Canada’s Pensions Taking Small Steps to Climate Credibility
Leaders are emerging from the pack, but benchmark study suggests schemes continue to lag behind on transition progress.
Canadian pension funds have been challenged to raise their climate ambition to keep pace with international counterparts, having made limited progress over the last 12 months.
“We can’t solve the climate crisis without Canada’s largest asset owners and managers getting involved,” said Adam Scott, Executive Director at Shift: Action for Pension Wealth and Planet Health, speaking at a webinar discussing the organisation’s recent assessment of the climate policies and strategies of 11 Canadian pension funds collectively managing C$2.2 trillion (US$1.6 trillion) in assets.
Shift’s second annual Canadian Pension Climate Report Card, which included Caisse de dépôt et placement du Québec (CDPQ) and Ontario Teachers’ Pension Plan (OTPP), noted that eight of the 11 Canadian pension managers analysed have committed their portfolios to reach net zero by 2050 or sooner.
University Pension Plan (UPP) has gone a step further by committing to net zero by 2040 and the Canada Pension Plan Investment Board (CPPIB) has extended its net zero target to encompass Scope 3 emissions.
“However, compared to the findings of our inaugural report, we are disappointed to see only incremental progress; Canada’s pension sector is still not on a pathway aligned with the Paris Agreement,” said Britt Runeckles, Pensions Campaigner at Shift, a charity which engages with pension funds and their beneficiaries on climate issues.
While ten of the 11 funds have climate plans, the report noted “significant variability” in their quality. However, most funds are moving to adopt a set of tools, processes and reporting structures to consider climate risk across their portfolios and collect better emissions data from portfolio companies.
“Most – but not all – of Canada’s largest pensions have committed to invest in line with a real net zero emissions target,” said Scott. “Most – but not all – of these funds have also put in place interim targets. But these commitments are just the first steps in a credible climate plan.”
Unrivalled ownership power
The assessed pool included climate leaders and laggards, Shift found.
CDPQ was deemed a climate leader, with the report highlighting the asset owner’s decision to divest of firms involved in oil production, refining and coal mining in 2022. CDPQ has also achieved its interim targets in carbon emission reductions and increased its investments in low-carbon assets to C$47 billion.
The asset owner should now go further by publishing a timeline and plan for the managed phase-out of its existing oil pipeline and fossil gas assets, Shift said.
“It’s imperative that pension funds have credible science-based climate plans,” said Scott. “Their investment decisions helped shape our world and their ownership power is unrivalled. With a typical investment horizon that’s longer than ten years, that gives them a unique perspective and responsibilities as the climate crisis continues to accelerate.”
Meanwhile, CPPIB has continued to “make risky investments in fossil fuel expansion” and to “propagate dangerous myths about the role of the oil and gas industry in the energy transition”, the report suggested.
With an overall ‘C-’ grade, it remained one of the only pension funds surveyed yet to set interim portfolio emissions reduction targets.
CPPIB was also the only fund assessed in the report to receive a lower score in any category than the previous year; its ‘climate urgency’ score dropped from a ‘B’ to a ‘C’.
The Alberta Investment Management Corporation (AIMCo) sat at the bottom of the ranking with an overall ‘D’ grade, having failed to disclose the basic elements of a credible climate plan, including long-term and interim targets.
Signals to government
Despite progress from some quarters, few of the funds are acknowledging their impacts on the climate and that a safe world means phasing out fossil fuels, Shift said. As such, none of the assessed Canadian pension funds have matched the climate ambition demonstrated by international peers such as ABP and the New York City public pension schemes, the report determined.
“Public acknowledgement would increase the pressure on companies to decarbonise more quickly and signal to the Canadian government that big financial institutions are listening to the climate science and are ready for climate policies,” said Laura McGrath, Shift’s Pension Engagement Manager.
Overall, an inconsistent disclosure of assets, lack of transparency around fossil fuel holdings, and obfuscation of green and transition assets makes a comprehensive assessment of pension fund climate risks “nearly impossible”, the report said, noting that greenwashing remains “commonplace” without regulations in place.
Plans for Canada’s Climate Aligned Finance Act (CAFA), first introduced two years ago, are currently delayed.
CAFA would hold corporate directors accountable for meeting Canada’s national climate commitments, mandate corporate climate action plans and targets, and base financial institutions’ capital adequacy requirements on their exposure to climate risks. In addition, the Office of the Superintendent of Financial Institutions would be expected to incorporate climate targets into its supervisory role.
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