Yahoo Finance Canadian pension funds inconsistent on climate policy, watchdog group says
A split has emerged among Canada’s large pension funds when it comes to managing the energy transition, with funds such as the Caisse de dépôt et placement du Québec pledging to sell off oil producing assets while Alberta Investment Management Corp. is staunchly against divestment.
So it is perhaps not surprising that Shift, a charity organization that tracks retirement funds and how their investments address climate change, found “a high level of inconsistency” among Canada’s largest pensions when it comes to the “urgency, detail, transparency and ambition for managing climate-related risks.”
Overall, based on a report card released on Jan. 18 that measured climate policies based on the credibility of their targets and international best practices, Shift concluded that Canadian pension managers that collectively oversee more than $4 trillion need to do far more work to meet their fiduciary obligations to invest in the best long-term interests of plan members “in a world that limits global heating to 1.5 degrees Celsius.”
Grades assigned to the Canadian funds ranged from B+ to D-.
Adam Scott, Shift’s executive director, said investors around the world have recognized that rapidly phasing out fossil fuel investments will protect their beneficiaries’ financial interests, while some in the Canadian pension sector “cling” to what he called an unfounded belief that ongoing investments in oil and gas is part of an energy transition.
“A significant gap has emerged between Canadian pension funds and leading global institutional investors in their approach to fossil fuels,” Scott said.
However, Shift ranked Quebec’s Caisse near the top of a list of what it called emerging leaders, alongside the Ontario Teachers’ Pension Plan and Ontario’s University Pension Plan (UPP), noting that these pensions have set strong short and medium-term targets for emissions reductions, while the Caisse and Teachers’ have also set targets for increasing investment in climate solutions.
“Leaders have also made clear that a stable climate is critical to protecting their members’ retirement security, set clear expectations for portfolio companies to align their business models with 1.5 degrees Celsius pathways, and begun excluding high-risk investments in the leading cause of the climate crisis — fossil fuels,” Shift said.
The Caisse went a step further, the only pension that “followed expert advice to phase out investments in high-risk fossil fuels” by committing to sell all $4 billion of its holdings in oil producers by the end of 2022.
Those three were the only Canadian pension funds to receive overall grades of B or higher, the lowest grade assigned to four international funds Shift used for comparison. The four International funds tracked in the report card included National Employment Savings Trust (NEST), a workplace pension scheme in the United Kingdom with more than 10 million members, and Andra AP-Fonden (AP2), which is part of the Swedish national pension system.
Pensions lower in Shift’s ranking included the Healthcare of Ontario Pension Plan (HOOPP) and the Ontario Municipal Employees Retirement System (OMERS), which were criticized for failing to create “meaningful” plans to achieve climate objectives.
Shift assessed the pensions on whether they had credible Paris-aligned portfolio-level climate targets, including ambitious and accountable interim climate targets. The group also measured the extent to which the pension manager is communicating the urgency and severity of the climate crisis, including how this is articulated at the board level. Shift also looked at pension fund engagement programs, strategies and actions with regard to portfolio companies to see how serious they were about climate targets and related compensation strategies at companies in which they invest. Finally, the degree to which pension managers have integrated climate in investment strategy and decision-making across the organization was assessed, along with whether there were policies to exclude fossil fuels in recognition of financial risk and engagement limitations.
The pension manager with the poorest ranking was Alberta’s AIMCo, which “hasn’t even set a basic science-aligned climate objective,” according to Shift, which urged the pension and endowment manager to set credible interim emissions reduction targets, including targets to reduce absolute emissions.
To improve its grade, AIMCo could also set an expectation for owned companies, including that they tie executive compensation to the achievement of climate targets and refrain from lobbying against climate action, directly or through industry associations.
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With regards to funds lower in its rankings, Shift argued that “beneficiaries of these pensions should be concerned about the vulnerability of their retirement savings to climate-related risks.”
Executives at AIMCo and the Canada Pension Plan Investment Board — which was in the middle of the pack with an overall grade of C- — have spoken out against oil and gas divestment and argued in favour of investing in new technology and innovations to capitalize on the benefits of oil and gas while transitioning to less carbon intensive assets and operations.
AIMCo chief executive Evan Siddall told the Canadian Press in September that the energy sector is investing the most in emissions reduction because it has the most to lose, so that is where support belongs and where he expects returns to come from.
In previous interviews, Siddall and AIMCo chair Mark Wiseman have said being based in an energy-rich province gives the pension and endowment manager access to growing local transition expertise, with a Calgary office opened last year to build on a “unique home-field advantage in areas such transition finance.”
Meanwhile, shortly after John Graham took the reins as chief executive of CPPIB in 2021, he said simple divestment was “essentially a short on human ingenuity.” Graham said CPPIB’s strategy was to invest in the entire energy ecosystem, with no path to blanket divestment.
• Email: bshecter@nationalpost.com | Twitter: BatPost
