The Canada Pension Plan, one of the country’s largest investors in fossil fuel companies, should immediately divest from these holdings in response to the climate emergency and to reduce financial risk, says the lead author of a report done for the Canadian Centre for Policy Alternatives.
The Canada Pension Plan Investment Board (CPPIB), which manages the CPP’s $420-billion portfolio on behalf of 20 million Canadians, has more than $4 billion invested in the top 200 publicly traded fossil fuel reserve holders (oil, gas and coal), says James Rowe, associate professor in the School of Environmental Studies at the University of Victoria. This includes more than $1.2 billion invested in the biggest oil sands majors, including Canadian Natural Resources Limited, Suncor Energy Inc., and Cenovus.
All the fossil fuel companies in which CPPIB has invested collectively have such large carbon reserves that if they were all sold and ultimately burned, Canada would surpass the 1.5-degree limit in global warming, which we committed to in the Paris Agreement, according to the report. “Since reserves are factored into current company valuations, this means the CPPIB has invested billions of dollars in companies whose financial worth depends on overshooting their carbon budgets.”
“This is a moral and ecological failure. It is also a financial risk,” Rowe says. As energy generation shifts away from fossil fuels, investors who don’t respond could be left with “stranded assets” – investments that are no longer profitable, he says.
Former Bank of Canada governor Mark Carney, now with the United Nations as special envoy on climate change and finance, told the BBC in December that “up to 80% of coal assets and up to 50% of developed oil reserves could be stranded to limit the effects of climate change.
CPPIB’s investments “contrary” to government’s climate policies
Rowe argues that since CPPIB is a federal Crown corporation that reports to the minister of finance, the substantial fossil fuel investments are contrary to the Trudeau government’s policies on climate change. The Canadian government should require full public disclosure of all fossil fuel holdings for all pension funds, and revise the CPPIB’s “investment-only” mandate so that social and ecological values are better represented in investment decisions, he says.
The CPPIB did not respond to requests for comment.
Rowe and co-authors recommend that the CPPIB carry out a portfolio-wide risk analysis in the context of the climate emergency and disclose all findings to pension members. They also recommend the CPPIB immediately freeze any new fossil fuels investment and start divesting from its current fossil fuel assets.
Rowe says neither the CPPIB nor the federal government has acted on any of the report’s recommendations. However, the CPPIB is starting to increase its investments in renewable energy, which is positive, he adds.
One reason that CPPIB is not divesting, despite plummeting petroleum company stocks in March, is the board is “deeply entangled” with the oil and gas industry, Rowe says. “The industry has significant influence, not only with the formal government but with governing boards like the CPPIB and also with university governing boards.”
For example, Rowe and co-authors found that one of the CPPIB’s managing directors of energy and resources sits on the board of nine oil and gas companies. “We think that practice of both board members of the pension fund and staff members sitting on the boards of fossil fuel companies needs to be reevaluated, in the context of a climate emergency with real financial and ecological implications,” Rowe says.
The report is part of the Corporate Mapping Project, a research and public engagement initiative investigating the power of the fossil fuel industry. The research was supported by the Social Sciences and Humanities Research Council of Canada.