.
Patrick DeRochie is the senior manager for Shift Action for Pension Wealth and Planet Health, a charitable project that tracks the fossil-fuel and climate-related investments of Canadian pension funds and mobilizes beneficiaries to engage their fund managers on the climate crisis.