When you’re looking for tipping points in the fight against climate change, it can sometimes be useful to check in on where the money is going.
And, increasingly, it looks like the money’s on net-zero – at least as far as your pension is concerned.
The latest movement comes from the Caisse de dépôt et placement du Québec (CDPQ), the province’s largest public pension fund, which has announced plans for a total exit from oil production investments by 2022.
Those investments make up around 1 per cent of the fund’s $390 billion assets, but the planned divestment is part of a raft of other net-zero measures the fund has been working on since 2017.
The caisse also aims to include $54 billion in green assets by 2025, and slash the carbon intensity of its total portfolio 60 per cent by 2030.
“The climate situation affects everyone, and we can no longer address it with the same methods used a few years ago,” Charles Emond, the CDPQ’s president and CEO, asserted in a release from the caisse. “The urgent need to act demands that we do more, faster, and that we innovate. We have to make important decisions on issues such as oil production and decarbonizing sectors that are essential to our economies.”
The CDPQ’s enormous size – it’s the second-largest pension plan in the country – makes it a good bellwether for the financial sector’s shifting investment habits, and it’s not the only such fund to announce plans in recent weeks.
Last month, the Ontario Teachers’ Pension Plan Board, which manages the largest profession-based pension plan in Canada, announced what it called interim targets to decarbonize its $227.7-billion portfolio.
Specifically, Ontario Teacher’s plans cuts of 45 per cent by 2025 and 67 per cent by 2030, compared to its 2019 baseline. The cuts are part of its roadmap to achieve net-zero by 2050.
So far, Ontario Teachers’ report its portfolio includes more than $30 billion in investments in renewable energy, energy storage, electrification, electricity transmission, energy efficiency and green real estate. That includes around $5 billion in climate and transition solutions in 2021.
“Climate change permeates the entire investing landscape. Tackling it requires substantial effort and massive amounts of capital,” Ziad Hindo, Ontario Teachers’ chief investment officer, stated in a release. “By significantly growing our portfolio of green investments and working collaboratively with our portfolio companies to transform their businesses, we can make a positive impact by encouraging an inclusive transition that benefits our people, communities, and portfolio companies.”
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PENSION REFORM ADVOCATES WANT MORE DETAILS – AND MORE AMBITION
Shift, a not-for-profit group that advocates climate-friendly pension reform, praised the recent moves by the Ontario Teachers’ and the CDPQ – the former for what it called the “strongest climate commitment” yet seen from a Canadian pension fund, the latter for its explicit plans to exclude oil from its portfolio.
However, the group also had some hard caveats.
The Ontario Teachers’ new targets, for example, make no mention of how they will be reached without cutting fossil fuel investments – something Shift affirmed will be essential in slashing emissions by two-thirds by 2030.
The CDPQ, by contrast, does explicitly say it will cut oil investments, as soon as the end of 2022. However, Shift noted the caisse should go further, and take steps to phase out its natural gas investments as well – while emissions from natural gas are lower than coal, Shift stated, it’s still a major source of carbon pollution.
Shift director Adam Scott told The Weather Network exiting fossil fuels altogether would make financial sense. While some industries, like steel, can have a profitable zero-carbon future, he said, that’s just not true of fossil fuels, like oil and natural gas.
“Given the significant financial risks of continuing to invest in fossil fuels, pension funds can be pressured to exit these holdings to protect the value of their portfolio,” said Scott. “CDPQ acknowledged these risks in its decision to sell off its nearly $4 billion in oil assets. The fund's legal fiduciary duty to invest in the best interests of their beneficiaries requires this action.”
As it is, Scott said oil and gas investments have already been underperforming the financial markets over the past decade. That’s a real threat to the pocketbooks of those whom pension funds are meant to benefit: people hoping for a comfortable retirement after decades of hard work.
On the flip side, Scott said green energy investments continue to move from strength to strength. And aside from the energy sector, financial and investment markets as a whole are threatened by the advance of climate change itself – another reason for funds to divest from fossil fuels and pursue a zero-carbon future.
“The climate crisis is already reducing global GDP growth, and this effect is expected to increase sharply,” he said. “The ability of your pension plan to pay your benefits when you retire is directly linked to our collective ability to cut emissions to zero.”
Follow Daniel Martins on Twitter at @DFLCMartins