But the financing needs and expansion plans of oil and gas companies are incompatible with CPPIB’s mandate to ensure Canadians’ retirement security by investing “with a view to achieving a maximum rate of return without undue risk of loss.”

It should be obvious that achieving this mandate is dependent on stabilizing global temperatures at relatively safe levels. Canadians require a livable planet on which to retire, and climate scientists and energy modellers are clear that limiting global temperature increase to 1.5℃ and avoiding catastrophic impacts to our ecosystems, economy and financial system requires fossil fuels to be rapidly phased down.

This creates a difficult test for our national pension manager. CPPIB needs to tamp down the Alberta government’s efforts to upend Canada’s retirement fund and reassure Albertans that it provides value for money by delivering superior pension returns. At the same time, CPPIB must acknowledge the dire warnings of climate scientists and navigate the accelerating global market forces that are deterring institutional investors from investing in fossil fuels, of which Alberta is a major producer.

CPPIB appears to have flunked this test.

By caving to Premier Smith’s grievance politics and telling Calgary’s business community that CPPIB will continue to accept undue risk of loss in order to prop up an industry facing inevitable decline, Graham undermined the notion that CPPIB is a prudent arm’s-length pension manager that sits above politics.

He also signalled to Canadians that CPPIB is unwilling to make the difficult but necessary decisions to limit the exposure of the Canada Pension Plan (CPP) to increasingly high-risk fossil fuels.

Graham’s Calgary speech came just weeks after the International Energy Agency published its authoritative World Energy Outlook, which sees global demand for all fossil fuels peaking before 2030, under all scenarios, even if governments neglect to further strengthen and accelerate policies to reduce greenhouse gas emissions in line with climate goals.

By pledging to grow its portfolio of oil and gas assets, CPPIB is making an alarming bet on the world failing to limit global heating to safe levels, putting the CPP at risk from an accelerating energy transition and our retirement security at risk from catastrophic climate change. It’s almost as if CPPIB doesn’t understand that every 10th of a degree of temperature increase makes a livable planet less and less achievable.

Graham said in his Calgary speech that CPPIB holds $6 billion in assets in Alberta’s oil and gas industry, whose emissions continue to increase, putting Canada’s climate targets out of reach. He shared the stage with Teine Energy and Wolf Midstream, two Alberta-based fossil fuel companies owned by CPPIB – neither of which have committed to net-zero emissions.

CPPIB’s reluctance to acknowledge the need to phase out fossil fuels might also be influenced by the oil and gas interests prominently represented on its board. Four of the fund’s 12 directors are concurrently directors or executives of fossil fuel companies, including Kiwetinohk Energy, a Calgary-based natural gas producer and gas plant operator; Capital Power, an Edmonton-headquartered gas plant operator; Domo Gasoline, a western Canadian gasoline retailer; and Wajax Corp, an oil sands equipment and services provider. In case CPPIB needs a direct line to the oil and gas lobby, the president and CEO of the Canadian Association of Petroleum Producers is a former CPPIB executive based in Calgary.

Graham claimed that “some of the most responsibly produced conventional energy in the world is in Western Canada.” This is a fictitious line we expect to hear from oil lobbyists but shouldn’t hear from a prudent pension manager.

Greenhouse gas emissions from a barrel of Canadian oil are among the highest in the world compared with other producers. Studies estimate that methane emissions from Canada’s oil and gas sector are at least 1.5 times higher than reported, and in some cases 15 times higher. Recent research from the University of Calgary concludes that Alberta’s inactive and orphaned oil-and-gas-well problem is “an immense environmental and financial crisis” that could cost between $60 and $120 billion to address. Meanwhile, oil sands companies continue to leak toxic tailings into Alberta waterways with near impunity, contaminating ecosystems and exposing downstream Indigenous communities to harmful chemicals. The Alberta Energy Regulator is widely seen to be captured by the oil and gas industry it’s supposed to regulate.

Graham’s speech also included dubious statements about divestment and the pace of transition away from fossil fuels, claiming that the “global investment community has also changed its tune when it comes to fossil fuel divestment.” Similarly, CPPIB’s chief sustainability officer wrote in CPPIB’s 2023 Report on Sustainable Investing that “consensus has consolidated around the belief that the financial system should be empowered to finance the transition to a low-carbon future rather than mobilized to pursue a divestment agenda.”

This “consensus” is imaginary. The financial system must be aligned with a zero-carbon future, and many investors have stopped pretending that it’s possible to finance the decarbonization of fossil fuels. The only credible pathway to zero emissions for oil, gas and coal companies is to phase out production.

