Climate Pension Quarterly - Issue #16
Petro-politics can’t change climate reality
An early wildfire season has begun its heartbreaking destruction across Canada. The smoky skies, anxious evacuees, and threatened Indigenous communities remind us that despite the climate denial south of the border, despite oil and gas companies in Canada clamouring to be “turned loose”, and despite a new Carney government sending mixed signals about energy projects, nothing about the harsh reality of climate science has changed.
The Canada Pension Plan Investment Board (CPPIB) has abandoned its net-zero commitment-- but that hasn’t changed the fiduciary imperative to manage climate-related risks, nor has it changed the reality that climate change could become a global economic disaster, rendering pension funds unable to fulfill their obligations to beneficiaries.
On the heels of a new federal government, simmering tensions between the provinces, and a broken and unstable relationship with the United States, some of Canada’s political and economic leaders are flirting with the dangerous idea of building new oil pipelines. But that hasn’t changed the fact that a worsening climate crisis and an accelerating energy transition have left investors and corporations unlikely to invest in building expensive pipelines that wouldn’t come online until after the global oil market has peaked and begun its terminal decline.
The federal government is displaying an enthusiasm for greenlighting “projects of national significance”-- but that hasn’t changed the fact that Indigenous nations are once again facing the brunt of climate-fueled unnatural disasters. To date, the government hasn’t demonstrated how it intends to honour their right to free, prior and informed consent as it moves to fast-track projects.
The fossil fuel industry narrative is getting a lot of airtime in Canada right now, and pension funds will be challenged in their efforts to make smart investment decisions that safeguard their members’ retirements. For example, institutional investors may be presented with offers to buy the Trans Mountain pipeline, but they must remember that locking in fossil fuel infrastructure in a future of worsening climate change and declining oil demand is a bad bet. Pension funds may be courted to pony up funds for carbon capture and storage, but they must be cognizant of the risks of investing in an unproven, uneconomical, ineffective technology that prolongs the use of fossil fuels. Investment managers may be tempted to invest in gas pipeline infrastructure with the promise that it can be easily repurposed to transport hydrogen: it can’t.
When five of Canada’s largest pension funds have board members who also sit on the boards of fossil fuel companies, it’s also easy to imagine that the political moment creates pressure for pension fund leadership to peddle oil and gas industry talking points. In this context, it was disappointing, but not surprising, to hear OMERS’ CEO falsely claim in April that the pension fund’s oil and gas equity holdings have “the best long-term climate positions” (they don’t), or to hear in May an executive from the Alberta Investment Management Corporation call fossil gas a “long-term transition fuel” (it’s not). Executives at the Canada Pension Plan Investment Board, meanwhile, have a multi-year headstart when it comes to repeating demonstrably false oil and gas propaganda.
In contrast, the Caisse de dépôt et placement du Québec (CDPQ), Investment Management Corporation of Ontario (IMCO) and University Pension Plan (UPP) stood out this quarter for using their annual reports to reiterate their commitment to the energy transition-- which means a safe climate future for their members.
CDPQ’s board chair wrote in the Quebec public pension manager’s annual report that the board “shares CDPQ’s convictions and supports its efforts to contribute to the necessary energy transition, especially since the organization has amply demonstrated that this can be done to the benefit of its depositors."
An interview in IMCO’s annual report included the investment manager’s CIO saying that "The global policy environment may have shifted on sustainability trends like the clean energy transition, but the fundamentals remain compelling…".
And UPP’s annual report reminded beneficiaries that “to stabilize our climate, GHG [greenhouse gas] emissions need to approach, and likely be lower than, zero,” and that the fund’s climate action commitments are “based on scientific imperatives to reduce GHGs, our investment beliefs, feedback from UPP’s members, and our role as an investor to support the transition to a resilient, net-zero world.”
In this edition of the Climate Pension Quarterly, we cover both the good and the bad climate and energy updates in the annual reports from six pension funds, recap recent investment transactions in fossil fuels and renewable energy, bring you news from pension fund portfolio companies, and provide an overview of climate-related votes at recent annual general meetings at Canadian banks.
-Laura McGrath, Senior Manager, Shift
P.S. If Canada’s climate-confused political discourse has you wondering about the net-zero-alignment of oil and gas investments, check out Carbon Tracker’s April report, Paris Maligned III. The report finds:
No major oil and gas producer comes close to being Paris-aligned, and many have regressed in the past year.
The analysis “underscores doubts that the sector is able or willing to set itself on a pathway to align with the Paris Agreement goals” and said that investors with climate mandates “will need to question continued positions in these companies”.
Mainstream investors concerned solely with financial return should take note of rising transition risk exposure in the sector. Despite Trump’s support for oil and gas production, demand for these fuels faces structural decline.