Canada Pension Plan investments rely on oil and gas companies overshooting climate targets, new report reveals

The investment board responsible for managing a staggering $400 billion in Canadian pensions contains directors of oil and gas companies and may be putting the financial future of public investments at risk in a carbon-constrained future

The Canada Pension Plan Investment Board (CPPIB) has more than $4 billion invested in the top 200 publicly traded oil, gas and coal companies, according to a newly released report.

The report by the Corporate Mapping Project and the B.C. office of the Canadian Centre for Policy Alternatives looks at whether the investment board considers global warming when investing Canadians’ pension money.

The answer is a resounding “no,” said University of Victoria School of Environmental Studies associate professor James Rowe, one of the report authors and a co-investigator with the Corporate Mapping Project.

“As one of the largest investors in the country, they have a significant role to play in facilitating the needed energy transition and our report shows, unfortunately, they are not fulfilling that role at the moment,” Rowe told The Narwhal.

In order to stay within the 1.5 degree increase in global average temperature — committed to by Canada and  194 other countries in the 2016 Paris Agreement — fossil fuel extraction must be severely limited. But companies with Canada Pension Plan investments have reserves that, if extracted, would send emissions soaring.

“To stay within 1.5 degrees, these companies can extract only 71 billion tonnes of carbon dioxide, yet the companies the CPPIB is invested in have 281 billion tonnes in reserve, meaning they have almost four times the carbon reserves that can be sold and ultimately burned to stay within 1.5 degrees,” Rowe said.

Reserves are factored into company valuation, which means the board has invested billions of dollars in companies whose financial worth depends on overshooting their carbon budget, the report says.

Many of the investments are in coal companies — even though the Canadian government has acknowledged that phasing out coal is one of the most important steps in tackling climate change and meeting the Paris Agreement targets.

The Canadian Pension Plan Investment Board manages about $400 billion in investments, making it one of Canada’s largest investment pools.

Oil and gas companies face coming devaluation

Those looking forward to collecting their pension shouldworry about the risk of stranded assets as the world transitions to renewable energy and financial institutions worldwide divest themselves of fossil fuel investments, says the report, which notes the pension’s total investment in fossil fuel companies is considerably larger than the documented $4 billion. The exact amount cannot be estimated due to limited disclosure rules.

“Our worry is that Canadians, who rely on these funds for part of our retirement, are going to be affected by stranded asset risks,” Rowe said.

“Oil and gas companies are facing a significant devaluation in the coming years and so it makes sense to move out now rather than later, which is what we see other institutions doing, but the CPP has not,” he said.

The European Union recently passed a law requiring pension funds to factor climate risk in investment decisions and Norway and California have passed similar laws. The European Investment Bank, the largest multilateral lender in the world, has announced it will no longer be investing in fossil fuel projects after 2021.

Steph Glanzmann, one of the report’s authors and a recent University of British Columbia forestry graduate, said investments in the industry will no longer be profitable

as a new generation shifts away from fossil fuels.

“This is a moral and ecological failure and also a financial risk,” she said.

Investment board should disclose risk

The report recommends that the investment board carry out a portfolio-wide risk analysis and disclose the findings and that the fund should move towards fossil fuel divestment and reinvesting capital into renewable energy. It also calls on the Canadian government to require all public pension plans to fully disclose their fossil fuel holdings.

Many CPP investments are in the biggest companies working in the Alberta oil sands, which produces high-cost, carbon-intensive bitumen. The Alberta energy industry is working to convince investors that its oil and gas is produced sustainably as it scrambles to deal with an estimated $30 billion divested in the last three years, including Sweden’s central bank, which has said it will no longer invest in projects with large climate footprints.

The report found that most divestments are from countries that do not produce oil and gas and suggests that one reason Canada is slow to react could be because its oil and gas industry is so powerful.

“As we noted in the report, a number of board members of CPP are also board members of oil and gas companies and so the interests of fossil fuel companies are influencing the decision making at the CPP and that is dangerous for Canadian pensioners,” Rowe said.

Having these directors at the investment board table means the self-interest of companies contradicts the changes investors and governments need to make to address climate change, said Zoe Yunker, an author of the report and a research assistant with the Corporate Mapping Project.

“In Canada, the fossil fuel sector has been very successful at getting a seat at government decision-making tables, both provincially and federally and CPPIB board directors and staff are entangled with the oil and gas industry,” Yunker said.                

The board’s mandate is to maximise long-term investment returns without undue risk, but the report looks at whether a failure to look at long-term climate change will mean heavy economic costs for future generations and whether it could make the organization vulnerable to a class action lawsuit brought on behalf of young Canadians.

A spokesperson with the investment board told The Narwhal via email, “CPPIB has an ongoing goal to be a leader in understanding the risks and opportunities presented by climate change. The energy transition is underway and as a long-term investor, we are mindful of these energy shifts and our portfolio reflects this.”

Notably, the organization recently made a $2.63 billion purchase of wind-farm operator Pattern Energy and a November board report says investments in renewable energy companies more than doubled to $3 billion up to June this year, up from $30 million in 2016.

CEO Mark Machin, in an interview with BNN Bloomberg earlier this month, said both renewable and traditional energy are appropriate for the fund’s portfolio.

“We will look at traditional oil and gas, whether it’s pipelines or other resources,” he told Bloomberg.

“As long as we can understand all the risks behind the investment, that the regulation may change, that preference may change, that geography may change. If we can understand those and can still be compensated sufficiently, then we’ll continue to make that investment.”

This article was updated Wednesday, November 20 at 10:56am pst to include emailed comment from the CCPIB.

New title

You’ve read all the way to the bottom of this article. That makes you some serious Narwhal material.

And since you’re here, we have a favour to ask. Our independent, ad-free journalism is made possible because the people who value our work also support it (did we mention our stories are free for all to read, not just those who can afford to pay?).

As a non-profit, reader-funded news organization, our goal isn’t to sell advertising or to please corporate bigwigs — it’s to bring evidence-based news and analysis to the surface for all Canadians. And at a time when most news organizations have been laying off reporters, we’ve hired five journalists over the past year.

Not only are we filling a void in environment coverage, but we’re also telling stories differently — by centring Indigenous voices, by building community and by doing it all as a people-powered, non-profit outlet supported by more than 3,500 members

The truth is we wouldn’t be here without you. Every single one of you who reads and shares our articles is a crucial part of building a new model for Canadian journalism that puts people before profit.

We know that these days the world’s problems can feel a *touch* overwhelming. It’s easy to feel like what we do doesn’t make any difference, but becoming a member of The Narwhal is one small way you truly can make a difference.

If you believe news organizations should report to their readers, not advertisers or shareholders, please become a monthly member of The Narwhal today for any amount you can afford.

The lessons for British Columbia in Alaska’s epic Bristol Bay sockeye run

Every summer, biologist Daniel Schindler walks hundreds of kilometers up and down the Wood River in Alaska, counting red and green sockeye salmon homing to...

Continue reading

Recent Posts

Help power our ad-free, non‑profit journalism
The Narwhal has arrived in Ontario!

Guess what? We just launched an Ontario bureau. Keep up with the latest scoops by signing up for a weekly dose of our ad‑free, independent journalism.