But despite their recent signs of progress on climate risk analysis and reducing the carbon footprint of their portfolios, Canada’s pension funds continue to pursue investing strategies that keep us on the pathway to catastrophic and irreversible climate change and put the savings of millions of Canadians at risk.

First, credit where credit is due. There is growing evidence that the managers of our retirement savings are waking up to the unprecedented risks of climate change.

Canada’s pension giants have acknowledged climate change as a material risk to their portfolios. They have hired climate experts, taken early steps to understand the risks of the climate crisis and are measuring the baseline carbon footprint and carbon intensity of their portfolios. They are also starting to recognize the financial opportunity of investing in climate solutions, ramping up investments in renewable energy, clean technology and sustainable agriculture. And last year, they joined together to call for voluntary climate-risk disclosure from companies.

Some of Canada’s largest pensions have even begun setting targets. In January, the $221-billion Ontario Teachers’ Pension Plan (OTPP) committed to net-zero emissions by 2050. The Ontario Municipal Employees Retirement System (OMERS) set a goal of reducing the carbon intensity of its $105-billion portfolio by 20% below 2019 levels by 2025. The British Columbia Investment Management Corporation (BCI) pledged to invest $5 billion in “sustainability bonds” by 2025 and reduce the carbon exposure of its public equities portfolio by 30% below 2019 levels. Most notable is Canada’s current pension fund climate leader, the Caisse de dépôt et placement du Québec (CDPQ), which became the first Canadian pension fund to set a net-zero target in 2019, increased its low-carbon investments by 80% between 2017 and 2020, reduced its portfolio carbon intensity by 38% five years ahead of schedule, linked employee compensation to climate targets, and has begun unwinding its holdings in high-risk climate polluters like Exxon.

These are all encouraging developments, but none of Canada’s pension funds have gone far enough to protect their portfolios from the financial risks of climate change while working to ensure that their members have a livable planet to retire on.

Without clear, transparent and ambitious targets and timelines for decarbonizing their holdings in line with a 1.5℃ emissions pathway, including detailed plans to align their portfolios with the required rapid transition away from fossil fuels, efforts to protect member retirement savings in a carbon-constrained future fall short of their legal fiduciary duty and climate safety.

A plan with short- and long-term goals is required. OMERS’s and BCI’s 2025 emissions intensity targets are of little value without a long-term framework to decarbonize their entire portfolios in less than three decades. The OTPP announced its net-zero commitment six months ago but has been completely silent on short-term details since. Most other Canadian funds have thus far refused to establish targets of any kind.

The lack of clear climate plans is particularly troubling considering Canadian pension funds’ exposure to high-risk companies and infrastructure, especially those pursuing fossil fuel expansion that is incompatible with climate safety.

In 2017, the Canada Pension Plan purchased an offshore gas company in Ireland that faces an offshore-gas permitting ban. In 2019, the Alberta Investment Management Corporation bought a 65% stake in TC Energy’s Coastal GasLink pipeline, in the face of unwavering Indigenous opposition and growing market uncertainty. Last year, OPTrust announced that it would finance the construction of a new fossil gas plant in Alberta with questionable prospects in the face of a rising carbon price and clean energy competition. Just months before its net-zero commitment in January, the OTPP joined a consortium to buy a US$10.1-billion stake in the Abu Dhabi National Oil Company’s gas pipeline network. OTPP also bought a joint 69.4% stake in Italy’s second-largest gas pipeline network, just as the EU considers plans to phase out fossil fuels. And just this month, the CDPQ became the majority owner of Énergir, Quebec’s main fossil gas distributor. In recent years, five of Canada’s six largest pension funds increased their holdings in oil sands companies, all of whom have explicitly committed to increasing production of long-lived, high-cost, high-carbon oil.

These are not the actions of climate leaders. With the International Energy Agency stating that a 1.5℃ emissions pathway requires no new fossil fuel expansion, these are all examples of risky investments in climate failure. By investing in fossil fuel expansion while preemptively taking important risk-mitigation tools like divestment off the table, Canadian pension funds are still headed in the wrong direction.

