Canada’s national pension plan is getting poor marks for failing to pursue its commitments on climate change, even as some of the country’s top plans are taking concrete steps to meet their ambitious goals, says the watchdog group Shift Action for Pension Wealth and Planet Health in a new report.
Fund managers have increased their capacity to manage climate-related financial risks in recent years, according to the Canadian Pension Climate Report Card released on February 19. However, few have put in place the necessary strategies to align with a transition to a net-zero economy by 2050. In particular, the authors point to serious deficiencies at the Canadian Pension Plan Investment Board (CPPIB) and the Alberta Investment Management Corporation (AIMCo).
At stake is not only a more stable climate but the health of Canada’s retirement system, which is subject to the myriad financial risks that will accompany global warming and extreme weather events like heat waves, drought and floods.
They have big private equity investments in oil and gas, and they’re constantly saying that it’s essential they stay invested and transition them. But none of those companies have published any credible transition pathway. – Adam Scott, Director, Shift Action
“With their long-term investment horizon and mandate to invest in the best interests of members who won’t retire for decades to come, pension funds’ exposure to the climate crisis is direct and unavoidable,” the report says. “Their assets face unprecedented physical and transition risks, and they will be unable to fulfill their mandates in a world of climate breakdown.”
Shift director Adam Scott says many pension funds in Canada have made good strides in understanding the financial risks posed by climate change and shifting their investments toward the green economy.
AIMCo and CPPIB get dragged down by political meddling
The report card places CPPIB, which had $675 billion under management at September 30, “near the bottom of the pack” with an overall mark of C-.
“CPPIB’s greenwashing and contradictory actions are all the more problematic in light of the fund’s apparent sophistication on many elements of managing climate-related risk,” the report says. A CPPIB spokesman said the public investment board declined to comment.
Shift notes that CPPIB has set no interim targets for its net-zero goal, and it continues to finance oil and gas projects while offering no evidence that the projects have credible, profitable decarbonization options. Many pension managers argue that they need to stay invested to pressure corporate executives to adopt decarbonization strategies, but those corporate efforts have stalled in sectors like oil and gas, Scott says in an interview.
CPPIB officials are “constantly saying things that are completely patently untrue about their own companies,” Scott says. “They have big private equity investments in oil and gas, and they’re constantly saying that it’s essential they stay invested and transition them. But none of those companies have published any credible transition pathway.”
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Scott says CPPIB appears to be supporting investment in the oil and gas sector in order to head off any move by the United Conservative Party government in Alberta to pull out of the national plan and manage its own public pension system.
AIMCo currently manages pensions for the province’s public-sector workers. In its report card, Shift gives AIMCo a failing grade due to its lack of a net-zero commitment and the absence of any interim targets to reduce its carbon footprint or any exclusion of fossil fuel investments.
In November, Alberta Premier Danielle Smith ousted the AIMCo board and appointed former prime minister Stephen Harper as its chair, despite concerns about Harper’s work with a private equity firm that has large oil and gas holdings.
Quebec and Ontario make good progress despite pushback
The highest marks, ranging from B+ to B-, went to the Caisse de dépôt et placement du Québec (CDPQ), which manages many of the province’s public-sector plans, and three fund managers in Ontario: the University Pension Plan, the Ontario Teachers’ Pension Plan and the Investment Management Corporation of Ontario.
Those asset managers all have climate targets that are aligned with the Paris Agreement goals of limiting the increase in average global temperatures to well below 2°C, aiming for no more than 1.5°C. They have interim targets, have communicated the urgency of climate action, and have engaged with companies in which they invest to help drive their transition. Only CDPQ, however, gets top marks for excluding most fossil fuel investments from its portfolio.
Shift notes that global financial institutions are facing political pushback on their commitments to embrace climate-aligned financial strategies. U.S. President Donald Trump and many Republican governors are openly hostile to the climate action by banks, pension funds and other financial institutions. Canada faces an election this year, and the Conservative Party of Canada, which leads in polls, has championed the oil and gas sector’s expansion plans.
There has been a noisy backlash in the financial sector against investment strategies that include ESG – environmental, social and governance – considerations in their asset allocations.
Several U.S. and Canadian banks have dropped out of the industry alliances established at the Glasgow climate summit in 2021, in which they committed to adopt aggressive climate strategies aimed at achieving net-zero status by 2050.
In January, the Bank of Montreal, TD Bank, the Canadian Imperial Bank of Commerce and the National Bank all confirmed they had withdrawn from the alliance. Scott says the banks’ exodus is not unexpected, given they never truly adhered to the alliance’s principles.
However, pension managers have to invest for the longer term, which carries them beyond election cycles and upheavals in the investing zeitgeist. For them, the medium-term risks and opportunities of climate change should be central to their decision-making.
Asset owners speak up for science-based targets
A group of Canadian asset owners issued a statement on February 26, urging banks, pension funds and other institutional investors to recommit to climate action through adoption of science-based targets, the transition of their operations to align with net-zero aspirations, and annual standardized reporting on their progress.
“Climate risks are systemic financial risks,” says the statement from 35 asset owners that include family offices, foundations, endowments, universities and pension plans, representing approximately $53 billion in funds under management. “Financial institutions play a vital role in safeguarding their clients’ long-term savings and investment, including by managing climate risk and capitalizing on the real-economy transition to net zero.”
