A report from charity Shift Action found Canada’s largest public pension managers, representing almost $2 trillion in assets, have significant room to improve on their climate efforts, despite incremental progress.

The 2022 Canadian Pension Climate Report Card analyzes publicly available data from 11 of Canada’s largest pension funds, including the largest eight, to uncover how they are performing on climate action.

Shift Action’s executive director Adam Scott said the inaugural report card addresses an existential crisis that requires the largest and most powerful institutions, like the pension fund industry, to play their part.

“It’s essential that pension funds have robust and credible climate plans,” Scott said, as global warming impacts the ability for funds to pay out their investments and is a massive financial risk. Pension funds are among the largest capital pools and aligning them with the climate is crucial, he added.

Shift Action identified there was no transparent information about the progress Canadian pension plans have been making toward climate change. To rectify this gap, Scott said Shift Action wanted to create a benchmark to reveal where the funds are today and produce a standard that shows what is required for a credible climate plan.

How the funds were graded

The report covers about half of the Canadian pension industry, representing about $2 trillion in assets under management in a $4 trillion sector.

The remaining money is under private pension funds that do not have publicly available information for Shift Action to analyze.

It looked at the credibility of alignment to the Paris Agreement targets, the quality of the interim targets, how the managers are communicating the urgency and severity of climate change, robustness of actions and strategies to align portfolio companies to climate targets, the integration of climate into investment strategy and decision-making, as well as fossil fuel exclusion.

The report drew upon expert and climate science reports from the International Energy Agency and a U.N. high level group discussing what is required for successful climate plans. It also drew upon the charity’s experience tracking pension funds.

The results of the report card

Caisse de dépôt et placement du Québec (CDPQ) was the highest-graded fund with a B+, earning an A- for having a Paris-aligned target and an A for addressing climate urgency.

Scott said CDPQ took initiative at the governance-, board- and senior executive-level to develop a climate plan that signed it up for a credible climate coalition named the Net-Zero Asset Owner Alliance. He also praised its internal tools and culture, and how it seeks expertise. It is also broadly supported by its membership.

CDPQ stands out as the only Canadian fund to be graded above a D+ for fossil fuel exclusion, earning a B- in the category.

The Ontario Teachers' Pension Plan Board (OTPP) and University Pension Plan (UPP) were graded similarly at a B average.

“Overall, the funds are not currently on track to be aligned with a credible net-zero goal, but we saw quite a variation between the different funds in terms of how far along they are,” Scott said.

“We have a couple of funds doing quite a bit better than the others and have taken many of the important steps required . . . and we have some funds that are at the bottom of the ranking that have done almost nothing, or very little, to develop a credible climate plan.”

Almost half of the fund managers received average grades ranging from D+ to D-. Alberta Investment Management Corporation (AIMCo) stood at the bottom of the ranking, failing in three categories.

Scott noted AIMCo has not set a climate target, nor the “most basic step” to align its business practices for climate safety, nor has it developed and published a climate plan with interim targets and an engagement strategy.

Overall, Shift Action found several areas for improvement, such as a “black box” of Scope 3 emissions, no absolute emissions targets from any fund, greenwashing and continuing investment into fossil fuels.

Despite poor grades for some of the funds, improvements were found, like funds getting in-house climate expertise for developing climate strategies, more climate integration and further measurable progress toward climate-friendly investment strategies.

Scott admitted it is a “hard ask” for the funds that will take time, and hopes they will take leadership.

How to improve Canada’s grades

For the pension funds to raise their standing in Shift Action's analyses, it prescribes steps like setting interim targets, measuring Scope 3 emissions and halting fossil fuel investments.

Shift Action also recommends Canada look at its international peers. The report card compared Canada’s public funds to four fund managers from around the world, like the National Employment Savings Trust, the U.K.’s biggest pension fund (an overall A-), or Sweden’s AP2 (B+).

Scott said Canadian funds can look at how their global counterparts are taking doable actions, like having climate urgency, climate engagement and excluding fossil fuels.

Shift Action also works with pension beneficiaries to promote engagement on climate policy using advocacy workshops.

Scott expects significant changes from anticipated climate risk disclosure rules in Canada and the U.S. He predicts regulators will mandate climate plan alignment, which will affect Canada’s financial sector due to the national binding emissions target.