Already, investors with more than US$15 trillion in assets, including more than 100 major global financial institutions, have pledged to partially or fully divest from fossil fuels. The U.S.’s third-largest pension fund is ending investments in fossil fuels by 2025. In the U.K., pension giant NEST committed to phase out investments in thermal coal, oil sands and Arctic drilling; halve its portfolio’s carbon emissions by 2030; and decarbonize by 2050. Here in Canada, the University of Waterloo is cutting the carbon footprint of its endowment and pension portfolio in half by 2030 and targeting carbon-neutrality by 2040.

To be taken seriously on climate, Canadian pension funds must end new investments in fossil fuel expansion, phase out current oil, gas, coal and pipeline investments by 2025 and establish a plan to decarbonize their portfolios by 2040. Instead of fossil fuel investments, Canada’s pensions should ramp up their capital allocation to climate solutions and develop a robust engagement policy that requires polluters to align their business models with the Paris Agreement.

So far, Canada’s largest pension funds have failed to commit to do what is necessary to protect our retirement savings. To do so, they’ll need to do better at helping the world avoid catastrophic global heating.

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

Related read: Canadian pensions are retiring fossil fuel investments

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A combination of pasta, hot dogs, oranges and green peppers got him through the month.

Some 30 years later, riding Tesla’s soaring stock, Musk passed Jeff Bezos to become the richest man on the planet, with a net worth of US$189.7 billion as of January 8, 2021.

In carrying out his mission to accelerate the world’s transition to sustainable energy, Musk has become a prophet for clean capitalism, with Tesla now ranked as the most sustainable and valuable car company in the world.

Musk is not alone. The Prince of Wales, the pope, and critically, a protest movement catalyzed by Greta Thunberg have all turned up the heat for businesses to get real about cooling the planet.

Prince Charles has long championed the environment and the central role industry and finance must play in its protection, but he’s dialled up the urgency significantly in the past year. In the fall, he said climate change poses such a severe threat that the world’s only option is to adopt a military-style response reminiscent of the U.S. Marshall Plan that helped rebuild post-war Europe 70 years ago.

In January, the prince looked back more than 800 years to the Magna Carta (which inspired a belief in the fundamental rights of people) to issue a companion document – the Terra Carta, or Earth Charter – that aims to enshrine the rights and value of nature in capitalism, inviting the world’s CEOs to make a sustainable future the growth story of our time.

Pope Francis once described unbridled capitalism as the “dung of the devil.” In a sign of the times, he recently gave his blessing to the Council for Inclusive Capitalism, a partnership between the Vatican and the leaders of some of the world’s largest businesses, including the chiefs of BP and Bank of America.

This seemingly unholy alliance seeks to make capitalism a more holy instrument for answering the cry of the earth and the cry of the poor.

There are now more than 300 companies, representing more than US$3.6 trillion in market cap, that have committed to a net-zero-emission target in line with a 1.5°C future.

Some worry these are empty words that give the impression that sufficient action is being taken – a sort of delay tactic. Thunberg, the teenaged activist who kicked off a citizens’ climate movement, says, “We must forget about net-zero – we need real zero.”

She spells out what that means:

“Immediately halt all investments in fossil fuel exploration and extraction. Immediately end all fossil fuel subsidies. And immediately and completely divest from fossil fuels. We don’t want these things done by 2050, 2030 or even [next year]. We want this done now.”

She’s right, but defunding carbon bombs will not be enough; not even close. The real action is going all in on funding climate solutions. What gets funded gets done. How we invest our trillions starting right now will determine our future.

To paraphrase Indian philosopher Jiddu Krishnamurti, the climate-solution revolution is today, not tomorrow. The litmus test for companies and countries (and anyone, really) is what percentage of your current budget is allocated with an intention to create a carbon-free sustainable world. If it’s less than 100%, you’ve got work to do.

The recently released Corporate Knights Global 100 Most Sustainable Corporations in the World is a list of companies that are, in the words of Prince Charles, who spoke at this year’s launch, “leading the way by putting sustainability at the heart of their products, services, business models and investments, helping to move the world onto a more sustainable trajectory.”

