Canada’s pension plans are funding the climate crisis by investing trillions in fossil fuel production and expansion. In an Op-Ed published in Corporate Knights earlier this year, Patrick DeRochie (senior manager of Shift Action) points out that “how these pensions decide to invest their funds is a major factor in how quickly Canada – and the world – can achieve the Paris Agreement goal of limiting global heating to 1.5℃ or less.”
(The following article is sourced from Shift Action for Pension Wealth and Planet Health.)
Canadian Pension Plans and a Worsening Climate Crisis
In a move to exert increasing pressure on pension plans, letters were delivered in late September to the boards and executive of Canada’s 10 largest pension fund managers requesting information on how the funds are meeting their legal fiduciary obligations to beneficiaries in the face of a worsening global climate crisis.
These pension funds together have nearly $2 trillion in assets under management (AUM).
Beneficiaries taking action
Each letter is signed by beneficiaries of the respective funds. Signatories include working and retired healthcare professionals, teachers, scientists, elected officials, young Canadians, university professors, and public servants and their union representatives, such as the president of CUPE Ontario and the president of the Public Service Alliance of Canada.
The letters were drafted in collaboration with Shift: Action for Pension Wealth & Planet Health, Environmental Defence, and environmental law charity Ecojustice, and include a new legal backgrounder explaining the fiduciary duty fund managers have to act decisively to address the climate crisis in the best long-term interest of their beneficiaries. Letters also include a list of questions for the funds to answer about their approach to managing climate-related risks.
“I won’t be able to collect CPP until well after 2050. The climate crisis is worsening, and I just don’t know if my pension is prepared for what’s coming,” says Chloe Tse, a student at the University of Toronto and contributor to the Canada Pension Plan. “The CPP doesn’t fully disclose our holdings, it’s still investing billions of dollars in fossil fuels, and it doesn’t seem to have a credible climate plan. I need to know if my pension is prepared for the economic and financial disruption the climate crisis will bring in my lifetime.”
Legal duty to manage
Pension fund administrators and managers have a well-established legal duty to ensure the fund is invested in the best long-term interest of fund beneficiaries. In spite of clear advice from legal experts requiring administrators and managers to actively manage climate risks, many funds continue to behave as if fiduciary duty somehow prevents them from changing their investment strategies. Many of Canada’s largest pension funds inadequately disclose their investments and climate risks, and continue to offer only weak or incomplete strategies to address those risks.
“Pension funds must assess and act decisively to limit their exposure to climate risks or else potentially face legal consequences,” says Andhra Azevedo, Ecojustice lawyer. “Pension fund beneficiaries are asking their pension funds to be transparent about their policies and actions to date so beneficiaries can determine if their fund is meeting these requirements.”
The climate crisis is an established threat to the future value of Canadian pension fund investments. Companies face growing and unprecedented financial risks from the physical impacts of a warming world, and the necessary but challenging transition away from fossil fuels to carbon-free energy. Some companies may also carry substantial reputational, regulatory and legal risks after years of significantly contributing to greenhouse gas emissions, blocking climate policy and misleading the public about the harm caused by their products.
Beyond the risks to individual funds, collective failure to rapidly stabilize global temperature increases is expected to undermine the growth of the global economy and threaten the stability of the entire global financial system. The global economy is expected to face unacceptable levels of instability and risk if humanity fails to limit global heating to 1.5 degrees Celsius.
As a member of the OMERS pension fund, I’m unwittingly contributing to climate chaos, which to some extent, negates the work I do as a climate activist – R Montpellier, Below2C
“Without significant action to manage climate risks and align investments with climate safety immediately, I worry that pension funds will be unable to pay the full pensions of thousands of dedicated municipal workers when they retire,” says Fred Hahn, President of CUPE Ontario, which represents over 125,000 members of the Ontario Municipal Employees Retirement System (OMERS).
Exposure to liability
Canada’s pension regulator, the Office of the Superintendent of Financial Institutions (OSFI) has also warned that directors and administrators of federally regulated pension plans may be exposed to liability risk for failing to fulfill their legal/fiduciary duties with respect to the climate crisis.
The beneficiary letters say that meeting these obligations requires funds not only to defensively manage climate risks, but also to proactively align their investment strategies with a pathway to achieving broader climate safety, in order to protect the best interests of their beneficiaries.
Legal action has been undertaken successfully in Commonwealth countries to force action from pension funds. A 25-year-old Australian pension beneficiary brought a legal challenge in 2018 against his superannuation managers for failing to adequately disclose and manage climate risk (McVeigh v. Retail Employees Superannuation Trust). The superannuation agreed to a settlement agreement requiring implementation of a net-zero carbon footprint by 2050, as well as climate risk disclosure and portfolio transparency measures.
Largest pension funds
Beneficiaries have asked their pension funds to respond with detailed, credible answers to climate-related questions by December 31, 2021. The funds that have received letters are:
- Alberta Investment Management Corporation (AIMCo) – $123.4 billion AUM
- British Columbia Investment Management Corporation (BCI) – $199.6 billion AUM
- Caisse de dépôt et placement du Québec (CDPQ) – $390 billion AUM
- Canada Pension Plan Investment Board (CPP Investments) – $519.6 billion AUM
- Healthcare of Ontario Pension Plan (HOOPP) – $104 billion AUM
- Investment Management Corporation of Ontario (IMCO) – $73.3 billion AUM
- Ontario Municipal Employees Retirement System (OMERS) – $114 billion AUM
- OPSEU Pension Trust (OPTrust) – $23 billion AUM
- Ontario Teachers’ Pension Plan (OTPP) – $227.7 billion AUM
- Public Sector Pension Investment Board (PSP Investments) – $204.5 billion AUM
Pension funds are facing increasing pressure to create and implement investment strategies aligned with the goals of the Paris Agreement. The COP26 climate talks begin on October 31 and institutions, companies and countries around the world are being called upon to step up with meaningful commitments on climate action.
A pdf copy of the letters, appendices and legal backgrounder can be found here.
“In our view, fiduciary duty requires a comprehensive climate strategy,” said Shift Director Adam Scott during a Morningstar interview. “The investment decisions of Canada’s largest pension funds, which have nearly $2 trillion AUM [assets under management] have a huge influence on our society’s overall ability to achieve climate safety.”
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International