CPP Investments Told to Exit “Dead-end” Fossil Fuels
Supporting the carbon-intensive industry undermines asset owner’s efforts to upscale sustainable solutions, says Shift.
The Canada Pension Plan Investment Board (CPP Investments) has been urged to up its climate ambition, following a recent surge of investment in fossil fuel assets.
The pension fund’s ongoing investment in the sector has been described as a concerning pattern by Shift: Action for Pension Wealth and Planet Health – a charity aiming to bring together beneficiaries and their pension funds on the climate crisis – likening its approach to betting against the climate transition.
“CPP Investments is pouring money into the fossil fuel industry,” Patrick DeRochie, Senior Manager at Shift told ESG Investor. “As leading institutional investors in Canada and around the world exit this dead-end sector, CPP Investments seems hell-bent on further exposing Canadians to the risks of fossil fuels while pretending that it’s somehow about ‘decarbonisation’.”
The reaction follows CPP Investments’ announcement that it is investing C$1.2 billion (US$843 million) in Denver-based Tallgrass Energy – which the asset owner describes as an “energy infrastructure company” – through its Sustainable Energies portfolio.
“CPP Investments’ calling Tallgrass an ‘energy infrastructure company’ can come across as greenwashing,” DeRochie claimed. “It’s an oil and gas pipeline company – a fossil fuel company that owns thousands of miles of oil and gas pipelines. To say anything otherwise is greenwashing.”
Tallgrass currently operates three crude oil pipelines and nine storage terminals with the capacity to transport around 700,000 barrels per day and store more than 8.3 million. In addition, the company runs an 11,000km fossil gas pipeline network and 2,400km of fossil gas gathering and processing facilities.
When asked by ESG Investor about the decision to invest in Tallgrass, a spokesperson for CPP Investments said: “The core thesis of our investment in Tallgrass Energy is to create a platform company that enables us to decarbonise greenhouse gas-producing assets. These types of platforms are essential to ensure a transition to a net zero economy.”
Although Tallgrass is involved in decarbonisation initiatives, such as renewable fuels, green hydrogen and carbon capture and storage – it needs to outline how it plans to decarbonise pipelines transporting oil and gas, DeRochie argued.
“The oil and gas transferred along these pipelines will eventually be burned,” he said. “Tallgrass is facilitating the ongoing production of oil and gas.”
Bad habit
Tallgrass is the latest in a series of fossil fuel-focused investments recently made by the Canadian pension fund.
Earlier this year, CPP Investments committed US$30 million to fracking expansion in Ohio. In addition, it proposed a US$6.2 billion acquisition plan for a major US electric utility player that does include renewable energy and electricity distribution assets, but also a fleet of coal- and gas-fired power plants and a lignite coal mine.
Shift also pointed to CPP Investments’ funding support for methane-monitoring platform Project Canary, which according to research has consistently failed to capture pollution events.
“We need to see pensions helping high-emitting sectors decarbonise quickly if [the world] is to meet its net zero targets,” said DeRochie. “But when it comes to fossil fuel assets and transportation infrastructure, the only pathway to decarbonising those […] is phasing out production and retiring fossil fuel transportation assets early.”
In the case of Tallgrass, a net zero target and interim decarbonisation goals should be introduced, according to Shift, as well as a strategy to achieve those.
“CPP Investments needs to share its own transition strategy and expectations for the company to reassure Canadian citizens,” DeRochie added.
Falling behind
In April, Shift published a benchmark study that ranked several Canadian pension schemes on their climate transition progress, with CPP Investments emerging as a climate laggard compared to industry peers.
The pension fund was identified as continuing to make risky investments in fossil fuel expansion and “propagating dangerous myths” about the role of the oil and gas industry in the energy transition. It is also yet to set interim portfolio emissions reduction targets.
However, there are areas where the asset owner is showing climate leadership, DeRochie acknowledged.
“We have seen CPP Investments make big investments in climate solutions, like renewable energy and vehicle electrification and sustainable agriculture,” he said. “There are also examples where it is helping to decarbonise electricity generation utilities by phasing out coal plants.”
The asset owner has also committed to investing at least C$130 billion in green and transition assets by 2030. Last year, it finalised an agreement to invest up to US$30 million in the Amazon Reforestation Fund, managed by Brazil-based carbon-removal startup investment manager Mombak. The fund is targeting reforestation of Brazilian pastureland through carbon sequestration and carbon-removal credits.
In addition, CPP Investments has already invested millions in the development of sustainable hydrogen – including US$145 million in hydrogen project developer Power2X. It is also a member of Canada’s Sustainable Finance Action Council (SFAC), which contributed to developing a national taxonomy.
The pension fund claims that it draws on the Climate Change Principles to inform its decision-making. A report on sustainable investing last year outlined the asset owner’s active ownership and engagement strategy – which includes ensuring effective boards, disclosing material sustainability-related risks and opportunities, and integrating sustainability-related factors to inform business strategy and enhance financial returns.
Although CPP Investments has affirmed its commitment to realising attainable climate goals, it also notes that “the path to net zero is difficult to predict across industries and geographies” – making it clear that it will only set targets if it deems them feasible, achievable and aligned with its investment mandate.
“If CPP Investments is serious about decarbonisation, it needs to ascertain that portfolio companies are developing comprehensive climate strategies,” said DeRochie “[This starts] with net-zero targets followed by interim ones and a clear, viable, and financially profitable plan to achieve net zero by 2050 or sooner.” said DeRochie.
“The pension fund also needs to send clear signals to the market that it understands and is following climate science.”
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