This year’s Global 100 companies rose to the top of a pool of 8,080 global firms that earn more than $1 billion a year, based on rigorous assessment of 24 indicators, including percentage of taxes paid and percentage of revenue and new investments aligned with a sustainable economy. Several new performance indicators reflect social concerns highlighted by both the pandemic and the Black Lives Matter movement, including providing paid sick leave and executive and board racial diversity.

On average, one-third of new investments on the part of Global 100 companies are clean, in contrast to less than one-quarter for their peers, while the percentage of Global 100 companies that offer at least 10 days of paid sick leave (86%) is more than double that of their peer benchmark, the MSCI All Country World Index (41%).

Global 100 companies also earned on average 41% of their revenues from products or services aligned with the UN Sustainable Development Goals, compared to just 8% for their peers.

But none of this would have legs if the good guys weren’t also faring well financially. On this score, the Global 100, which is calculated as an index, handily outperformed its MSCI ACWI peers by 10% over the last year, and 43% since the Global 100 index was launched in 2005.

What is needed now is for the rest of the business world, most importantly the big-money investors who have been sitting on the sidelines, to also lean into this more civilized form of sustainable capitalism.

Encouragingly, the largest pension fund in Ontario, the $205 billion Ontario Teachers’ Pension Plan, recently committed to achieving net-zero greenhouse gas emissions by 2050. This marks a stark contrast to the Canada Pension Plan, which has no such target and has been singled out for its “troubling incrementalism” by Osgoode Hall pension scholars – while forgoing $6 billion in returns as a result of its fossil fuel investments over the past 10 years, according to Corporate Knights analysis of its equities portfolio.

But now that BlackRock, the largest investor in the world, with a whopping $8.7 trillion under management, has jumped on the net-zero-emissions bandwagon, it is only a matter of time before it becomes the standard, placing a 100% sustainable and zero-carbon economy within our grasp.

The good news for our species is that the forces of pride and profit have shifted in favour of those on the right side of climate history, with shame and economic shambles awaiting those who cling to the wrong side.

Just four of the 13 Canadian companies on the Global 100 have committed to align their businesses with net-zero science-based targets, compared to more than half of Global 100 companies in general, though there is still time for them to get on board in the lead-up to global climate talks this fall in Glasgow.

With the sun shining on climate solutions, companies are free at last to shed their carbon cloaks.

A version of this article appears in the Winter Issue of Corporate Knights as well as the Toronto Star.

Toby Heaps is the CEO and editor-in-chief of Corporate Knights.

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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. 

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For investors with public pension funds who are concerned about animal welfare, knowing a fund’s involvement in potential animal cruelty is crucial, though not always easy to discern.

According to recent research from animal welfare experts, at least six top global pension funds have holdings in potentially cruel companies that slaughter animals for meat, produce other animal products or fall behind in animal welfare standards.

Norway’s pension at back of pack

At the top of the list of funds with holdings in potentially cruel companies is Norges Bank Investment Management (NBIM), with four holdings of concern worth US$159.7 million. Of that, $61 million is invested in Sanderson Farms, a Fortune 1000 company that, according to its website, has the capacity to “process more than 13.65 million chickens per week.” While the company does have an animal welfare policy of sorts, it refers only to antibiotics and does not address stocking density, painful procedures, breeding or other important animal welfare issues pertaining to chickens.

A 2017 report by the Animal Welfare Institute found that one Sanderson farm had been cited 20 times in the two preceding years for not complying with humane handling standards. One USDA inspector determined that the plant’s slaughtering process was “out of control.”
The other contentious NBIM holdings are Japan’s NH Foods (US$64 million), Mexico’s Industrias Bachoco ($US34.3 million) and Dean Foods in the U.S. (US$0.1 million).

An NBIM spokesperson states the fund has no specific policy regarding animal welfare.

Canada and California pension plans also clued out on cruelty

The Canada Pension Plan Investment Board holds a total of US$24 million in potentially cruel companies, including US$13.7 million in NH Foods, US$10.2 million in Sanderson Farms and US$0.1 million in Dean Foods. The fund takes no position on animal welfare and makes no mention of it in its 2017 or 2018 Sustainable Investing Reports.

