Over the last year, the number of large Canadian pension funds with commitments to achieving net-zero emissions by 2050 rose from two funds to nine, representing $1.8 trillion — or 81 per cent — of total pension fund assets evaluated, according to a new report by Corporate Knights.
The report also found four of the nine pension funds have disclosed interim targets for emissions and sustainable investment allocations. Sustainable investments grew from $163 billion to $276 billion, representing nearly 13 per cent of the pension funds’ $2.2 trillion in assets, compared to seven per cent of $2.1 trillion in 2020.
The Public Sector Pension Investment Board is a leader among all of the funds, with 20 per cent — or $46.5 billion — of its total assets under management invested in sustainable solutions, defined as investments that align with the PSP green asset taxonomy.
Read: PSP Investments lays out details of responsible investment strategy
In terms of carbon emissions, the Ontario Teachers’ Pension Plan reported a substantial 32 per cent reduction in portfolio carbon intensity, while the Ontario Municipal Employees’ Retirement System reduced its intensity by 26 per cent and the Alberta Investment Management Corp. reported an 18 per cent improvement.
The report also found sustainability is being baked into the governance function, with a total of 10 large funds — up from four last year — now tying executive compensation to the achievement of sustainability targets.
“From a risk–return perspective, it’s notable that even the past year’s banner performance of oil and gas stocks wasn’t enough to pull the category out of the dungeons when it comes to total returns over the past 10 years,” said the report. “Most notable of all was the staggering 368 per cent cumulative return — double that of the broad market — generated by the 430 companies focused on providing sustainable solutions, illustrating the high stakes of ensuring that assets are aligned with sustainability mega-trends.
“We look forward to tracking progress in the coming year as more funds add material details and texture to their reporting and targets while increasing allocations to the sustainable solutions that will power future returns and a planet worth retiring on.”
Read: Net-zero transition offering opportunities for Canadian pension sector: report