Analysis of UPP's Climate Stewardship Plan
Last week, Ontario’s University Pension Plan (UPP) released its Climate Stewardship Plan. The plan represents one of the strongest approaches to climate-related engagement and stewardship in the Canadian pension sector, reaffirming UPP’s position as a climate leader. But UPP shies away from taking the necessary and Paris-aligned step of excluding fossil fuels from its portfolio, something that its members, including sustainable finance experts and climate scientists, have demanded since the plan’s inception.
Here’s our brief analysis of UPP’s new Climate Stewardship Plan:
UPP stands out from other pension funds with its clearly articulated expectations.
UPP is engaging 27 companies with the express goal of securing Paris-aligned commitments with accompanying near-term and interim emissions reduction targets (including scope 3 emissions where material). UPP could enhance the transparency, accountability and effectiveness of its engagement efforts by disclosing to its sponsors, members and stakeholders which companies it is engaging. We strongly urge other Climate Engagement Canada (CEC) participants to be equally clear and public that they expect engagement focus companies to be Paris-aligned. Some CEC participants themselves have yet to make Paris-aligned commitments.
Timelines and escalation still need some details added.
UPP’s Stewardship Plan covers 2023-2025 and includes escalatory proxy voting intentions, including communication of UPP’s votes to company management, pre-declaring votes “for one or more climate-related ballot item,” and focusing on companies’ actual climate-related performance, not just disclosure. However, UPP hasn’t made clear the timeline by which its engagement efforts require companies to deliver results. By when does UPP expect companies to have Paris-aligned plans in place? By when will UPP begin escalation if expectations aren’t met? What happens after 2025 if companies continue to fail to comply?
UPP includes banks as one of three focus engagement categories.
This focus demonstrates that UPP understands that the financial system plays a crucial role in a safe climate future: finance can either lock-in fossil fuel infrastructure and runaway climate impacts, or it can lay the foundation for a zero emissions economy. We encourage other Canadian pension funds to follow UPP’s lead and focus their engagement on banks that are financing projects and companies that are prolonging and expanding the use of fossil fuels and undermining the retirement security of their members.
UPP’s planned engagement with oil companies is de facto laying the groundwork for divestment.
UPP will make “targeted written requests” for information about oil companies’ alignment with the Climate Action 100+ (CA100+) or Climate Engagement Canada Net Zero Benchmarks. No oil companies meet the CA100+ or CEC Net Zero Benchmarks, nor do any oil companies have profitable pathways to meet these benchmarks. It is difficult to imagine how UPP’s climate experts believe the responses they receive will demonstrate anything other than that these oil companies have no pathway to Paris-alignment other than a managed decline of production. These companies do not belong in the portfolio of a pension manager committed to net-zero emissions by 2040, but UPP shies away from committing to escalate to divestment, saying that it will “evaluate the responses (it) receive(s), and refine UPP’s position on ongoing investment in these companies as appropriate.”
UPP commits to advocating for policies and regulations consistent with the goals of the Paris Agreement, including mandatory climate and transition plans.
Every pension fund hoping to generate returns in 2050 should be loudly, publicly and urgently advocating for Paris-aligned laws, policies and regulations. For example, UPP and BCI already made a joint submission regarding the proposed emissions cap for the oil and gas sector. Other public pension managers should be seeking opportunities to push for Paris-aligned policy to prevent policy lurch and provide a stable regulatory environment that incentivizes and protects climate-aligned investments as we transition to a zero-emissions future.
Next up:
UPP will release its Climate Transition Investment Framework in December. UPP members will be watching to see if UPP puts credible Paris-aligned parameters in place.