OTPP’s flawed climate strategy would allow new gas investments

For more on OTPP’s updated climate strategy, see this detailed analysis from Shift.

As Canada's largest pension funds grapple with escalating climate-related financial risks, the Ontario Teachers’ Pension Plan (OTPP)’s flawed new climate strategy is a major step backwards that leaves the door open to new gas investments.

In February, OTPP released an updated climate strategy. It incorporates some credible and forward-looking changes, but abandons much of OTPP’s previous ambition and leadership. OTPP seems to have forgotten that its mandate to protect its members’ retirement security is dependent on a stable climate. 

OTPP could have met this moment of spiraling geopolitical turbulence and accelerating climate disruption by laying out a comprehensive plan to engage with policy-makers to bolster climate policy and hasten the energy transition. OTPP might have cited research showing that worsening climate impacts could devastate the economic and financial systems on which pension funds rely to generate returns. In severe climate scenarios, Canadian pension funds could see returns fall by 50% by 2040.

Instead, OTPP walked back its commitment to net-zero portfolio emissions by 2050 and “retired” or removed previously-set interim climate targets.

OTPP’s only significant remaining climate commitment is a new pledge to have $70 billion invested in its “Climate Transition Aligned Framework” by 2030, including assets it considers to be either "climate solutions” or “transition planning”. The framework “strives” to respect Indigenous rights and work toward a just transition. It also integrates a “do no significant harm” principle and states that “climate solutions” investments should not lead to carbon lock-in or the expansion of fossil fuels. 

At first glance, this looks like a big, ambitious commitment – but there are major problems.   

First, the rules for what gets counted towards that $70-billion commitment contain loopholes you could drive a school bus through. Under the “advancing” tier – a category in OTPP’s “transition planning” framework for private assets that have emissions reduction targets – companies that have no credible path for transitioning their businesses could be improperly labelled as “transition aligned”. The inclusion of companies with no transition pathway other than phase-out undermines the credibility of the entire $70-billion pledge.       

For example, OTPP’s new framework could allow gas utilities to be counted toward its $70-billion target, doesn’t prevent new investments in fossil fuel infrastructure like LNG terminals or pipelines, and fails to plan for the required phase-out of OTPP’s existing fossil fuel assets. If a portfolio company doesn’t meet the framework’s “transition planning” criteria following a review period, the company would simply remain in OTPP’s portfolio but not be counted toward the $70-billion target. 

Even the third-party validation of OTPP’s climate strategy raises questions. While it was reviewed and endorsed by the Climate Bonds Initiative (CBI), the strategy doesn’t actually reference any CBI framework for transition finance – undermining the credibility of that endorsement.  

Second, with its focus on private assets, OTPP’s climate strategy excludes between one-third and one-half of the portfolio. Shift’s estimate suggests that by 2030, OTPP’s target of $70 billion in “transition aligned” assets would amount to just 20% of OTPP’s portfolio. The fund also quietly changed its 2026 proxy voting guidelines to weaken climate-related expectations of publicly-traded companies – which are left out of the strategy altogether. 

Third, OTPP failed to spell out how it will use its significant influence to advocate for robust climate policies that prevent carbon lock-in and accelerate the energy transition. This is particularly significant given that OTPP owns companies lobbying against climate policy and has board members who simultaneously hold positions at fossil fuel companies.

It’s especially disappointing to see OTPP abandoning its previous climate ambition when the fund could credibly point to significant progress: OTPP had surpassed its goal to reduce portfolio emissions intensity by 45% below 2019 levels by 2025. The fund had engaged with 32 portfolio companies to complete decarbonization studies and establish emissions targets, bringing OTPP close to its goal of having 67% of portfolio emissions from eligible companies covered by net-zero plans by 2025. OTPP also reached $32 billion in green investments, using credible definitions.  

OTPP’s new climate framework arrives in a moment of fiduciary reckoning for pension funds. The Canada Pension Plan Investment Board faces a legal challenge alleging mismanagement of climate risks. Meanwhile, OTPP’s CEO told plan members that the fund is looking at new investments in liquefied natural gas (LNG), amidst rumours that pension funds are being arm-twisted by the federal government to invest in LNG Canada – the most polluting LNG facility in the world.

Working and retired Ontario teachers are counting on OTPP to provide a safe and dignified retirement, a prospect that looks increasingly out of reach when the institutions that control the flow of capital dial back – rather than scale up – their climate ambitions. 

With so much at stake, OTPP must fix its flawed new climate strategy to meet its long-term obligations to its members.