Already, investors with nearly US$41 trillion in assets have at least a partial investment exclusion on fossil fuels. In Canada, the Caisse de dépôt et placement du Québec (CDPQ) divested its oil and coal assets in 2022, while Ontario’s University Pension Plan,  OMERS (the Ontario Municipal Employees Retirement System), HOOPP (Healthcare of Ontario Pension Plan), and IMCO (Investment Management Corporation of Ontario) all announced partial exclusions on investments in fossil fuels in the last year. Globally, some of the biggest pension funds in the world exclude fossil fuels from their portfolios, including Europe’s largest pension fund, ABP, the U.K.’s largest workplace pension scheme, Nest, and the U.S.’s fourth-largest pension fund, the New York State Common Retirement Fund.

There are clear financial reasons that global capital continues to flee the oil and gas sector, particularly Alberta’s oil sands. The industry is facing terminal decline, with billions of dollars of oil and gas assets set to become stranded if Canada and the world are to achieve their climate targets. CPPIB is behaving irresponsibly by pretending that Alberta can extract, refine and burn these assets, when an honest conversation is needed about supporting Albertan communities and workers through the transition away from fossil fuels.

CPPIB CEO John Graham’s response to Premier Smith’s Alberta Pension Plan gambit is entirely predictable. But in telling the world that CPPIB will continue to prop up high-risk oil and gas companies whose business model is fundamentally incompatible with a livable future, Graham must ask himself: is CPPIB behaving like a prudent arm’s-length pension manager investing in the best interests of 21 million Canadians or a cheerleader for an oil and gas industry facing inevitable, structural decline?

It’s impossible for CPPIB to be both.

Patrick DeRochie is the senior manager for Shift Action for Pension Wealth and Planet Health, a charitable project that tracks the fossil fuel investments and climate policies of Canadian pension funds and that mobilizes beneficiaries to engage their pension managers on the climate crisis.

The post Canada’s pension plan shouldn’t be a cheerleader for Alberta’s oil and gas industry appeared first on Corporate Knights.

In 2015, the Alberta government announced a phase-out of coal, eliminating coal-powered electricity generation by 2029. This means a lot of energy generation coming off in the next decade, which needs to be rapidly replaced. Over the last few years, surprisingly, utilities have outpaced the regulations in announcing the early retirements of old coal plants and the conversion of many newer plants to natural gas. Recognizing the risk of utilities engaging in a “dash to gas,” Rachel Notley’s NDP government instituted a 30% renewable energy requirement by 2030.

Why worry about a shift to natural gas? The concerns are twofold. First, even though its combustion produces about 50% fewer greenhouse gases (GHGs) than coal, it still produces GHGs. The push for net-zero emissions is happening at all levels of the economy. The Government of Canada has announced that Canada’s entire economy will be net-zero by 2050. In the U.S., Joe Biden’s platform has called for a net-zero electricity sector by 2035 – a mere 15 years away. The projected lifespan of a gas plant is at least 35 years, putting the forecasted closure of the Cascade project in 2058 – incompatible with a climate-transitioning world.

But CO2 is not the only GHG that results from building a gas plant. Natural gas has one main ingredient: methane, which also happens to be a potent GHG. And methane leaks: from the wellhead, from pipelines, from storage facilities. Everywhere. So if the leakage rate is more than 3% of the total methane produced, a gas plant is just as bad for the climate as a coal plant. Alberta has a major methane leakage problem, and recent studies suggest it is grossly underestimated. 

Second, as major GHG emitters, gas plants are subject to a carbon price. At the moment, this expense is zero, since the price is offset by the exact amount of GHGs produced by an efficient gas plant (a full carbon-price exemption for natural gas plants, in effect). Federally, over the next 10 years, this offset drops to zero, so the Cascade plant will likely be exposed to the full impact of a very high carbon price. This makes such an investment risky, at best.

Investors, and in particular pension funds, around the world are increasingly wary of this type of investment. This isn’t just a bad bet for the future; it’s been a horrific bet in the past. A recent study compared returns on fossil fuels versus renewables over the last five years. And surprise! Renewable energy paid back handsomely compared to fossil fuels, and was less volatile. As investors wake to the reality of the carbon transition, this difference will be only more apparent. Mark Carney, former head of the Bank of Canada and the Bank of England, has stated that pension funds that ignore these investment realities risk ending up with portfolios full of worthless assets. And he’s pretty smart.

So not investing in fossil fuels is not only the moral thing to do, it is also the financially wise thing to do.

The people at OPTrust have begun to recognize this. They’ve created multiple reports, with pretty graphs and rosy statements about supporting the Paris Agreement. But this statement rings out: “Emission reduction targets are not today’s objective.” Like many other organizations, they are unwilling to walk the talk.

Ontarian pensioners deserve better, and they should demand it. They deserve investments they can be proud of, that support their growing grandchildren, and that support a survivable planet.

Joe Vipond is an emergency physician in Calgary and the president of the Canadian Association of Physicians for the Environment.

Adam Scott is director of Shift Action for Pension Wealth and Planet Health – an initiative working to protect pensions and the climate by bringing together beneficiaries and their pension funds to engage on the climate crisis. 

The post Why are Ontario pensioners investing in future Alberta stranded assets? appeared first on Corporate Knights.