The Caisse de Dépôt et Placement du Québec and the Canadian Pension Plan Investment Board’s investments “do not reflect the action needed to address the scale of the climate crisis,” according to a new report by the Canadian Centre for Policy Alternatives.
The report, which reviewed the two organizations’ oil and gas investments between 2016 and 2020, found the CPPIB increased its investments in oil and gas sector companies by at least 7.7 per cent. Though the Caisse decreased its shares in the sector by 14 per cent during that time, its investments in fossil fuels were 52 per cent more than the CPPIB at the end of 2020.
“In both cases, the pension plans’ investment patterns do not reflect the action needed to address the scale of the climate crisis. They also point to the overall ineffectiveness of green investment policies that do not lead to concrete reductions in fossil fuel investments,” wrote the authors — Jessica Dempsey, assistant professor in the University of British Columbia’s department of geography; James Rowe, associate professor in the school of environmental studies at the UVic; Katie Reeder, a recent graduate from the department of history at UBC; Jack Vincent, a graduate of UBC’s Vancouver school of economics; and Zoe Yunker, a Vancouver-based journalist and researcher.
The report also criticized the pension organizations’ decisions to invest in a number of companies that have been involved in denying the role of human carbon emission in climate change, the obstruction of environmental policies, the destruction of the environment or the dispossession of Indigenous lands. “We also find that both pensions are heavily invested in companies that are members of the Canadian Association of Petroleum Producers, which has long obstructed the energy transformation needed for Canada to stay within its commitment to 1.5 degrees Celsius global warming.”
While the authors limited the scope of the research to covering investments made by Canada’s two largest pension investment organizations, the decision wasn’t based on a belief that the Caisse and the CPPIB’s relationships with the fossil fuel sector is unusual. Instead, these two organizations were targeted because they disclose more information about investments than their peers.
Dempsey says this lack of transparency makes it difficult for the public to gauge the overall effectiveness of pension investments in the fight to lower carbon emissions. “We call for pension plans to disclose all their investments to the public, including but not only those in the fossil fuel sector. But there is also a huge role for governments in mandating Canadian pension funds to disclose their investments because Canadians have a right to know if their hard-earned money is fuelling climate change.”
The adoption of more transparent disclosures was among a list of recommendations that report made for the pension sector. It also recommended that pension funds create plans to phase out all fossil fuel investments and called for capital currently invested in fossil fuels to be used toward renewable energy resources.
According to Rowe, pension members have a role to play in encouraging their pension plans to divest from businesses involved in the production of fossil fuels. “Shiftaction.ca is doing excellent work in this regard. I would go to their website and sign their pledge. The organization SumofUs has also started a petition asking the CPPIB to take the climate crisis more seriously.”
In a statement, Frank Switzer, managing director of investor relations at the CPPIB, noted the premise of the report is misleading given that year-to-year exposure to any single sector is meaningfully determined by fund growth. “That means the fund’s exposure to oil and gas has declined from 3.6 per cent to 2.8 per cent during that period of time. During the same period, our investments in renewables, such as wind and solar, grew from a negligible amount to 1.7 per cent of the fund.
“We require the companies in which we invest to have viable transition strategies and we’re holding them to account through our voting and influence,” added the statement. “At the halfway mark of this years’ proxy season, we voted against 44 directors whose companies we determined did not show an appropriate plan to address climate change.
“We disagree with any simple conclusion that investing across the total energies spectrum is inconsistent with the necessary efforts to address the significant challenges of evolving the global economy to lower emissions. It must happen and the sophisticated array of solutions from across the spectrum will help make it so.”
In a statement, Maxime Chagnon, head of global media relations at the Caisse, pointed to measures taken by the organization to make its investments carbon-neutral by 2050. “Our plan was to increase our low-carbon investments by 80 per cent between 2017 and 2020. After launching our strategy in 2017, we quickly surpassed our forecast for investments in low-carbon assets. Since 2018, we have raised our target to $32 billion, or more than 80 per cent by 2020. As of Dec. 31, 2020, our portfolio of low-carbon assets was $36 billion, double the value of investments compared to 2017.
“On our exposition to oil production, it’s been significantly reduced over the last decade — by 50 per cent since 2017 — and it now represents about one per cent of our overall portfolio,” added the statement. “If you look at these numbers and our strategy, the final destination is clear.
“This carbon-reduction strategy covers our entire portfolio and not just one specific asset class and has brought us to add a carbon component in the variable compensation of our teams, an incentive that has proven to be very effective to reach our objectives. We are one of the only major investment fund in the world to have adopted such measures.
“Lastly, we have to be mindful that it is a transition. In that perspective, we are actively engaging with companies and asset managers in our private asset portfolio, as well as in public equities as evidenced by the shareholder proposal that we co-filed to request better disclosure of climate matters by Berkshire Hathaway. Putting emphasis on decarbonizing the real economy and strong engagement with companies in portfolio is the approach that is recommended net-zero investor groupings, including our global partners in the [United Nations]-convened Net-Zero Alliance.”