Adam Scott is director and Patrick DeRochie is senior manager for Shift Action for Pension Wealth and Planet Health.
Last month, the Canada Pension Plan Investment Board (CPPIB) released its 2022 Report on Sustainable Investing, highlighting its commitment to be net-zero by 2050 and its engagement strategy to pressure companies to manage climate risks. Our $523-billion national pension manager is making big promises to decarbonize its portfolio by making large investments in climate solutions, pledging to report its absolute emissions, and using its influence and capital to help transition high-carbon industries.
It’s potentially a smart approach, but it stands in stark contrast to public commitments CPPIB officials have made to continue investing in fossil fuels.
At the end of September, Richard Manley, the head of sustainable investing at CPPIB, told The Globe and Mail that we could see “Big Oil become Big Energy, but also no-carbon oil over time.”
This comment should be a red flag for Canadians concerned about the security of their pensions and the stability of our climate.
It’s part of a broader argument that financial institutions should continue to flow capital into the oil and gas industry indefinitely, in spite of pension funds’ fiduciary duty to invest in members’ best long-term interest and climate commitments to reach net-zero emissions by 2050. For example, CPPIB said earlier this month that it will “support conventional energy companies that are committed to reducing their emissions and are well positioned for the energy evolution.”
Many emissions-intensive industries – like cement, agriculture, buildings, transport and utilities – have credible, profitable pathways through the energy transition, but the oil and gas sector does not.
Manley also said that “we’re already seeing Big Oil become Big Energy,” but this belief is mistaken. Five of the global supermajors are spending around US$750 million annually on greenwashing while allocating just 12% of capital expenditures to “low-carbon” activities, according to think tank InfluenceMap. Canada’s six largest oil and gas producers are making record profits but failing to invest significantly in emissions reductions while lobbying to undermine ambitious government climate policies.
The notion of “no-carbon oil” is absurd – a marketing attempt to obscure reality. Crude oil is composed of long chains of carbon strung together. It’s consumed primarily via combustion to extract energy, releasing that carbon into the atmosphere in the process. Global production and the use of 100 million barrels of oil per day is a leading cause of the climate crisis.
The underlying argument that institutional investors like CPPIB should continue to flow capital into oil and gas companies to finance carbon-cutting innovations sounds reasonable – until you consider reality. The technologies available to reduce oil and gas emissions have to date proven ineffective, unreliable, expensive and unavailable at the required scale.
The leading proposed solution, carbon capture utilization and storage (CCUS), has not measured up to hype, with oil companies unwilling to invest profits into this expensive technology that increases production costs. CCUS may eventually prove important for hard-to-abate sectors like cement or fertilizer, but better, cheaper, zero-carbon substitutes for oil and gas already exist.
Even if CCUS somehow became inexpensive, scalable and effective, it cannot address oil and gas life-cycle emissions. There’s no taking the carbon out of the barrel. The overwhelming majority of emissions are the result of using oil and gas products as designed – for combustion. Depending on the blend, between 70 and 80% of the carbon pollution from a barrel of crude comes from the tailpipe.
Disruptive technologies and new policies are already destroying oil demand, with an estimated six million electric vehicles expected to be sold in China alone this year. There is little reason to believe that a market for non-combustion uses of crude might arrive at scale in time to stop the industry’s decline. Optimistic marketing around “bitumen beyond combustion” that could drive future demand growth for oil-sands production lacks credibility, considering that only 7% of crude oil consumed in the United States is for non-combustion use.
CPPIB reported this summer that it has $21.72 billion invested in fossil fuel producers. It is deeply entangled with the fossil fuel industry through its board and staff. A long-time member of CPPIB’s global leadership team is now CEO of the Canadian Association of Petroleum Producers.
As the Intergovernmental Panel on Climate Change and the International Energy Agency have made clear, limiting global heating to 1.5℃ requires an immediate end to fossil fuel expansion and a rapid phase-out of production. The Glasgow Financial Alliance for Net Zero and the Investor Leadership Network already provide investor guidance for the responsible phase-out of high-emitting assets.
CPPIB’s mandate, to invest the CPP funds to achieve a maximum rate of return without undue risk of loss, does not involve assuming extraordinary climate-related financial risks to prop up an industry facing structural decline. Fossil fuel companies are desperate to preserve their business model and prolong the use of oil and gas, but our pension capital cannot be their lifeboat.
