Canada’s public pension funds are moving too slowly to address the climate crisis

Even as 2023 brought unprecedented climate impacts that saw Canadians choking on wildfire smoke, evacuating entire cities and dying in heatwaves, Canada’s largest pension funds are still failing to do what’s necessary to protect their members’ retirement security amidst a worsening climate crisis.

The second annual Canadian Pension Climate Report Card from Shift: Action for Pension Wealth and Planet Health (Shift) found that, despite incremental progress, Canadian pension funds have not aligned their portfolios with members’ long-term interests by protecting retirement security on a pathway aligned with the Paris Agreement. Instead, pension funds are shortsightedly treating climate change as just another financial risk that can be managed with traditional investment approaches.

Pension funds’ mandates will become impossible to fulfill if we collectively fail to stabilize global temperatures at relatively safe levels. There is scientific consensus that limiting global heating to 1.5℃ and averting the worst impacts of climate change requires a rapid phase-out of fossil fuels.

Yet not a single Canadian pension manager has acknowledged this scientific imperative. That’s troubling, because the most severe impacts of climate change will play out over the course of pension plan members’ lives– including its youngest contributors who won’t retire for decades. Pension funds have a fiduciary duty to invest in the best long-term interests of all members, and therefore must consider how to protect retirement security in an era of climate breakdown.

To their credit, most of Canada’s largest pension funds now have the foundations of a climate strategy, committing to net-zero by 2050 or sooner, setting interim targets to reduce portfolio emissions intensity, and laying out some expectations for portfolio companies to improve climate risk disclosure and develop transition plans. Canadian pension funds are also making big investments in climate solutions and setting targets to invest more.

Some funds are now allocating finance to help high-carbon companies in “hard-to-abate” sectors, such as utilities and heavy industry, to decarbonize. Others are beginning to wield influence by filing and supporting climate-related shareholder proposals, voting against corporate directors failing to adequately manage climate risks, and publicly advocating for government emissions reduction policies.

Canadian leaders include Caisse de dépôt et placement du Québec (CDPQ), University Pension Plan (UPP), Investment Management Corporation of Ontario (IMCO) and Ontario Teachers’ Pension Plan, all of which achieved “B” scores in Shift’s ranking. The biggest year-over-year improvements came from Ontario Municipal Employees Retirement System (OMERS) and Healthcare of Ontario Pension Plan (HOOPP), funds that were previously far behind but in 2023 finally released climate strategies.

Canada Pension Plan Investment Board (CPPIB) is the only pension fund to receive a lower score in any category in 2023, due to a continuing pattern of troubling public statements and new fossil fuel investments that are inconsistent with a credible, science-based net-zero plan. And Alberta Investment Management Corporation sits alone at the bottom of the ranking, having failed again to commit to measurable goals that could align its portfolio with climate safety.

Nearly half of the funds analysed now have partial exclusions on new investments in fossil fuels– an encouraging trend that must quickly become the norm. HOOPP and OMERS announced limited fossil fuel exclusions in 2023, joining UPP, IMCO and CDPQ, which reports it has “essentially completed” its divestment of oil producers. But in contrast to leading global institutional investors, Canada’s pension sector clings to the myth that continuing to invest in oil and gas is consistent with a safe climate future.

An authoritative report from a United Nations expert group concluded that “Net-zero is entirely incompatible with continued investment in fossil fuels.” Yet Canada’s pension funds remain heavily invested in oil and gas assets and infrastructure on five different continents.

This is cause for concern as the pace of the energy transition accelerates and the risk of asset stranding grows. Alarmingly, some Canadian pension funds chose to increase their exposure to high-risk fossil fuels in 2023. CPPIB in particular financed fossil fuel expansion and pledged to grow its investments in oil and gas, while its portfolio companies build new gas plants and acquire new fossil fuel production assets.

As institutions that own companies and infrastructure around the world and manage over C$2.2 trillion in assets on behalf of 22 million Canadians, our pension funds have an outsize role to play in financing the energy transition.

There is no retirement security for pension plan members without a safe climate future to retire into. Global greenhouse gas emissions must peak by 2025 and drop by nearly half by 2030. Temperatures will not stabilize until net-zero is reached.

When it comes to the climate crisis, winning too slowly is the same as losing. It’s time for Canada’s pension funds to acknowledge this stark reality.

Patrick DeRochie is the senior manager for Shift Action for Pension Wealth and Planet Health, a charitable project that tracks the fossil fuel investments and climate policies of Canadian pension funds, and mobilizes beneficiaries to engage their pension managers on the climate crisis.