The California State Teachers’ Retirement System and California Public Employees’ Retirement System both have holdings in Sanderson Farms, US$5.6 million and US$7.9 million respectively. Neither has a specific policy regarding animal welfare.

Some funds are starting to consider cruelty

A spokesperson for Caisse de dépôt et placement du Québec (CDPQ) says that animal-welfare issues are studied as part of their fund’s pre-investment ESG analysis, and “if concerns arise, we proactively engage in dialogue with companies we’re invested in.”

However, CDPQ has three holdings in potentially cruel companies, including US$9.2 million in Industrias Bachoco, US$1.7 million in NH Foods and US$18.5 million in JBS S.A., the largest meat-processing company in the world, which slaughters 13 million animals every day.
JBS S.A. has also not signed on to the Better Chicken Commitment, an initiative supported by major animal protection groups around the world. And according to the 2018 Business Benchmark on Farm Animal Welfare, though the company appears to have an established approach to animal welfare, it “has more work to do to ensure it is effectively implemented.”

New York’s pension fund claims to use more of a shareholder engagement rather than divestment approach. The proxy voting guidelines of the New York State Common Retirement Fund state that “the Fund will support proposals asking a company to report on its animal welfare standards.” In 2018, fund managers wrote to McDonald’s, requesting information on what the company was doing to align its chicken welfare policy with widely accepted best practices like those of the Royal Society for the Prevention of Cruelty to Animals and the Global Animal Partnership. However, it still holds US$3.6 million in Sanderson Farms.

Which financial institutions are taking the lead?

While pension funds may lag behind when it comes to animal welfare, other financial institutions are stepping up, providing examples of how to approach animal-friendly finances.

Bank Australia, for example, states on its website that it does not lend to “organizations that use intensive animal farming systems like battery caged hens and sow stalls, or organizations that export live animals.”

The Netherlands Development Finance Company (FMO) has a three-page position statement regarding animal welfare that includes recognizing animals as sentient beings capable of experiencing pain. FMO considers unacceptable farming practices to include “non-enriched battery cages for chickens, the tethering of sows, individual sow stall housing throughout the entire pregnancy, individual pen housing for veal calves beyond the age of eight weeks, forced feeding of geese and ducks.” The agency will not make investments “that substantially involve any of these systems or practices.”

Other financial institutions notable for making animal welfare a priority include Allianz, CDC Group (the UK’s development finance institution), Rabobank, Standard Chartered and Triodos Bank.

Australian Ethical wealth management outright excludes any investment “in current systems of commercial animal agriculture including meat, dairy, eggs and seafood.”

Another option for investors concerned with the treatment of animals: the VEGN ETF, managed by Beyond Investing and listed on the New York Stock Exchange. The fund “excludes from consideration companies that harm animals, screening out companies that are involved in animal testing, animal-derived products, as well as animals in sports or entertainment.” Top holdings aren’t so much in, say, plant protein companies like Beyond Meat, but in corporations like Apple, Microsoft and Mastercard that don’t engage in screened practices.

Investor network pushing for change

One global network of investors with $20 trillion in assets under management has been encouraging investors to consider the financial and climate risks of investing in animal cruelty. Jeremy Coller, executive chair of London-based Coller Capital and a well-known name in private equity, developed the Farm Animal Investment Risk & Return (FAIRR) initiative five years ago “to put animal welfare on the ESG agenda.” The Coller FAIRR Protein Producer Index assesses the 60 largest global meat producers for investors. FAIRR also pressures corporations like Kroger, Walmart and McDonald’s to consider the risks to investors of relying exclusively on animal proteins within their supply chains – and to consider alternatives.

With the widespread rise in interest in meatless products, veganism and animal welfare, the treatment of animals is quickly becoming an important issue in that realm of socially responsible investing. If large pension funds and financial institutions want to keep up with this trend, they will need to become more aware of their involvement in potentially cruel companies and take steps to keep cruelty out of their investments.

Jessica Scott-Reid is a freelance writer and animal advocate. She writes for major media across Canada and the U.S.

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